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our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors , including those we discuss under โ risk factors โ and elsewhere in this report on form 10-k. general overview we are the leading provider of postsecondary education for students seeking careers as professional automotive , diesel , collision repair , motorcycle and marine technicians as well as welders and cnc machining technicians as measured by total average full-time enrollment and graduates . we offer certificate , diploma or degree programs at 13 campuses across the united states . additionally , we offer msat programs , including student-paid electives , at our campuses and manufacturer or dealer sponsored training at certain campuses and dedicated training centers . we have provided technical education for 54 years . our revenues consist primarily of student tuition and fees derived from the programs we provide after reductions are made for discounts and scholarships that we sponsor and for refunds for students who wi t hdraw from our programs prior to specified dates . tuition and fee revenue is recognized ratably over the term of the course or program offered . approximately 99 % , 98 % and 98 % of our revenues for each of the years ended september 30 , 2019 , 2018 and 2017 , respectively , consisted of gross tuition . we supplement our tuition revenues with additional revenues from sales of textbooks and program supplies and other revenues , which are recognized as the transfer of goods or services occurs . through our proprietary loan program , we , in substance , provide the students who participate in this program with extended payment terms for a portion of their tuition . under asc 606 , the portion of tuition revenue related to the proprietary loan program is considered a form of variable consideration . we estimate the amount we ultimately expect to collect from the portion of tuition that is funded by the proprietary loan program , resulting in a note receivable . estimating the collection rate requires significant management judgment . the estimated amount is determined at the inception of the contract and we recognize the related revenue as the student progresses through school . each reporting period , we update our assessment of the variable consideration associated with the proprietary loan program . accordingly , we recognize tuition and loan origination fees financed by the loan and any related interest revenue under the effective interest method required under the loan based on this collection rate . tuition revenue and fees generally vary based on the average number of students enrolled and average tuition charged per program . we also provide dealer technician training or instructor staffing services to manufacturers , and we recognize revenue as the transfer of services occurs . average full-time enrollments vary depending on , among other factors , the number of continuing students at the beginning of a period , new student enrollments during the period , students who have previously withdrawn but decide to re-enroll during the period , graduations and withdrawals during the period . our average full-time enrollments are influenced by : the attractiveness of our program offerings to high school graduates and potential adult students ; the effectiveness of our marketing efforts ; the depth of our industry relationships ; the strength of employment markets and long term career prospects ; the quality of our instructors and student services professionals ; the persistence of our students ; the length of our education programs ; the availability of federal and alternative funding for our programs ; the number of graduates of our programs who elect to attend the advanced training programs we offer and general economic conditions . our introduction of additional program offerings at existing campuses and opening additional campuses is expected to influence our average full-time enrollment . we currently offer start dates at our campuses that range from every three to six weeks throughout the year in our core programs . the number of start dates of advanced training programs varies by the duration of those programs and the needs of the manufacturers which sponsor them . 70 our tuition charges vary by type and length of our programs and the program level , such as core or advanced training . we implemented tuition rate increases of up to 3.0 % , 2.5 % and 3.0 % for each of the years ended september 30 , 2019 , 2018 and 2017 , respectively . we regularly evaluate our tuition pricing based on individual campus markets , the competitive environment and ed regulations . most students at our campuses rely on funds received under various government-sponsored student financial aid programs , predominantly title iv programs and various veterans ' benefits programs , to pay a substantial portion of their tuition and other education-related expenses . approximately 67 % of our revenues , on a cash basis , were collected from funds distributed under title iv programs for the year ended september 30 , 2019 . this percentage differs from our title iv percentage as calculated under the 90/10 rule due to the prescribed treatment of certain title iv stipends under the rule . additionally , approximately 15 % of our revenues , on a cash basis , were collected from funds distributed under various veterans ' benefits programs for the year ended september 30 , 2019 . we extend credit for tuition and fees , for a limited period of time , to the majority of our students . our credit risk is mitigated through the students ' participation in federally funded financial aid and veterans ' benefit programs unless students withdraw prior to the receipt by us of title iv or veterans ' benefit funds for those students . the financial aid and veterans ' benefits programs are subject to political and budgetary considerations . there is no assurance that such funding will be maintained at current levels . extensive and complex regulations govern the financial assistance programs in which our students participate . story_separator_special_tag several factors continue to challenge our ability to start new students , including the following : unemployment ; during periods when the unemployment rate declines or remains stable as it has in recent years , prospective students have more employment options ; adverse media coverage , legislative hearings , regulatory actions and investigations by attorneys general and various agencies related to allegations of wrongdoing on the part of other companies within the education and training services industry , which have cast the industry in a negative light ; competition for prospective students continues to increase from within our sector and from market employers , as well as with traditional postsecondary educational institutions ; and 72 the state of the general macro-economic environment and its impact on price sensitivity and the ability and willingness of students and their families to incur debt . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > $ 0.4 million for the year ended september 30 , 2018 . the improvement is attributable to increased sublease income . income taxes . our income tax expense for the year ended september 30 , 2019 was $ 0.2 million , or 2.6 % of pre-tax loss , compared to income tax benefit of $ 3.0 million , or 8.4 % of pre-tax loss , for the year ended september 30 , 2018. the income tax expense for the year september 30 , 2019 was related to certain state taxes , while the income tax benefit for the year september 30 , 2018 was due primarily to the release of certain valuation allowance , as impacted by the provisions of the tax cuts and jobs act . we will maintain a valuation allowance on our deferred tax assets until sufficient positive evidence exists to support its reversal . the effective income tax rate in each period also differed from the federal statutory tax rate as a result of state income taxes , net of related federal income tax benefits . see note 12 of the notes to our consolidated financial statements within part ii , item 8 of this report on form 10-k for further discussion . as discussed in note 12 , certain deductions and losses are subject to an annual section 382 limitation . the limitation will affect the timing of when these deductions and losses can be used and may cause us to make income tax payments even if a pre-tax loss is recorded in future periods . the limitation may also cause the deductions and losses to expire unused . net loss . as a result of the foregoing , we reported a net loss for the year ended september 30 , 2019 of $ 7.9 million , as compared to $ 32.7 million for the year ended september 30 , 2018 . preferred stock dividends . on june 24 , 2016 , we sold 700,000 shares of series a preferred stock for $ 70.0 million in cash , less $ 1.2 million in issuance costs . pursuant to this sale , we paid preferred stock cash dividends totaling $ 5.3 million during the years ended september 30 , 2019 and september 30 , 2018 , respectively . see note 14 of the notes to our consolidated financial statements within part ii , item 8 of this report on form 10-k for further discussion of the preferred stock transaction . loss available for distribution . loss available for distribution refers to net loss reduced by dividends on our series a preferred stock . as a result of the foregoing , we reported a loss available for distribution for the year ended september 30 , 2019 of $ 13.1 million , as compared to $ 37.9 million for the year ended september 30 , 2018 . year ended september 30 , 2018 compared to year ended september 30 , 2017 revenues . our revenues for the year ended september 30 , 2018 were $ 317.0 million , a decrease of $ 7.3 million , or 2.3 % , as compared to revenues of $ 324.3 million for the year ended september 30 , 2017. the 4.3 % decrease in our average full-time enrollment resulted in a decrease in revenues of approximately $ 13.7 million . our revenues were impacted by an increase in tuition discounts of $ 2.7 million , primarily attributable to our institutional grant program . we recognized $ 5.7 million on an accrual basis related to revenues and interest under our proprietary loan program for the year ended september 30 , 2018 , as compared to $ 8.0 million recognized on a cash basis for the year ended september 30 , 2017. the decrease in revenue was partially offset by an increase of $ 0.7 million in industry training revenue and tuition rate increases of up to 2.5 % , depending on the program . educational services and facilities expenses . our educational services and facilities expenses for the year ended september 30 , 2018 were $ 182.6 million , representing an increase of $ 1.6 million , or 0.9 % , as compared to $ 181.0 million for the year ended september 30 , 2017 . 76 the following table sets forth the significant components of our educational services and facilities expenses : replace_table_token_9_th compensation and related costs decreased $ 3.1 million for the year ended september 30 , 2018 , as compared to the prior year : salaries expense decreased $ 1.7 million , largely attributable to a decrease in the number of employees needed to support our lower average student population . additionally , severance expense decreased by $ 0.7 million due to expense in the prior year period related to the november 2016 reduction in workforce . the decreases were partially offset by the annual merit increase . bonus expense decreased $ 0.9 million due to an adjustment recorded to reflect anticipated zero attainment on one of our bonus plans . during the prior year period , we paid holiday bonuses to employees in lieu of annual merit increases .
| results of operations the following table sets forth selected statements of operations data as a percentage of revenues for each of the periods indicated . replace_table_token_6_th year ended september 30 , 2019 compared to year ended september 30 , 2018 revenues . our revenues for the year ended september 30 , 2019 were $ 331.5 million , an increase of $ 14.5 million , or 4.6 % , as compared to revenues of $ 317.0 million for the year ended september 30 , 2018 . the 2.5 % increase in our average full-time enrollment resulted in an increase in revenues of approximately $ 7.5 million . our revenues were impacted by tuition rate increases of up to 3.0 % , depending on the program . additionally , there was an additional earning day , which resulted in an increase of approximately $ 1.3 million in revenue . our bloomfield , new jersey campus contributed revenues of $ 10.9 million compared to $ 0.6 million for the year ended september 30 , 2018. we recognized $ 6.8 million on an accrual basis related to revenues and interest under our proprietary loan program for the year ended september 30 , 2019 , as compared to $ 5.7 million recognized for the year ended september 30 , 2018. the increase in revenue was partially offset by a $ 1.3 million decrease in industry training revenue , $ 0.7 million decrease in rephase revenue and $ 0.7 million increase in tuition discounts . educational services and facilities expenses . our educational services and facilities expenses for the year ended september 30 , 2019 were $ 178.3 million , representing a decrease of $ 4.3 million , or 2.3 % , as compared to $ 182.6 million for the year ended september 30 , 2018 .
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the principal business of southern bank consists of attracting deposits from the communities it serves and investing those funds in loans secured by one- to four-family residences and commercial real estate , as well as commercial business and consumer loans . these funds have also been used to purchase investment securities , mortgage-backed securities ( mbs ) , u.s. government and federal agency obligations and other permissible securities . southern bank 's results of operations are primarily dependent on the levels of its net interest margin and noninterest income , and its ability to control operating expenses . net interest margin is dependent primarily on the difference or spread between the average yield earned on interest-earning assets ( including loans , mortgage-related securities , and investments ) and the average rate paid on interest-bearing liabilities ( including deposits , securities sold under agreements to repurchase , and borrowings ) , as well as the relative amounts of these assets and liabilities . southern bank is subject to interest rate risk to the degree that its interest-earning assets mature or reprice at different times , or on a varying basis , from its interest-bearing liabilities . southern bank 's noninterest income consists primarily of fees charged on transaction and loan accounts , interchange income from customer debit and atm card use , gains on sales of loans to the secondary market , and increased cash surrender value of bank owned life insurance ( `` boli '' ) . southern bank 's operating expenses include : employee compensation and benefits , occupancy expenses , legal and professional fees , federal deposit insurance premiums , amortization of intangible assets , and other general and administrative expenses . southern bank 's operations are significantly influenced by general economic conditions including monetary and fiscal policies of the u.s. government and the federal reserve board . additionally , southern bank is subject to policies and regulations issued by financial institution regulatory agencies including the federal reserve , the missouri division of finance , and the federal deposit insurance corporation . each of these factors may influence interest rates , loan demand , prepayment rates and deposit flows . interest rates available on competing investments as well as general market interest rates influence the bank 's cost of funds . lending activities are affected by the demand for real estate and other types of loans , which in turn is affected by the interest rates at which such financing may be offered . lending activities are funded through the attraction of deposit accounts consisting of checking accounts , passbook and statement savings accounts , money market deposit accounts , certificate of deposit accounts with terms of 60 months or less , securities sold under agreements to repurchase , advances from the federal home loan bank of des moines , and , to a lesser extent , brokered deposits . the bank intends to continue to focus on its lending programs for one- to four-family residential real estate , commercial real estate , commercial business and consumer financing on loans secured by properties or collateral located primarily in missouri and arkansas . all share amounts and per share amounts discussed below have been adjusted for the two-for-one common stock split in the form of a 100 % common stock dividend paid january 30 , 2015. critical accounting policies the company has established various accounting policies , which govern the application of accounting principles generally accepted in the united states of america in the preparation of our financial statements . our significant accounting policies are described in item 8 under the notes to the consolidated financial statements . certain accounting policies involve significant judgments and assumptions by management that have a material impact on the carrying value of certain assets and liabilities ; management considers such accounting policies to be critical accounting policies . the judgments and assumptions used by management are based on historical experience and other factors , which are believed to be reasonable under the circumstances . because of the nature of the judgments and assumptions made by management , actual results could differ from these judgments and estimates that could have a material impact on the carrying values of assets and liabilities and the results of operations of the company . the allowance for losses on loans represents management 's best estimate of probable losses in the existing loan portfolio . the allowance for losses on loans is increased by the provision for losses on loans charged to expense and reduced by loans charged off , net of recoveries . 55 the provision for losses on loans is determined based on management 's assessment of several factors : reviews and evaluations of specific loans , changes in the nature and volume of the loan portfolio , current economic conditions and the related impact on specific borrowers and industry groups , historical loan loss experience , the level of classified and nonperforming loans and the results of regulatory examinations . integral to the methodology for determining the adequacy of the allowance for loan losses is portfolio segmentation and impairment measurement . under the company 's methodology , loans are first segmented into 1 ) those comprising large groups of smaller-balance homogeneous loans , including single-family mortgages and installment loans , which are collectively evaluated for impairment and 2 ) all other loans which are individually evaluated . those loans in the second category are further segmented utilizing a defined grading system which involves categorizing loans by severity of risk based on conditions that may affect the ability of the borrowers to repay their debt , such as current financial information , collateral valuations , historical payment experience , credit documentation , public information , and current trends . the loans subject to credit classification represent the portion of the portfolio subject to the greatest credit risk and where adjustments to the allowance for losses on loans as a result of provisions and charge-offs are most likely to have a significant impact on operations . story_separator_special_tag the smb-marshfield acquisition resulted in goodwill of $ 4.4 million and a $ 1.3 million core deposit intangible , which is being amortized over a seven-year period using the straight-line method . goodwill from these acquisitions will not be amortized , but will be tested for impairment at least annually . deposits . deposits were $ 1.6 billion at june 30 , 2018 , an increase of $ 124.3 million , or 8.5 % , as compared to june 30 , 2017. the increase was attributable in part to the smb-marshfield acquisition , which included deposits of $ 68.2 million at fair value . inclusive of these assumed deposits , our deposit balances saw growth in interest-bearing transaction accounts , noninterest-bearing transaction accounts , money market deposit accounts , and passbook and statement savings , while certificate of deposit balances declined . specifically , the company 's public unit deposits increased $ 81.1 million ( with $ 7.7 million of this growth attributable to the smb-marshfield acquisition ) , brokered certificates of deposit decreased $ 62.4 million , and brokered nonmaturity deposits decreased $ 8.0 million . our discussion of brokered deposits excludes those brokered deposits originated through reciprocal arrangements , as our reciprocal brokered deposits are primarily originated by our public unit depositors and utilized as an alternative to pledging securities against those deposits . the average loan-to-deposit ratio for the fourth quarter of fiscal 2018 was 98.5 % , as compared to 97.7 % for the same period of the prior fiscal year . borrowings . fhlb advances were $ 76.7 million at june 30 , 2018 , an increase of $ 33.0 million , or 75.7 % , as compared to june 30 , 2017 , as the company assumed $ 4.8 million ( at fair value ) in term advances in the smb-marshfield acquisition , and utilized overnight funding to provide for loan growth in excess of deposit growth and to allow brokered deposits to mature without renewal . securities sold under agreements to repurchase totaled $ 3.3 58 million at june 30 , 2018 , a decrease of $ 6.9 million , or 68.0 % , as compared to june 30 , 2017 , as we continued to encourage larger depositors to migrate from this product to a reciprocal brokered deposit agreement . at both dates , the full balance of repurchase agreements was due to local small business and government counterparties . in june 2017 , the company entered into a revolving , reducing line of credit with a five-year term , providing available credit of $ 15.0 million . the line of credit bears interest at a floating rate based on libor , and available credit will be reduced by $ 3.0 million on each anniversary date of the line of credit . at june 30 , 2018 , the company had a drawn balance of $ 3.0 million , and remaining availability of $ 9.0 million on the line of credit . subordinated debt . in march 2004 , $ 7.0 million of floating rate capital securities of southern missouri statutory trust i , with a liquidation value of $ 1,000 per share were issued . the securities bear interest at a floating rate based on libor , are now redeemable at par , and mature in 2034. in connection with its october 2013 acquisition of ozarks legacy , the company assumed $ 3.1 million in floating rate junior subordinated debt securities . the debt securities had been issued in june 2005 by ozarks legacy in connection with the sale of trust preferred securities , bear interest at a floating rate based on libor , are now redeemable at par , and mature in 2035. the carrying value of these debt securities was approximately $ 2.6 million at june 30 , 2018 and 2017. in connection with the peoples acquisition , the company assumed $ 6.5 million in floating rate junior subordinated debt securities . the debt securities had been issued in 2005 by peoples , in connection with the sale of trust preferred securities , bear interest at a floating rate based on libor , are now redeemable at par , and mature in 2035. the carrying value of these debt securities was approximately $ 5.1 million at june 30 , 2018 and 2017. stockholders ' equity . the company 's stockholders ' equity was $ 200.7 million at june 30 , 2018 , an increase of $ 27.6 million , or 16.0 % , as compared to june 30 , 2017. the increase was attributable to the retention of net income and the issuance of common shares in the smb-marshfield acquisition , partially offset by payment of dividends on common stock and a decrease in accumulated other comprehensive income . comparison of operating results for the years ended june 30 , 2018 and 2017 net income . the company 's net income available to common stockholders for the fiscal year ended june 30 , 2018 , was $ 20.9 million , an increase of $ 5.4 million , or 34.6 % , as compared to the prior fiscal year . net interest income . net interest income for fiscal 2018 was $ 62.4 million , an increase of $ 11.3 million , or 22.0 % , when compared to the prior fiscal year . the increase , as compared to the prior fiscal year , was attributable to a 20.9 % increase in the average balance of interest-earning assets , combined with an increase in the net interest margin , from 3.74 % to 3.78 % . average earning asset balance growth was due in part to the late-fiscal 2017 capaha acquisition and the mid-2018 smb marshfield acquisition .
| general . the company experienced balance sheet growth in fiscal 2018 , with total assets of $ 1.9 billion at june 30 , 2018 , reflecting an increase of $ 178.4 million , or 10.4 % , as compared to june 30 , 2017. asset growth was comprised mainly of loan growth , and was due in part to the february 2018 acquisition of southern missouri bancshares , inc. , parent of southern missouri bank of marshfield ( the `` smb-marshfield acquisition '' ) . cash and equivalents . cash and cash equivalents were $ 26.3 million at june 30 , 2018 , down $ 4.5 million , or 14.5 % , as compared to june 30 , 2017. interest-bearing time deposits were $ 2.0 million at june 30 , 2018 , up $ 1.2 million , or 161.4 % , over the same time period . investments . available-for-sale ( afs ) securities were $ 146.3 million at june 30 , 2018 , an increase of $ 1.9 million , or 1.3 % , as compared to june 30 , 2017. the relatively small increase was the result of the acquisition of a small portfolio through the smb-marshfield acquisition , partially offset by sales and maturities slightly in excess of purchases . by category , mortgage-backed u.s. government-sponsored entity ( gse ) residential securities increased , and obligations of state and political subdivisions decreased . 56 loans . loans , net of the allowance for loan losses , were $ 1.6 billion at june 30 , 2018 , up $ 165.6 million , or 11.9 % , as compared to june 30 , 2017. the increase was attributable in part to the smb-marshfield acquisition , which added loans totaling $ 68.3 million at fair value at the acquisition date . inclusive of these acquired loans , our portfolio saw growth in commercial real estate loans , commercial loans , consumer loans , drawn balances in construction loans , and residential real estate loans .
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the sales price per the agreement was adjusted for preliminary purchase price adjustments to approximately $ 21,875,000 in order to , among other things , reflect an economic effective date of april 1 , 2015. barnwell 's share , after broker 's fees and other closing costs , was approximately $ 14,162,000 and third parties ' , who were working interest owners in the properties prior to the sale , share , in the aggregate , was approximately $ 7,247,000 . the relationship between capitalized costs and proved reserves of the sold property and retained properties was significant as there was a 220 % difference in capitalized costs divided by proved reserves if the gain was recorded versus the gain being credited against the full-cost pool . accordingly , barnwell recorded a gain on the sale of dunvegan of $ 6,217,000 in the year ended september 30 , 2015 in accordance with the guidance in rule 4-10 ( c ) ( 6 ) ( i ) of regulation s-x , which requires an allocation of capitalized costs to the reserves sold and reserves retained on the basis of the relative fair values of the properties as there was a substantial economic difference between the properties sold and those retained . also included in the gain calculation , were asset retirement obligations of $ 2,013,000 assumed by the purchaser . the disposition was recorded in fiscal 2015 using preliminary purchase price adjustments . barnwell and the purchaser updated story_separator_special_tag the following discussion is intended to assist in the understanding of the consolidated balance sheets of barnwell industries , inc. and subsidiaries ( collectively referred to herein as โ barnwell , โ โ we , โ โ our , โ โ us โ or the โ company โ ) as of september 30 , 2016 and 2015 , and the related consolidated statements of operations , comprehensive loss , cash flows , and equity for the years ended september 30 , 2016 and 2015 . this discussion should be read in conjunction with the consolidated financial statements and related notes to consolidated financial statements included in this report . use of estimates in the preparation of financial statements the preparation of the financial statements in conformity with u.s. gaap requires management of barnwell to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses and the disclosure of contingent assets and liabilities . actual results could differ significantly from those estimates . critical accounting policies and estimates the company considers an accounting estimate to be critical if the accounting estimate requires the company to make assumptions that are difficult or subjective about matters that were highly uncertain at the time that the accounting estimate was made , and changes in the estimate that are reasonably likely to occur in periods subsequent to the period in which the estimate was made , or use of different estimates that the company could have used in the current period , would have a material impact on the company 's financial condition or results of operations . the most critical accounting policies inherent in the preparation of the company 's financial statements are described below . we continue to monitor our accounting policies to ensure proper application of current rules and regulations . oil and natural gas properties - full cost ceiling calculation and depletion policy description we use the full cost method of accounting for our oil and natural gas properties under which we are required to conduct quarterly calculations of a โ ceiling , โ or limitation , on the carrying value of oil and natural gas properties . the ceiling limitation is the sum of 1 ) the discounted present value ( at 10 % ) , using average first-day-of-the-month prices during the 12-month period ending as of the balance sheet date held constant over the life of the reserves , of barnwell 's estimated future net cash flows from estimated production of proved oil and natural gas reserves , less estimated future expenditures to be incurred in developing and producing the proved reserves but excluding future cash outflows associated with settling asset retirement obligations ; plus 2 ) the cost of major development projects and unproven properties not subject to depletion , if any ; plus 3 ) the lower of cost or estimated fair value of unproven properties included in costs subject to depletion ; less 4 ) related income tax effects . if net capitalized costs exceed this limit , the excess is expensed . judgments and assumptions the estimate of our oil and natural gas reserves is a major component of the ceiling calculation and represents the component that requires the most subjective judgments . estimates of reserves are forecasts based on engineering data , historical data , projected future rates of production and the timing of future expenditures . the process of estimating oil and natural gas reserves requires substantial judgment , resulting 33 in imprecise determinations , particularly for new discoveries . our reserve estimates are prepared at least annually by independent petroleum reserve engineers and quarterly by internal personnel . the passage of time provides more quantitative and qualitative information regarding estimates of reserves , and revisions are made to prior estimates to reflect updated information . in the last three fiscal years , annual revisions to our reserve volume estimates have averaged 14.7 % of the previous year 's estimate . however , there can be no assurance that more significant revisions will not be necessary in the future . if future significant revisions are necessary that reduce previously estimated reserve quantities , such revisions could result in a write-down of oil and natural gas properties . if reported reserve volumes were revised downward by 5 % at the end of fiscal 2016 , the ceiling limitation would have decreased approximately $ 324,000 before income taxes , which would not have resulted in a reduction of the carrying value of oil and gas properties before income taxes . story_separator_special_tag we consider available positive and negative evidence and available tax planning strategies when assessing the realizability of deferred tax assets . accordingly , changes in our business performance and unforeseen events could require a further increase in the valuation allowance or a reversal in the valuation allowance in future periods . this could result in a charge to , or an increase in , income in the period such determination is made , and the impact of these changes could be material . in addition , barnwell operates within the u.s. and canada and is subject to audit by taxing authorities in these jurisdictions . barnwell records accruals for the estimated outcomes of these audits , and the accruals may change in the future due to new developments in each matter . tax benefits are recognized when we determine that it is more likely than not that such benefits will be realized . management evaluates its potential exposures from tax positions taken that have or could be challenged by taxing authorities . these potential exposures result because taxing authorities may take positions that differ from those taken by management in the interpretation and application of statutes , regulations and rules . management considers the possibility of alternative outcomes based upon past experience , previous actions by taxing authorities ( e.g. , actions taken in other jurisdictions ) and advice from tax experts . where uncertainty exists due to the complexity of income tax statutes and where the potential tax amounts are significant , we generally seek independent tax opinions to support our positions . if our evaluation of the likelihood of the realization of benefits is inaccurate , we could incur additional income tax and interest expense that would adversely impact earnings , or we could receive tax benefits greater than anticipated which would positively impact earnings , either of which could be material . management believes that barnwell 's provision for uncertain tax positions is reasonable . however , the ultimate resolution of tax treatments disputed by governmental authorities may adversely affect barnwell 's current and deferred income taxes . asset retirement obligation policy description barnwell records the fair value of a liability for an asset retirement obligation in the period in which it is incurred . barnwell 's estimated site restoration and abandonment costs of its oil and natural gas properties are capitalized as part of the carrying amount of oil and natural gas properties and depleted over the life of the related reserves . when the assumptions used to estimate a recorded asset retirement obligation change , a revision is recorded to both the asset retirement obligation and the capitalized cost of asset retirements . the liability is accreted at the end of each period through charges to oil and natural gas operating expense . judgments and assumptions the asset retirement obligation is recorded at fair value in the period in which it is incurred along with a corresponding increase in the carrying amount of the related asset . barnwell has estimated fair value by discounting the estimated future cash outflows required to settle abandonment and restoration liabilities . the present value calculation includes numerous estimates , assumptions and judgments regarding the existence of liabilities , the amount and timing of cash outflows required to settle the liability , what constitutes 36 adequate restoration , inflation factors , credit adjusted discount rates , and consideration of changes in legal , regulatory , environmental and political environments . abandonment and restoration cost estimates are determined in conjunction with barnwell 's reserve engineers based on historical information regarding costs incurred to abandon and restore similar well sites , information regarding current market conditions and costs , and knowledge of subject well sites and properties . the process of estimating the asset retirement obligation requires substantial judgment and use of estimates , resulting in imprecise determinations . actual asset retirement obligations through the end of fiscal 2016 have not materially differed from our estimates . however , because of the inherent imprecision of estimates as described above , there can be no assurance that material differences will not occur in the future . a 20 % increase in accretion and depletion of the asset retirement obligation would have increased barnwell 's fiscal 2016 expenses before taxes by approximately $ 346,000. overview barnwell is engaged in the following lines of business : 1 ) acquiring , developing , producing and selling oil and natural gas in canada ( oil and natural gas segment ) , 2 ) investing in land interests in hawaii ( land investment segment ) , 3 ) drilling wells and installing and repairing water pumping systems in hawaii ( contract drilling segment ) , and 4 ) developing homes for sale in hawaii ( residential real estate segment ) . oil and natural gas segment barnwell is involved in the acquisition and development of oil and natural gas properties in canada where we initiate and participate in acquisition and developmental operations for oil and natural gas on properties in which we have an interest , and evaluate proposals by third parties with regard to participation in exploratory and developmental operations elsewhere . barnwell sells all of its oil and natural gas liquids production under short-term contracts with marketers of oil . natural gas sold by barnwell is generally sold under short-term contracts with prices indexed to market prices . the price of natural gas , oil and natural gas liquids is freely negotiated between the buyers and sellers . oil and natural gas prices are determined by many factors that are outside of our control . market prices for oil and natural gas products are dependent upon factors such as , but not limited to , changes in market supply and demand , which are impacted by overall economic activity , changes in weather , pipeline capacity constraints , inventory storage levels , and output . oil and natural gas prices are very difficult to predict and fluctuate significantly .
| summary net loss attributable to barnwell for fiscal 2016 totaled $ 3,615,000 , a $ 4,878,000 decrease in operating results from a net earnings of $ 1,263,000 in fiscal 2015 . the following factors affected the results of operations for the current fiscal year as compared to the prior fiscal year : a $ 1,329,000 decrease in land investment segment operating profit , before income taxes and non-controlling interests ' share of such profits , due to decreased percentage of sales receipts as a result of fewer lot sales by the kukio resort land development partnerships ; 41 a $ 1,038,000 decrease in contract drilling segment operating results , before income taxes , primarily resulting from decreased water well drilling activity ; a $ 835,000 decrease in oil and natural gas segment operating results , before impairment of assets and income taxes , due primarily to decreases in prices for oil and natural gas ; a $ 2,190,000 decrease in general and administrative expenses primarily due to cost reduction efforts and a $ 752,000 foreign currency transaction loss recognized in the prior year due to the repayment of the u.s. dollar denominated credit facility using canadian dollars ; a $ 1,154,000 impairment of oil and natural gas properties recorded in the current year compared to a $ 316,000 impairment of real estate held for sale in the prior year ; a $ 6,217,000 gain recognized in the prior fiscal year on the sale of the company 's principal oil and natural gas properties located in the dunvegan and belloy areas of alberta , canada compared to a $ 472,000 gain recognized in the current fiscal year upon the finalization of the accounting for the dunvegan sale ; and a $ 1,044,000 increase in equity in income from affiliates recorded as a result of increased operating results of the kukio resort land development partnerships . general barnwell conducts operations in the u.s. and canada .
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the following table presents an updated preliminary estimate of the purchase price allocation for the icwg acquisition : replace_table_token_29_th 89 ( 1 ) common shares issued as consideration have been adjusted to reflect an implied 88,990-for-one stock split that became effective on january 14 , 2021. see note 16 for additional information . the preliminary fair value of the equity consideration was determined based on an estimated enterprise value using a market story_separator_special_tag story_separator_special_tag promotional discounting , ( v ) implementing employee furloughs and reductions in workforce , and ( vi ) reducing advertising spending . the company negotiated rent abatement and deferrals for more than half of our company-operated store lease arrangements . further , in order to maximize liquidity , we drew down the remaining $ 40 million available on our series 2019-3 variable funding notes during the first quarter of 2020 , which the company has since repaid as of december 26 , 2020. while the company faced declines in revenue and customer count during the first half of 2020 , the company experienced improvement in sales and customer traffic during the second half of 2020. these improved conditions enabled us to re-hire store employees , launch a new marketing campaign in our maintenance segment , and roll out new products in our platform services segment . we also continued to pursue the growth of our brands and service offerings , including the acquisition of icwg during the third quarter of 2020. we continue to actively monitor business performance in our markets and respond as needed , which has led to ongoing labor efficiencies and a sustained reduction in administrative expenses . given the unpredictable nature of this situation , we can not estimate with certainty the long-term impacts of the covid-19 pandemic on our business , financial condition , results of operations , and cash flows . although the future economic environment is uncertain , we are confident in our ability to continue to provide essential products and services to our customers , and we remain committed to serving our customers as we continue to navigate the public health challenge of covid-19 . additionally , the financial results provided herein reflect the fact that , to the date of these financial statements , we were a private company and as such had not incurred certain costs typically found in publicly traded companies . we expect that those costs will increase our selling , general and administrative expenses , similar to other companies that have completed an initial public offering . key performance indicators key measures that we use in assessing our business and evaluating our segments include the following : system-wide sales . system-wide sales represent the total of net sales for our franchised , independently-operated and company-operated stores . this measure allows management to better assess the total size and health of each segment , our overall store performance and the strength of our market position relative to competitors . sales at franchised stores are not included as revenue in our results from operations , but rather , we include franchise royalties and fees that are derived from sales at franchised stores . franchise royalties and fees revenue represented 13 % and 19 % , respectively , of our total revenue for the year ended december 26 , 2020 and december 28 , 2019 , respectively . for the year ended december 26 , 2020 and december 28 , 2019 , approximately 96 % and 93 % , respectively , of franchise royalties and fees revenue is attributable to royalties , with the remaining balance attributable to license and development fees . revenue from company-operated stores represented 54 % and 55 % of our total revenue for the year ended december 26 , 2020 and december 28 , 2019 , respectively . revenue from independently-operated stores represented 7 % of our total revenue for the year ended december 26 , 2020. store count . store count reflects the number of franchised , independently-operated and company-operated stores open at the end of the reporting period . management reviews the number of new , closed , acquired and divested stores to assess net unit 51 growth and drivers of trends in system-wide sales , franchise royalties and fees revenue , company-operated store sales and independently operated store sales . same store sales . same store sales reflect the change in sales year-over-year for the same store base . we define the same store base to include all franchised , independently-operated and company-operated stores open for comparable weeks during the given fiscal period in both the current and prior year . this measure highlights the performance of existing stores , while excluding the impact of new store openings and closures , and acquisitions and divestitures . segment adjusted ebitda . we define segment adjusted ebitda as earnings before interest expense , net , income tax expense , and depreciation and amortization , with further adjustments for acquisition-related costs , straight-line rent , equity compensation , loss on debt extinguishment , foreign currency transaction related gains or losses , store opening costs , and certain non-recurring and non-core , infrequent or unusual charges . segment adjusted ebitda is a supplemental measure of operating performance of our segments and may not be comparable to similar measures reported by other companies . segment adjusted ebitda is a performance metric utilized by the our chief operating decision maker to allocate resources to and assess performance of our segments . refer to note 9 in our consolidated financial statements for a reconciliation of segment adjusted ebitda to income before taxes for the years ended december 26 , 2020 , december 28 , 2019 and december 29 , 2018 . story_separator_special_tag decline in same store sales within the paint , collision & glass segment . operating expenses replace_table_token_6_th company-operated store expenses company-operated store expenses increased $ 82 million for the year ended december 26 , 2020 as compared to the year ended december 28 , 2019. this increase in expenses is commensurate with the addition of 242 company-operated stores during fiscal year 2020. company-operated store expenses increased at a slower rate than company-operated store sales due to our leaner and more efficient staffing model to compensate for the reduction in vehicles serviced during the first half of 2020 associated with the covid-19 pandemic . as sales increased during the second half of 2020 , we continued to utilize a more efficient labor model in our company-operated stores . advertising expenses the $ 8 million decrease in advertising expenses for the year ended december 26 , 2020 , as compared to the year ended december 28 , 2019 , represents a commensurate decrease to advertising fund expenses during the period . advertising fund expenses generally trend consistent with advertising fund contributions . supply and other expenses supply and other expenses increased $ 40 million for the year ended december 26 , 2020 as compared to the year ended december 28 , 2019. this increase was primarily due to the full year impact of the ph vitres d'autos and uniban acquisitions , which were made during the fourth quarter of 2019. these acquisitions generated approximately $ 35 million of incremental expenses for the year ended december 26 , 2020. increased oil purchase volumes from franchisees and an overall increase in store count in the maintenance segment contributed an additional $ 8 million in expenses in 2020. selling , general and administrative expenses selling , general and administrative expenses increased $ 76 million for the year ended december 26 , 2020 as compared to the year ended december 28 , 2019. this increase is primarily due to increased corporate compensation and other employee related expenses of $ 42 million due to an overall increase in headcount from 2020 acquisitions and an increase in staffing requirements in preparation for our initial public offering , $ 9 million of non-capitalizable initial public offering costs and non-core project costs , and a $ 5 million increase in bad debt expense largely attributable to a customer 's bankruptcy resulting from 55 the covid-19 pandemic . the remaining increase is a result of incremental costs to support organic growth and growth from acquisitions . acquisition costs acquisition costs increased $ 4 million for the year ended december 26 , 2020 , compared to the year ended december 28 , 2019 , primarily as a result of the acquisition of icwg and fix auto during the year ended december 26 , 2020. store opening costs store opening costs decreased $ 3 million for the year ended december 26 , 2020 , as compared to the year ended december 28 , 2019 , due to a decrease in conversions of acquired stores to the take 5 brand , partially offset by an increase in new company-operated store openings . there were 13 take 5 company-operated store conversions and 38 new company-operated store openings in the year ended december 26 , 2020 , compared to 140 take 5 store conversions and 18 company-operated store openings during the year ended december 28 , 2019. depreciation and amortization depreciation and amortization expense increased $ 38 million for the year ended december 26 , 2020 , as compared to the year ended december 28 , 2019 , due to additional fixed assets and definite-lived intangible assets recognized in recent acquisitions , and additional capitalized expenditures incurred related to the growth in company-operated locations for our maintenance segment . asset impairment charges we incurred $ 8 million in asset impairment charges during the year ended december 26 , 2020 , which consisted of $ 3 million related to the discontinued use of a trade name and $ 5 million related to the impairment of certain fixed assets and operating lease right-of-use assets at closed locations . interest expense , net year ended ( in thousands ) december 26 , 2020 december 28 , 2019 change interest expense , net $ 95,646 $ 56,846 $ 38,800 68 % interest expense , net increased $ 39 million for the year ended december 26 , 2020 , as compared to the year ended december 28 , 2019 , as a result of incremental senior notes issued in 2019 and 2020 , the principal outstanding on the 2019-3 variable funding note during a portion of the year ended december 26 , 2020 , and incremental debt assumed in conjunction with the icwg acquisition . gain on foreign currency transactions , net year ended ( in thousands ) december 26 , 2020 december 28 , 2019 change gain on foreign currency transactions , net $ ( 13,563 ) $ โ $ ( 13,563 ) 100 % the gain on foreign currency transactions is comprised of a $ 23 million gain primarily associated with the remeasurement of our 2020-1 senior notes and foreign intercompany notes , partially offset by unrealized losses incurred on cross currency swaps associated with these instruments that are not designated as hedging instruments . 56 loss on debt extinguishment year ended ( in thousands ) december 26 , 2020 december 28 , 2019 change loss on debt extinguishment $ 5,490 $ 595 $ 4,895 823 % the loss on debt extinguishment of $ 5 million for the year ended december 26 2020 is due to the derecognition of unamortized debt issuance costs and prepayment penalties associated with settlement of the 2015-1 and 2016-1 senior securitization notes , and the bridge loan used to finance the fix auto acquisition .
| results of operations the following discussion and analysis for driven brands holdings inc. and subsidiaries ( โ driven brands โ , โ the company โ , โ we โ , โ us โ or โ our โ ) should be read in conjunction with our consolidated financial statements and the related notes to our consolidated financial statements included elsewhere in this annual report . on august 3 , 2020 , the company completed the icwg acquisition ( the โ icwg acquisition date โ ) . the company 's results of operations for the year ended december 26 , 2020 include the operations of icwg beginning on the icwg acquisition date . in this management 's discussion and analysis of financial condition and results of operations , no comparable information is discussed with respect to icwg for periods prior to the icwg acquisition date . we operate on a 52/53-week fiscal year , which ends on the last saturday in december . fiscal year 2020 , which ended on december 26 , 2020 , as well as fiscal year 2019 , which ended december 28 , 2019 , consisted of 52 weeks . overview of operations driven brands is the largest automotive services company in north america with a growing and highly franchised base of more than 4,200 locations across 49 u.s. states and 14 other countries . our scaled , diversified platform fulfills an extensive range of core consumer and commercial automotive needs , including paint , collision , glass , repair , car wash , oil change and maintenance . driven brands provides a breadth of high-quality and high-frequency services to a wide range of customers , who rely on their cars in all economic environments to get to work and in many other aspects of their daily lives . our asset-light business model has generated consistent recurring revenue and strong operating margins with limited maintenance capital expenditures , which has resulted in significant cash flow generation and capital-efficient growth .
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the seasonality of our sales volume causes our working capital needs to fluctuate throughout the year . ingredient and packaging costs represent a significant portion of our cost of sales . these costs are subject to global and regional commodity price trends . our most significant commodities are green coffee , tea , polyethylene terephthalate ( ยpetย ) resin , high-density polyethylene ( ยhdpeย ) and polycarbonate bottles , caps and preforms , labels and cartons and trays . we attempt to manage our exposure to fluctuations in ingredient and packaging costs by entering into fixed price commitments for a portion of our ingredient and packaging requirements and implementing price increases as needed . we conduct operations in countries involving transactions denominated in a variety of currencies . we are subject to currency exchange risks to the extent that our costs are denominated in currencies other than those in which we earn revenues . as our financial statements are denominated in u.s. dollars , fluctuations in currency exchange rates between the u.s. dollar and other currencies have had , and will continue to have an impact on our results of operations . in 2017 , our capital expenditures were devoted primarily to supporting growth in our business , maintaining existing facilities and making equipment upgrades . at the beginning of 2017 , our business operated through four reporting segments ; water and coffee solutions ( which included our ds services of america , inc. ( ยdssย ) , aquaterra corporation ( ยaquaterraย ) , eden springs europe b.v. ( ยedenย ) and s. & d. coffee , inc. ( ยs & dย ) businesses ) , cott north america , cott united kingdom ( ยcott u.k.ย ) and all other ( which included our mexico and royal crown international ( ยrciย ) operating segments ) . during the third quarter of 2017 , we reviewed our reporting segments as a result of the transaction ( as defined below ) . following such review , we reorganized our reporting segments into three reporting segments ; route based services ( which includes our dss , aquaterra and eden businesses ) , coffee , tea and extract solutions ( which includes our s & d business ) and all other ( which includes our aimia foods ( ยaimiaย ) , decantae mineral water ltd. ( ยdecantaeย ) , and our rci concentrate businesses , our columbus , georgia manufacturing facility and other miscellaneous expenses ) . segment reporting results have been recast to reflect these changes for all periods presented . our corporate oversight function is not treated as a segment ; it includes certain general and administrative costs that are not allocated to any of the reporting segments . for the years ended december 30 , 2017 , december 31 , 2016 and january 2 , 2016 , we had 52 weeks of activity . for the year ended january 2 , 2016 , we had four additional shipping days in our dss business , which we estimate contributed $ 12.5 million of additional revenue and $ 0.1 million of additional operating income for the year ended january 2 , 2016. divestiture , acquisition and financing transactions divestiture of traditional business on january 30 , 2018 , we sold our carbonated soft drinks ( ยcsdsย ) and juice businesses via the sale of our north america , united kingdom ( ยu.k.ย ) and mexico business units ( including the canadian business ) and our royal crown international ( ยrciย ) finished goods export business ( collectively , ยtraditional businessย ) to refresco group n.v. , a dutch public company ( ยrefrescoย ) , pursuant to a share purchase agreement ( the ยpurchase agreementย ) dated as of july 24 , 2017 ( the ยtransactionย ) . the transaction was structured as a sale of the assets of our canadian business and a sale of the stock of the operating subsidiaries engaged in the traditional business in the other jurisdictions . the aggregate deal consideration was $ 1.25 billion , paid in cash at closing , subject to adjustment for indebtedness , working capital , and other customary post-closing adjustments . accordingly , as a result of the sale of the traditional business representing a strategic shift in our operations , those businesses are presented herein as discontinued operations . see note 2 to the consolidated financial statements for additional information regarding discontinued operations . the transaction did not include our route based services and coffee , tea and extract solutions reporting segments , our rci concentrate business , our columbus , georgia manufacturing facility or our aimia and decantae businesses . 32 for all periods presented , the operating results associated with the traditional business have been reclassified into net income ( loss ) from discontinued operations , net of income taxes in the consolidated statements of operations , and the assets and liabilities associated with this business have been reflected as assets and liabilities of discontinued operations in the consolidated balance sheets . cash flows from the company 's discontinued operations are presented in the consolidated statements of cash flows for all periods presented . acquisitions in august 2016 , we acquired s & d , a premium coffee roaster and provider of customized coffee , tea , and extract solutions to the foodservice , convenience , gas , hospitality and office segments in the united states ( the ยs & d acquisitionย ) . the aggregate purchase price was $ 353.6 million . the s & d acquisition was funded through a combination of incremental borrowings under our asset-based lending facility ( the ยabl facilityย ) and proceeds from our june 2016 offering ( as defined below ) . in august 2016 , we acquired eden , a leading provider of water and coffee solutions in europe ( the ยeden acquisitionย ) . the aggregate purchase price was ย515.9 million ( u.s. $ 576.3 million at the then-current exchange rate ) . the eden acquisition was funded through a combination of proceeds from the 2024 notes ( as defined below ) and cash on hand . story_separator_special_tag we determined we have retained the lease rights to the facilities but not the benefits and risks incident to ownership ; thus $ 17.1 million of the $ 18.1 million gain was deferred , with the remaining $ 1.0 million recognized as a gain on sale in loss on disposal of property , plant & equipment , net in our consolidated statement of operations for the year ended january 2 , 2016. this deferred gain is being amortized as a reduction to rent expense over the 20-year initial lease term . in may 2015 , we completed a public offering , on a bought deal basis , of 16,215,000 common shares at a price of $ 9.25 per share for total gross proceeds to us of $ 150.0 million ( the ย2015 offeringย ) . we incurred $ 6.0 million of underwriter commissions and $ 1.5 million in professional fees in connection with the 2015 offering . the net proceeds of the 2015 offering were used to redeem all of our series a convertible first preferred shares ( the ยconvertible preferred sharesย ) and series b non-convertible first preferred shares ( the ยnon-convertible preferred shares , ย and together with the convertible preferred shares , the ยpreferred sharesย ) . summary financial results net loss from continuing operations in 2017 was $ 3.6 million or $ 0.03 per diluted common share , compared with net loss from continuing operations of $ 60.3 million or $ 0.47 per diluted common share in 2016. the following items of significance affected our 2017 financial results : net revenue increased $ 646.5 million , or 39.8 % , in 2017 compared to the prior year due primarily to the additions of our s & d and eden businesses , growth in volume and consumption , as well as increased pricing in our route based services reporting segment , strong coffee volume growth in our coffee , tea and extract solutions reporting segment , and the impact of favorable foreign exchange rates . excluding the impact of foreign exchange , revenue increased $ 633.8 million , or 39.0 % , from the prior year ; gross profit increased to $ 1,127.7 million from $ 850.1 million in the prior year due primarily to the additions of our s & d and eden businesses and growth in our dss business . gross profit as a percentage of revenue decreased to 49.7 % in 2017 compared to 52.4 % in the prior year . the decrease in gross profit as a percentage of net revenue is due to our s & d business , which is a lower gross profit business ; selling , general and administrative ( ยsg & aย ) expenses increased to $ 1,042.7 million in 2017 compared to $ 806.2 million in the prior year due primarily to the additions of our s & d and eden businesses . as a percentage of revenue , sg & a expenses decreased to 45.9 % from 49.7 % in the prior year ; loss on disposal of property , plant and equipment , net was primarily related to the disposal of $ 10.2 million of equipment that was either replaced or no longer being used in our reporting segments ; acquisition and integration expenses decreased to $ 25.9 million in 2017 compared to $ 27.8 million in the prior year due primarily to the reduction in costs with the integration of our s & d and eden businesses ; other income , net was $ 3.0 million in 2017 compared to other expense , net of $ 5.6 million in the prior year due primarily to the increase of net gains on foreign currency transactions and the gain recognized upon the partial redemption of our dss notes in 2017 and unrealized losses on our commodity hedges in the prior year ; interest expense , net increased to $ 85.5 million in 2017 compared to $ 43.0 million in the prior year due primarily to the issuance of our 2025 notes in the first quarter of 2017 and having a full year of interest expense in 2017 associated with our 2024 notes ; income tax benefit was $ 30.0 million in 2017 compared to income tax expense of $ 21.2 million in the prior year due primarily to the change in the u.s. federal enacted tax rate in 2017 and the canadian valuation allowance recorded in the third quarter of 2016 and the u.s. federal valuation allowance recorded in the fourth quarter of 2016 ; and 34 adjusted ebitda increased to $ 295.6 million in 2017 compared to $ 211.6 million in the prior year due to the items listed above . the following items of significance affected our 2016 financial results : net revenue increased $ 435.9 million , or 36.7 % , in 2016 compared to the prior year due primarily to the additions of our s & d , eden , and aquaterra businesses , partially offset by the impact of unfavorable foreign exchange rates , and four less shipping days compared to the prior year in our dss business . excluding the impact of foreign exchange and four additional shipping days in 2015 , revenue increased $ 462.0 million , or 39.3 % , from the prior year ; gross profit increased to $ 850.1 million from $ 650.5 million in the prior year due primarily to the additions of our s & d , eden and aquaterra businesses , partially offset by the impact of unfavorable foreign exchange rates and increased operational costs at our dss business . gross profit as a percentage of revenue decreased to 52.4 % in 2016 compared to 54.8 % in the prior year . the decrease in gross profit as a percentage of net revenue is due to our s & d business , which is a lower gross profit business ; sg & a expenses increased to $ 806.2 million in 2016 compared to $ 608.4 million in the prior year due primarily to the additions of our s & d , eden and aquaterra businesses .
| results of operations the following table summarizes the change in revenue by reporting segment for 2017 : replace_table_token_11_th 1. impact of foreign exchange is the difference between the current year 's revenue translated utilizing the current year 's average foreign exchange rates less the current year 's revenue translated utilizing the prior year 's average foreign exchange rates . the following table summarizes the change in revenue by reporting segment for 2016 : replace_table_token_12_th 1. impact of foreign exchange is the difference between the current year 's revenue translated utilizing the current year 's average foreign exchange rates less the current year 's revenue translated utilizing the prior year 's average foreign exchange rates . 43 the following table summarizes our ebitda and adjusted ebitda for the fiscal years ended december 30 , 2017 , december 31 , 2016 and january 2 , 2016 , respectively . replace_table_token_13_th 1. includes $ 3.5 million , $ 0.4 million and $ 1.2 million of share-based compensation costs for the years ended december 30 , 2017 , december 31 , 2016 and january 2 , 2016 , respectively , related to awards granted in connection with the acquisitions of our s & d , eden and dss businesses . 2. in the fourth quarter of 2016 , unrealized gains and losses associated with coffee hedges were included as adjustments to ebitda , while certain realized gains and losses were not included as adjustments .
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with 25 years of experience producing monoclonal antibodies and recombinant proteins in batch , fed-batch and perfusion modes , our services include cgmp clinical and commercial product manufacturing , purification , bulk packaging , stability testing and regulatory submissions and support . we also provide a variety of process development services , including cell line development and optimization , cell culture and feed optimization , analytical methods development and product characterization . we have experience in performing process development and manufacturing of biologics since 1993 in our franklin biomanufacturing facility ( โ franklin facility โ ) , located at our headquarters in tustin , california . in march 2016 , we expanded our manufacturing capacity through the commissioning of our myford biomanufacturing facility ( โ myford facility โ ) , which more than doubled our manufacturing capacity . the 42,000 square foot facility , which is our second biomanufacturing facility , includes multiple single-use bioreactors up to the 2,000-liter manufacturing scale . the myford facility was designed to accommodate a fully disposable biomanufacturing process for products in clinical development to commercial . the myford facility is located adjacent to our franklin facility . business transition in the fall of 2017 , we announced our intent to cease our research and development activities and to transition our business to a dedicated cdmo , which we completed during the fourth quarter of fiscal year 2018. as part of our transition efforts , we completed the following initiatives : ยท in august 2017 , we instituted a number of strategic actions , including the reduction of our research and development workforce , designed to reduce costs and better position ourselves as a dedicated cdmo ; ยท in september 2017 , we named roger j. lias , ph.d. , who has more than 20 years of management experience in the biologics cdmo industry , as the president of our contract manufacturing subsidiary . subsequently , in december 2017 , we appointed dr. lias as our president and chief executive officer as we transitioned to a dedicated cdmo ; ยท in october and november 2017 , we appointed a total of six new independent members to our board of directors , each of whom has relevant cdmo industry experience ; ยท in november 2017 , we named tracy kinjerski as our vice president of business operations , who will focus on executing new business development initiatives with the objective of growing our commercial customer base ; ยท on january 5 , 2018 , we amended our certificate of incorporation to change our corporate name to avid bioservices , inc. and we adopted the new ticker symbol โ cdmo โ on the nasdaq capital market to align with the new end-market focus and strategic positioning of our business ; ยท by january 31 , 2018 , we classified our r84 technology as held for sale and abandoned our remaining research and development assets ( including our intent to return the exosome technology back to the original licensor ) ; ยท on february 12 , 2018 , we sold our phosphatidylserine ( ps ) -targeting program pursuant to an asset assignment and purchase agreement ( as described in note 9 to the accompanying consolidated financial statements ) ; and ยท on february 20 , 2018 we closed an underwritten public offering of our common stock pursuant to which we sold 10,294,445 shares of our common stock at an offering price of $ 2.25 per share for aggregate gross proceeds of $ 23,163,000 before deducting underwriting discounts , commissions and other offering related expenses of $ 1,669,000 ( as described in note 4 to the accompanying consolidated financial statements ) . 24 strategic objectives during our transition , we established and began executing on the following near-term strategic objectives : ยท expand and diversify our customer base by securing additional customers to support our future potential revenue growth beyond fiscal year 2018 ; ยท continue to invest in manufacturing facilities and infrastructure to maximize our facility utilization and support our customers ' clinical and commercial development and manufacturing requirements ; and ยท broaden our sales force by hiring sales representatives to execute our business development initiatives in key markets . story_separator_special_tag style= '' font : 10pt times new roman , times , serif ; margin : 0pt 0 ; text-align : justify ; text-indent : 0.5in '' > 26 fiscal year 2017 compared to fiscal year 2016 : sg & a expenses for fiscal year 2017 remained consistent with fiscal year 2016 , but increased slightly by $ 175,000 ( 1 % ) . the fiscal year 2017 increase in sg & a expenses was primarily due to increases in payroll and related expenses , facility-related expenses and other general corporate expenses , offset by a decrease in share-based compensation expense ( non-cash ) . restructuring charges during fiscal year 2018 , we incurred restructuring charges of $ 1,588,000 directly related to a restructuring plan we implemented in august 2017 , pursuant to which we reduced our overall workforce by 57 employees in order to reduce operating costs and improve cost efficiencies while we pursued the license or sale of our research and development assets and focus our efforts on growing our cdmo business ( as described in note 8 to the accompanying consolidated financial statements ) . the costs incurred under this restructuring plan , which was completed in october 2017 , consisted of one-time termination benefits , including severance , and other employee-related costs . of the total restructuring charges incurred , $ 1,258,000 was related to our contract manufacturing services segment and $ 330,000 was related to our discontinued research and development segment . story_separator_special_tag for transactions in which we act as a principal , have discretion to choose suppliers , bear credit and inventory risk and perform a substantive part of the services , revenue is recorded at the gross amount billed to a customer and costs associated with these reimbursements are reflected as a component of cost of sales for contract manufacturing services . any amounts received prior to satisfying our revenue recognition criteria are recorded as deferred revenue or customer deposits in the accompanying consolidated financial statements . we also record a provision for estimated contract losses , if any , in the period in which they are determined . share-based compensation we account for stock options and other share-based awards granted under our equity compensation plans in accordance with the authoritative guidance for share-based compensation . the estimated fair value of share-based payments to employees in exchange for services is measured at the grant date , using a fair value based method , such as a black-scholes option valuation model , and is recognized as expense on a straight-line basis over the requisite service periods . the fair value of modifications to share-based awards , if any , is generally estimated using a black-scholes option valuation model , unless a lattice model is required . forfeitures are recognized as a reduction of share-based compensation expense as they occur . as of april 30 , 2018 , there were no outstanding share-based awards with market or performance conditions . the estimated fair value of stock options are measured at the grant date , using a fair value based method , such as a black-scholes option valuation model , and is amortized as compensation expense on a straight-line basis over the requisite service period of the award , which is generally the vesting period . the use of a valuation model requires us to make certain estimates and assumptions with respect to selected model inputs . the expected volatility is based on the daily historical volatility of our common stock covering the estimated expected term . the expected term of options granted reflects actual historical exercise activity and assumptions regarding future exercise activity of unexercised , outstanding options . the risk-free interest rate is based on u.s. treasury notes with terms within the contractual life of the option at the time of grant . the expected dividend yield assumption is based on our expectation of future dividend payouts . we have never declared or paid any cash dividends on our common stock and currently do not anticipate paying such cash dividends . 28 if factors change and we employ different assumptions in the determination of fair value in future periods , the share-based compensation expense that we record may differ significantly from what we have recorded in the current period . there are a number of factors that affect the amount of share-based compensation expense , including the number of employee options granted during subsequent fiscal years , the price of our common stock on the date of grant , the volatility of our stock price , the estimate of the expected life of options granted and the risk-free interest rates . discontinued operations as of january 31 , 2018 , our research and development segment met all the conditions to be classified as a discontinued operation ( as described in note 1 to the accompanying consolidated financial statements ) . accordingly , the operating results of our research and development segment are reported as a loss from discontinued operations in the accompanying consolidated financial statements for all periods presented . in addition , the assets and liabilities related to our research and development segment are reported as assets and liabilities of discontinued operations in the accompanying consolidated balance sheets at april 30 , 2018 and 2017. for additional information , refer to note 9 , โ sale of research and development assets โ to the accompanying consolidated financial statements . liquidity and capital resources we have expended substantial funds on our contract manufacturing business and , historically , on the research and development of pharmaceutical product candidates . as a result , we have experienced losses and negative cash flows from operations since our inception . during fiscal year 2018 , we refocused our corporate strategy , whereby we transitioned our business to operate solely as a dedicated cdmo and discontinued our research and development segment ( as described in note 1 to the accompanying consolidated financial statements ) . as we commence our first full fiscal year as a dedicated cdmo , our ability to continue as a going concern is dependent on the amount of cash on hand and our ability to generate positive cash flows from operations , primarily through securing new customers and diversifying our customer base , and thereby reducing our reliance on a small customer base , increasing revenues , improving gross margins and managing our operating expenses . at april 30 , 2018 we had $ 42,265,000 in cash and cash equivalents . in addition , as of april 30 , 2018 ( as further discussed above under the โ backlog โ section included in item 1 of part i of this annual report ) , our current backlog was approximately $ 57.8 million . while we anticipate the majority of our backlog will be recognized as revenue during fiscal year 2019 , our backlog is subject to a number of risks and uncertainties , including , the risk that a customer timely cancels its commitments prior to our initiation of manufacturing services , in which case we may be required to refund some or all of the amounts paid to us in advance under those canceled commitments ; the risk that a customer may experience delays in its program ( s ) or otherwise , which could result in the postponement of anticipated manufacturing services ; and the risk that we may not successfully execute on all customer projects , any of which could have a negative impact on our liquidity , reported backlog and future revenue .
| results of operations the following table compares the operating results from our continuing operations for the fiscal years ended april 30 , 2018 , 2017 and 2016 , which are further discussed below . replace_table_token_4_th contract manufacturing revenue fiscal year 2018 compared to fiscal year 2017 : the decrease in contract manufacturing revenue of $ 4,009,000 ( 7 % ) during fiscal year 2018 was primarily due to fewer manufacturing runs completed and shipped compared to the prior year , which can primarily be attributed to a decrease in manufacturing demand from our two largest customers . as we seek to expand and diversify our customer base , we have secured several new customers since january 2017. however , these new customers are predominately in an earlier stage of development , and therefore , the contract manufacturing revenue from these newer customers during fiscal year 2018 only partially offset the decrease in revenue from our two largest customers . 25 fiscal year 2017 compared to fiscal year 2016 : the increase in contract manufacturing revenue of $ 13,273,000 ( 30 % ) during fiscal year 2017 was primarily due to manufacturing services provided to support the process validation of three separate customer products in the amount of $ 15,444,000 , all of which were manufactured in our myford facility , which we commissioned during the fourth quarter of fiscal year 2016. gross profit ( loss ) fiscal year 2018 compared to fiscal year 2017 : during fiscal year 2018 , gross margins declined to a negative 5 % , which was primarily driven by idle capacity costs in fiscal year 2018 , compared to gross margins of 34 % for fiscal year 2017 , during which we incurred no idle capacity costs .
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the following table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of accounts receivable to present the net amount expected to be collected 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. discussions of year-to-year comparisons of 2019 and 2018 and 2018 items that are not included in this form 10-k can be found in โ management 's discussion and analysis of financial condition and results of operations โ in part ii , item 7 on our annual report on form 10-k for the year ended december 31 , 2019 , which item is incorporated herein by reference . 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 . - to maintain a flexible cost structure that can respond quickly to volatile industry conditions and business activity levels . - to maintain capital strength sufficient to allow us to remain a going concern and maintain our operational strength during protracted industry downturns . - to maintain an efficient , low-cost capital structure which includes an appropriate use of debt financing . - to optimize asset utilization with the goal of increasing revenues and generating leverage of direct and overhead costs , balanced against increasingly high maintenance requirements and low financial returns experienced during times of low customer pricing for our services . - to deliver product and services to our customers safely . - to secure adequate sources of supplies of raw materials used in our operations . - 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 . additionally , we compare our trends to those of our peers . we continuously monitor factors that impact 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 . the oil and gas industry experienced an unprecedented disruption during 2020 due to the substantial decline in global demand for oil caused by the combined impact of the opec disputes and covid-19 pandemic that has continued throughout 2020. the pandemic has significantly impacted the economic conditions in the united states , as federal , state and local governments have reacted to the public health crisis , creating significant uncertainties in the united states , as well as the global economy . rpc continued our regular operations during the period since we function as an essential infrastructure business in the energy sector under 19 โ guidance issued by the department of homeland security . however , in response to the pandemic , rpc instituted strict procedures to assess employee health and safety while in our facilities or on operational locations . current industry conditions are characterized by oil prices which fell from a cyclical peak of $ 75 per barrel in the fourth quarter of 2018 to less than $ 20 per barrel in the second quarter of 2020. in response to this significant decrease in the price of oil , the drilling rig count fell from 1,083 in the fourth quarter of 2018 to 244 in the third quarter of 2020. also , monthly u.s. well completions fell from a cyclical peak of 1,371 in the second quarter of 2018 to 292 in the second quarter of 2020. early in the first quarter of 2021 , the price of oil had recovered to approximately $ 56 per barrel , and both the drilling rig count and well completions had increased as well . one catalyst for the decrease in the price of oil during 2020 relates to the significant decrease in global oil demand resulting from the covid-19 pandemic . in late 2019 , the global oil supply and demand were in equilibrium . by the second quarter of 2020 , however , global oil demand had fallen by approximately 16 percent , while supply had only fallen by approximately nine percent . the tremendous decline in oil prices , drilling and well completions during 2020 resulted from this sudden and unpredicted decrease in demand . story_separator_special_tag following the trough of the most recent oilfield downturn in the second quarter of 2020 , the price of oil has risen by more than 100 percent early in the first quarter of 2021 compared to the average price of oil in the second quarter of 2020. the price of natural gas has risen by approximately 94 percent during the same time period , due to steady demand for natural gas and normal seasonal demand in the first quarter of 2021. following a low price of $ 0.23 per gallon in the first quarter of 2020 , the price of benchmark natural gas liquids has risen to $ 0.87 per gallon early in the first quarter of 2021 , an increase of almost 300 percent . the price increases in these commodities during the past three quarters are encouraging , and rpc believes that they have encouraged our customers to increase drilling and completion activities . we remain cautious , however , because we do not believe that current commodity prices are sufficiently high to encourage our customers to increase their drilling and production activities to previous cyclical peak levels . the majority of the u.s. domestic rig count remains directed towards oil . early in the first quarter of 2021 , approximately 77 percent of the u.s. domestic rig count was directed towards oil , a decrease compared with approximately 85 percent during the same period in the prior year . we believe that oil-directed drilling will remain the majority of domestic drilling , and that natural gas-directed drilling will remain a low percentage of u.s. domestic drilling in the near term . we believe that this relationship will continue due to relatively low prices for natural gas , high production from existing natural gas wells , and industry projections of limited increases in domestic natural gas demand during the near term . we continue to monitor the market for our services and the competitive environment . an increasingly important factor impacting the demand for our services is the growing efficiency with which oilfield completion crews are providing services . we began to observe this in 2018 , and we believe that this higher efficiency has contributed to the oversupplied nature of our market . in addition , the u.s. domestic rig count began to decline during the first quarter of 2019 , and by the beginning of the second quarter of 2020 had fallen to the lowest level ever recorded . combined with the long-term trend of increased efficiency , the u.s. domestic rig count decline has caused significant decreases in activity levels and pricing for our services . rpc expanded its fleet of revenue-producing equipment in 2019 , while also retiring older equipment which could no longer function effectively in service-intensive operating environments . we continue to upgrade our existing equipment to operate using multiple fuel sources and to take advantage of advances in technology and data collection . however , we do not plan meaningfully to increase our fleet capacity either through purchases of new equipment or bringing idled equipment into service until the projected financial returns for such an investment are justified . our consistent response to the near-term potential of lower activity levels and pricing has been to undertake moderate fleet expansions which we believe will allow us to maintain a strong balance sheet , while also positioning rpc for long-term growth and strong financial returns . in connection with the preparation of our financial statements for the quarter ended march 31 , 2020 , the company recorded long-lived asset impairment and other charges of $ 205.5 million . see note 3 of the consolidated financial statements for a discussion of the changes in our industry resulting in these charges . in addition , we are aware that our customers have been forced to conduct their operations with little or no access to outside capital for the first time in many years , and we anticipate that this aspect of exploration and production financing will remain in place for the foreseeable future , thereby impacting the volume of future drilling and completion of new wells . 21 โ story_separator_special_tag flows the company 's cash and cash equivalents were $ 84.5 million as of december 31 , 2020 , $ 50.0 million as of december 31 , 2019 and $ 116.3 million as of december 31 , 2018. the following table sets forth the historical cash flows for the years ended december 31 : replace_table_token_3_th โ cash provided by operating activities for 2020 decreased by $ 131.2 million compared to the prior year . this decrease is due primarily to an increase in net loss of $ 125.1 million partially offset by favorable changes in working capital during 2020 , coupled with non-cash impairment charges of $ 211.0 million . the net favorable change in working capital is due primarily to favorable changes of $ 80.8 million in accounts receivable and $ 18.1 million in inventories , partially offset by unfavorable changes of $ 9.1 million in accounts payable and $ 58.8 million in income taxes receivable/ ( payable ) , ( net ) . cash used for investing activities for 2020 decreased by $ 193.1 million compared to 2019 , primarily because of a reduction in capital expenditures in response to lower industry activity levels , coupled with an increase in proceeds from the sale of assets . cash used for financing activities for 2020 decreased by $ 38.8 million primarily as a result of lower dividends paid to common stockholders as well as lower cost of repurchases of the company 's shares both on the open market and for taxes related to the vesting of restricted shares . there were no dividends paid to common stockholders in 2020 . 23 โ financial condition and liquidity the company 's financial condition as of december 31 , 2020 remains strong .
| results of operations replace_table_token_2_th โ ( 1 ) amount in 2020 represents $ 212,292 related to technical services , $ 4,660 related to pension settlement loss and the remainder related to corporate expenses . ( 2 ) amount in 2019 represents $ 80,263 related to technical services and $ 2,010 related to corporate expenses . year ended december 31 , 2020 compared to year ended december 31 , 2019 revenues . revenues in 2020 decreased $ 624.1 million or 51.1 percent compared to 2019 primarily due to the substantial decline in global demand for oil caused by the combined impact of the opec disputes and covid-19 pandemic . the technical services segment revenues in 2020 decreased $ 589.1 million or 51.4 percent compared to the prior year . the decrease is due primarily to lower activity levels and lower pricing within most of our service lines as compared to the prior year . the support services segment revenues in 2020 decreased $ 35.0 million or 45.6 percent compared to 2019 due primarily to lower activity levels and pricing in the rental tools service line , which is the largest service line within this segment . technical services reported an operating loss of $ 82.5 million during 2020 compared to a loss of $ 33.0 million in the prior year , while support services reported an operating loss of $ 6.7 million in 2020 compared to income of $ 10.0 million in the prior year . the average price of oil decreased 30.6 percent and the average price of natural gas decreased 20.9 percent during 2020 compared to the prior year .
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evaluation of financial performance and certain balance sheet line items was impacted by the timing and size of nicolet 's acquisitions , choice bancorp , inc. ( โ choice โ ) on november 8 , 2019 , at 12 % of nicolet 's then pre-merger asset size , and advantage community bancshares , inc. ( โ advantage โ ) on august 21 , 2020 , at 4 % of nicolet 's then pre-merger asset size . certain income statement results , average balances and related ratios for 2020 include full contribution from choice and a partial contribution from advantage , while 2019 includes partial contribution from choice and no contribution from advantage . at consummation , choice added $ 457 million in assets , loans of $ 348 million , deposits of $ 289 million , core deposit intangible of $ 1.7 million , goodwill of $ 45 million , and one net new branch . at consummation , advantage added $ 172 million in assets , loans of $ 88 million , deposits of $ 141 million , core deposit intangible of $ 1 million , goodwill of $ 12 million , and four branches . the detailed financial discussion that follows focuses on 2020 results compared to 2019. see โ 2019 compared to 2018 โ for the summary comparing 2019 and 2018 results . some tabular information is shown for trends of three years or for five years as required under sec regulations . overview nicolet provides a diversified range of traditional commercial and retail banking services , as well as wealth management services , to individuals , business owners , and businesses in its market area primarily through , as of year-end 2020 , the 36 bank branch offices of its banking subsidiary , located in northeast and central wisconsin and menominee , michigan . the 2020 year was marked by significant events ( health pandemic , large sudden rate drop by the federal reserve , unprecedented government stimulus , political changes and social issues , and other market and economic disruptions ) , volatility , and uncertainty , that turned 2020 into a very tactical year for nicolet management . management took several actions to respond : added $ 0.2 billion of liquidity ( which later proved to not be necessary , leading to a reduction in non-deposit leverage in the second half of the year ) , temporarily ( and later permanently ) closed 8 branches , provided temporary relief to customers through loan payment modifications on nearly 1,000 loans ( with only a fraction remaining on modified terms at year end ) , dramatically elevated the credit loss provision given pervading uncertainty ( though slowed the provision in fourth quarter as potential deterioration of loan quality metrics initially anticipated had not materialized ) , channeled significant resources to originate ppp loans ( peaking at 2,725 loans totaling $ 351 million during 2020 ) and residential mortgages ( over $ 1 billion originated to consumers under atypical conditions ) , granted $ 1.25 million of aid to expedite funds to smaller businesses who would have otherwise waited for small ppp loans , kept people safe ( with $ 0.6 million of expense in second quarter for onsite-bonuses , testing and protective supplies ) , and prioritized full return to on-site work by june to allow us to move forward on goals and improvements ( with offsite workforce peaking at 52 % , comprised of 34 % remote and 18 % paid to stay home and not work due to risk concerns or location closure ) . during 2020 , we still executed on our acquisition strategy , completing the all-cash acquisition of advantage . while we announced a merger agreement with a $ 0.7 billion bank in february 2020 , we exercised discipline , mutually terminating that deal in may 2020 , ( given the level of uncertainty and pricing in the significantly depressed market that made the transaction unlikely to close ) and incurred a $ 0.5 million charge . nicolet has used acquisitions as part of its growth strategy over the past few years and has successfully integrated and realized cost efficiencies related to scale quickly after each acquisition . in 2020 , despite the turbulent year and through the many actions noted above , nicolet delivered on growth , profitability , capital positioning , and sound asset quality management . at december 31 , 2020 , nicolet had total assets of $ 4.6 billion , loans of $ 2.8 billion , deposits of $ 3.9 billion and stockholders ' equity of $ 539 million , representing increases over december 31 , 2019 of 27 % , 8 % , 32 % and 4 % , in assets , loans , deposits and total equity , respectively , largely due to the significant increase in liquidity , and only partly due to the advantage acquisition . at december 31 , 2020 , cash and cash equivalents grew significantly , up $ 0.6 billion to $ 0.8 billion or 18 % of assets ( compared to $ 0.2 billion or 5 % of assets at year end 2019 ) , while loans increased $ 0.2 billion and investments grew $ 0.1 billion , funded by the surge in deposits ( up $ 956 million ) over year end 2019. asset quality remained sound , with nonperforming assets to assets of 0.29 % at december 31 , 2020 ( down from 0.42 % at year-end 2019 ) , as the borrowing base has largely remained resilient , profitable and liquid in the uncertain times . the allowance for credit losses-loans grew to $ 32.2 million ( 1.15 % of loans , or 1.24 % of loans excluding ppp loans ) compared to $ 14.0 million or 0.54 % of loans at december 31 , 2019. the large increase in the allowance resulted from the $ 10.3 million provision exceeding $ 1.4 million of net charge-offs ( or 0.05 % of average loans ) , and a $ 9.3 million addition upon adoption of the current expected credit losses ( โ cecl โ ) model . story_separator_special_tag ( 2 ) the yield on tax-exempt loans and tax-exempt investment securities is computed on a tax-equivalent basis using a federal tax rate of 21 % and adjusted for the disallowance of interest expense . 22 table 2 : volume/rate variance - tax-equivalent basis replace_table_token_6_th ( 1 ) the change in interest due to both rate and volume has been allocated in proportion to the relationship of dollar amounts of change in each . ( 2 ) nonaccrual loans and loans held for sale are included in the daily average loan balances outstanding . ( 3 ) the yield on tax-exempt loans and tax-exempt investment securities is computed on a tax-equivalent basis using a federal tax rate of 21 % and adjusted for the disallowance of interest expense . table 3 : interest rate spread , margin and average balance mix - tax-equivalent basis replace_table_token_7_th comparison of 2020 versus 2019 net interest income was up 11 % over 2019 , despite an 81 bps decline in net interest margin . overall asset volumes increased net interest income while the mix of interest-earning assets ( particularly the very high cash levels ) squeezed the related net interest margin . in general , the lower interest rate environment pressured both net interest income and net interest margin . 23 the interest rate environment experienced dramatic change in 2020. prior to the pandemic , the federal reserve steadily raised short-term interest rates during 2017 and 2018 in support of a growing economy ( up 175 bps total to 2.50 % at december 31 , 2018 ) , and then reduced rates by 75 bps in three moves during the second half of 2019 ( to 1.75 % at december 31 , 2019 ) largely responding to global issues and slowing growth , which contributed to a flattened yield curve with periods of inversion . in response to the pandemic in march 2020 , the federal reserve dropped short-term rates by 150 bps ( to 25 bps at march 31 , 2020 ) in two emergency moves , which brought slope back into the yield curve , though still fairly flat . comparatively , short-term rates were 150 bps lower at december 31 , 2020 than at december 31 , 2019. while the following paragraphs will discuss the comparison of 2020 and 2019 , we expect that the pandemic impacts will continue to evolve and pressure future quarters even further , including continued margin pressure in the low rate environment and potential unusual loan or deposit volume or pricing impacts . at the onset of the pandemic , but prior to the announcement of government stimulus , we added liquidity to ensure we could meet customer needs . the action demonstrated our capacity to support our communities , but proved later to not be necessary , leading us to reduce non-deposit leverage in the second half of 2020. efforts to minimize pressure on net interest income during the changes throughout 2020 included prudent pricing actions on deposits and loans , allowing brokered deposits to mature without renewal , prepayment of selected fhlb advances , and full payback of the ppplf funding ( approximately $ 335 million used for 5 months at a cost of 35 bps ) . in addition , we fully redeemed our subordinated notes ( $ 12 million at 5 % fixed ) in november 2020 and one of our junior subordinated debenture issuances ( $ 6 million at 8 % fixed ) in december 2020 , which combined will reduce annual interest expense by approximately $ 1.1 million going forward . tax-equivalent net interest income was $ 130.3 million for 2020 , up $ 13.2 million ( 11 % ) , compared to 2019 , comprised of net interest income of $ 129.3 million ( $ 13.3 million or 11 % higher than 2019 ) and a $ 1.0 million tax-equivalent adjustment ( down nearly $ 0.1 million between the years ) . the $ 13.2 million increase in tax-equivalent net interest income was comprised of $ 10.6 million higher interest income and $ 2.6 million lower interest expense . higher volumes added $ 26.3 million to net interest income , including a $ 31.8 million increase to interest income on higher interest-earning assets ( mostly from higher loan volumes , due to the inclusion of loans acquired with choice and advantage , as well as ppp loans ) , offset partly by a $ 5.4 million increase to interest expense on higher interest-bearing liabilities ( mostly from higher deposit volumes also related to the inclusion of choice and advantage , as well as overall deposit growth from increased liquidity of consumers and businesses ) . rate changes reduced net interest income $ 13.1 million , comprised of $ 21.2 million lower interest income ( with $ 16.8 million was from lower rates on loans and $ 3.7 million from the dramatically reduced cash rate earned ) , but also lower interest expense on funding of $ 8.1 million ( including $ 7.7 million savings from non-brokered interest-bearing core deposits and $ 0.9 million savings from wholesale funding , partly offset by $ 0.6 million more interest expense from term brokered deposits ) . the interest rate spread decreased 69 bps between the periods , as the interest-earning asset yield decreased 110 bps to 3.90 % and the cost of funds declined favorably 41 bps to 0.75 % . the significantly higher mix of cash assets ( to 15 % of interest-earning assets versus 4 % in 2019 ) combined with their dramatic decline in yield ( to 0.46 % versus 2.65 % in 2019 ) , has pressured the net interest margin most .
| fourth quarter 2020 results nicolet recorded net income of $ 18.0 million for fourth quarter 2020 , or $ 1.74 for diluted earnings per common share , compared to $ 12.3 million , or $ 1.18 , respectively for fourth quarter 2019. return on average assets was 1.58 % and 1.46 % for fourth quarter 2020 and 2019 , respectively , even with the elevated cash assets in 2020. see table 19 for selected quarterly information . net interest income increased $ 3.5 million ( 12 % ) between the comparable fourth quarter periods , despite a 77 bps decline in net interest margin , mostly due to the high cash levels and much lower interest rate environment . interest income increased $ 1.8 million ( including $ 6.3 million on higher volumes , partly offset by $ 4.5 million lower rates ) , while interest expense decreased $ 1.7 million ( with $ 2.8 million from lower rates more than covering the $ 1.1 million higher volumes ) . the net interest margin between the comparable quarters decreased 77 bps to 3.29 % in fourth quarter 2020 , comprised of 60 bps lower interest rate spread ( to 3.10 % , as the yield on earning assets decreased 114 bps and the rate on interest-bearing liabilities decreased 54 bps ) and a 17 bps lower contribution from net free funds ( with the higher balances worth less in the very low interest rate environment ) . average interest-earning assets increased $ 1.1 billion to $ 4.1 billion for fourth quarter 2020 , largely due to growth in loans ( up $ 430 million ) and other interest-earning assets , which is mostly cash ( up $ 591 million ) .
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f-16 impairment of properties investments in properties classified as held for story_separator_special_tag the following discussion and analysis of results of operations and financial condition should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report . overview dct industrial trust inc. is a leading industrial real estate company specializing in the ownership , acquisition , development , leasing and management of bulk-distribution and light-industrial properties located in high-demand distribution markets in the united states . dct 's actively managed portfolio is strategically located near population centers and well-positioned to take advantage of market dynamics . as used herein , the terms โ company , โ โ we , โ โ our โ and โ us โ refer to dct industrial trust inc. and its subsidiaries , including its operating partnership , dct industrial operating partnership lp . when we use the term โ dct โ or โ dct industrial , โ we are referring to dct industrial trust inc. by itself , and not including any of its subsidiaries , and when we use the term โ operating partnership , โ we are referring to dct industrial operating partnership lp by itself , and not including any of its subsidiaries . dct was formed as a maryland corporation in april 2002 and has elected to be treated as a real estate investment trust , or reit , for u.s. federal income tax purposes . we are structured as an umbrella partnership reit under which substantially all of our current and future business is , and will be , conducted through a majority owned and controlled subsidiary , dct industrial operating partnership lp , a delaware limited partnership , for which dct is the sole general partner . dct owns properties through the operating partnership and its subsidiaries . as of december 31 , 2016 , dct owned approximately 96.3 % of the outstanding equity interests in the operating partnership . our primary business objectives are to maximize long-term growth in funds from operations , or ffo , as defined on page 36 , net asset value of our portfolio and total shareholder returns . in our pursuit of these long-term objectives , we seek to : maximize cash flows from existing properties ; deploy capital into development and redevelopment opportunities which meet our asset , location and financial criteria ; and recycle capital by selling assets that no longer fit our investment criteria and reinvesting the proceeds into higher growth opportunities . outlook we seek to maximize long-term earnings growth per share and shareholder value primarily through increasing cash flow at existing properties and developing and acquiring high-quality properties with attractive operating income and value growth prospects . fundamentals for industrial real estate continue to improve in response to general improvement in the economy as well as trends that particularly favor industrial assets , including the growth of e-commerce and u.s. based manufacturing . we expect moderate economic growth to continue in 2017 , which we expect to result in continued positive demand for warehouse space as companies expand and upgrade their distribution and production platforms . in response to positive net absorption and lower market vacancy levels , rental rates are increasing in most of our markets . rental concessions , such as free rent , remain at historically low levels . consistent with recent experience and based on current market conditions , we expect average net effective rental rates on new leases signed during 2017 to be higher than the rates on expiring leases . new development , including speculative development , is present in most markets in response to strong tenant demand for high-quality space . however , construction remains rational in relation to net absorption in most markets and below historical peak levels . we expect that the operating environment will continue to be favorable for lessors given our favorable outlook for market occupancy levels and rental rate growth . we expect same store net operating income to be higher in 2017 than it was in 2016 , primarily as a result of the impact of increasing rental rates on leases signed in 2016 and 2017 compared to expiring leases . in terms of capital investment , we will continue to pursue selective development of new buildings and the opportunistic acquisition of buildings in markets where we perceive demand and market rental rates will provide attractive financial returns . 37 we anticipate continuing to selectively dispose of non-strategic assets to fund our investment in developments and acquisitions in an effort to enhance long-term growth in our net asset value , earnings and cash flows as well as to improve the overall quality of our portfolio . we anticipate having sufficient liquidity to fund our operating expenses , including costs to maintain our properties and distributions , though we may finance investments , including acquisitions and developments , with the issuance of new common shares , proceeds from asset sales or through additional borrowings . please see โ liquidity and capital resources โ for additional discussion . inflation the u.s. economy has experienced low inflation over the past several years and as a result , inflation has not had a significant impact on our business . moreover , most of our leases require the customers to pay their share of the cost to operate our properties , including common area maintenance , real estate taxes and insurance , thereby reducing our exposure to increases in costs and operating expenses resulting from inflation . in addition , most of our leases expire within five years which enables us to replace existing leases with new leases at then-existing market rates . while slowing global growth has the potential to dampen demand for distribution space , we have not yet seen any indications of this reduced demand . story_separator_special_tag if our judgment or interpretation of the facts and circumstances relating to various transactions had been different or different assumptions were made , it is possible that different accounting policies would have been applied , resulting in different financial results or a different presentation of our financial statements . our discussion and analysis of financial condition and results of operations is based on our consolidated financial statements which have been prepared in accordance with gaap . estimates , judgments and assumptions are based on historical experiences that we believe to be reasonable under the circumstances . from time to time we re-evaluate those estimates and assumptions . the company 's significant accounting policies are described in โ notes to the consolidated financial statements , note 2 โ summary of significant accounting policies โ . these policies were followed in preparing the consolidated financial statements as of and for the year ended december 31 , 2016 and are consistent with the year ended december 31 , 2015 . the company has identified the following significant accounting policies as critical accounting policies . these accounting policies have the most significant impact on our financial condition and results of operations and require management 's most difficult , subjective and or complex estimates . capitalization of costs see the company 's accounting policy for capitalization of costs with respect to capitalization of project costs versus the expensing of repair and maintenance costs as described in โ notes to the consolidated financial statements , note 2 โ summary of significant accounting policies โ . as described in our policy , we capitalize costs such as personnel , office and other expenses based on an estimate of the time spent on projects that are directly related to capital projects and acquisition of leases . capitalized costs are recorded on the consolidated balance sheets in construction in progress for each specific property . for all development projects , the company uses its professional judgment in determining whether such costs meet the criteria for capitalization or must be expensed as incurred . the company capitalizes interest , real estate taxes , insurance , payroll and costs associated with individuals directly responsible for and who spend their time on development activities . capitalization is ceased upon substantial completion of the project . these costs are recorded on the consolidated balance sheets in construction in progress for each specific property . 40 acquisition of investment properties the company allocates the purchase price of real estate to identifiable tangible assets such as land , building , land improvements and tenant improvements acquired based on their fair value . in estimating the fair value of each component management considers appraisals , replacement cost , its own analysis of recently acquired and existing comparable properties , market rental data and other related information . impairment of properties the company periodically evaluates its long-lived assets , including investments in properties , for indicators of impairment . the judgements regarding the existence of indicators of impairment are based on the operating performance , market conditions , as well as the company 's ability to hold and its intent with regard to each property . the judgements regarding whether the carrying amounts of these assets may not be recoverable are based on estimates of future undiscounted cash flows from properties which include estimates of future operating performance and market conditions . impairment of investments in and advances to unconsolidated joint ventures the company evaluates investments in and advances to unconsolidated joint ventures for impairment whenever events or changes in circumstances indicate that there may be an other-than-temporary decline in value . the judgments regarding other-than-temporary declines in value are based on operating performance , market conditions and the company 's ability and intent to hold as well as its ability to influence significant decisions of the venture . derivative instruments and hedging activities derivative instruments and hedging activities require management to make judgments regarding fair value , the nature of its derivatives and their effectiveness as hedges . these judgments determine if the changes in the fair value of the derivative instruments are reported in our consolidated statement of operations as a component of net income or as a component of other comprehensive income and as a component of accumulated other comprehensive income within equity on the consolidated balance sheets . while management believes its judgments are reasonable , a change in a derivative 's effectiveness as a hedge could materially affect expenses , net income and equity . revenue recognition at the inception of a new lease arrangement , including new leases that arise from amendments , we assess the terms and conditions to determine the proper lease classification . a lease arrangement is classified as an operating lease if none of the following criteria are met : ( i ) transfer of ownership to the lessee , ( ii ) lessee has a bargain purchase option during or at the end of the lease term , ( iii ) the lease term is equal to 75 % or more of the underlying property 's economic life , or ( iv ) the present value of future minimum lease payments ( excluding executory costs ) are equal to 90 % or more of the excess estimated fair value ( over retained investment tax credits ) of the leased building . generally , none of our leases meet any of the above criteria and , as such , are classified as operating leases . if the assumptions utilized in the above classification assessments were different , our lease classification for accounting purposes may have been different ; thus the timing and amount of our revenue recognized would have been impacted , which may be material to our consolidated financial statements . we recognize rental revenues on a straight-line basis under which contractual rent increases are recognized evenly over the lease term when collectability is reasonably assured and the tenant has taken possession or controls the physical use of the property .
| summary of the year ended december 31 , 2015 compared to the year ended december 31 , 2014 as of december 31 , 2015 , we consolidated 390 operating properties , three development properties , five redevelopment properties and four consolidated operating properties classified as held for sale . as of december 31 , 2014 , we consolidated 393 operating properties , seven development properties and six redevelopment properties . 46 comparison of the year ended december 31 , 2015 to the year ended december 31 , 2014 the following table presents the changes in rental revenues , rental expenses and real estate taxes , property net operating income , other revenue and other income and other expenses for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 . our same store portfolio includes all operating properties that we owned for the entirety of both the current and prior year reporting periods . we consider same store properties to be a useful measure to improve comparability between periods by excluding the effects of changes in our consolidated operating properties period over period . developed properties are included in same store properties once they are stabilized in both reporting periods . we generally consider buildings stabilized when occupancy reaches 90 % . non-same store operating properties include properties not meeting the same store criteria and exclude development and redevelopment properties that are not stabilized or ready for their intended use . for the year ended december 31 , 2015 , we had 311 properties classified as same store comprising 46.5 million square feet and 91 classified as non-same store consisting of properties that did not meet our same store definition , which includes 83 operating properties and eight development and redevelopment properties that were not stabilized .
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this amount reflects a possible decrease in the liability for uncertain tax positions that could result from the completion and story_separator_special_tag the following discussion and analysis of financial condition and results of operations is provided to enhance the understanding of , and should be read in conjunction with , part i , item 1 , โ business โ and item 8 , โ financial statements and supplementary data. โ for information on risks and uncertainties related to our business that may make past performance not indicative of future results , or cause actual results to differ materially from any forward-looking statements , see โ general , โ and part i , item 1a , โ risk factors. โ overview we are the leading global leaf tobacco supplier . we derive most of our revenues from sales of processed tobacco to manufacturers of tobacco products throughout the world and from fees and commissions for specific services . we hold a strategic position in the world leaf markets where we work closely with both our customers and farmers to ensure that we deliver a compliant product that meets our customers ' needs while promoting a strong supplier base . we adapt to meet changes in customer requirements as well as broader changes in the leaf markets while continuing to provide the stability of supply and high level of service that distinguishes us in the marketplace . we believe that we have successfully met the needs of both our customers and suppliers while adapting to changes in leaf markets . consequently , we have delivered strong results to our shareholders . over the last three fiscal years , we have strengthened our balance sheet by repaying almost $ 103 million in debt , generated over $ 488 million in net cash flow from operations , and returned almost $ 240 million to our shareholders through a combination of dividends and share repurchases . after record results and large crops in fiscal year 2010 , we continued to see large burley crops in fiscal year 2011 while flue-cured production was reduced somewhat by a weather issue in brazil . during the year , we began to see the signs of oversupply in lower margins and elevated supplier and dealer inventories . in addition , we assigned farmer contracts in brazil to a subsidiary of philip morris international as part of its efforts to increase its direct sourcing capability there . in response to customer efforts in direct sourcing and our need to reduce costs in an oversupplied market , we began a process of reviewing each of our operations with the purpose of rationalizing global operations to fit market conditions . that process gave rise to numerous cost-saving initiatives which continued into fiscal year 2012. in fiscal year 2012 , we had a slow start to the tobacco buying season , which is typical in a cycle of oversupply as both customers and farmers delayed action to evaluate market development . however , selling activity increased after prices declined at both the farm and the supplier and dealer levels . we experienced lower margins as a result of the oversupplied market conditions . in brazil , we also saw the effect in our first quarter of reduced sales of leaf due to the assignment of some of our farmer contracts to a subsidiary of philip morris international during fiscal year 2011. processing volumes in north america decreased due to processing contracts that expired in 2011. we continued to make progress on our restructuring programs in several regions , to further reduce operating cost structures where necessary . earnings were negatively impacted by a charge related to the rejection of our european commission fine appeal , although we appealed that decision to a higher court and expect resolution in fiscal year 2014. despite smaller crops , rising leaf production costs , and margin pressures in most regions , we delivered better performance in fiscal year 2013 than we had anticipated at the beginning of the fiscal year . some of this success was attributable to the sale of previously uncommitted inventories and carryover shipments of the prior year 's large african and south american crops . in addition , we benefited from lower selling , general , and administrative costs . certain of these costs reductions were unpredictable - such as currency remeasurement and exchange gains - and may not be recurring , while others were a result of our targeted cost reduction and efficiency improvement efforts . in fiscal year 2013 , we also generated over $ 230 million in cash flow from our operations and returned nearly $ 70 million to our shareholders through a combination of dividends and share repurchases . in addition to our financial achievements , our strong local management teams around the globe continued to advance our goal of providing compliant leaf , produced in a sustainable and competitive manner , to our customers . as we move into fiscal year 2014 , we are seeing crop sizes increase in many of the key sourcing areas for flue-cured and burley tobacco in response to strong global leaf demand . sales activity has also been robust , especially for quality flavor flue-cured styles of tobacco . burley tobacco remains in high demand , and current year crop levels are not expected to meet global requirements . at the same time , our uncommitted inventories are near historic lows , limiting our ability to glean additional volumes from this source . in addition to the low uncommitted inventories , we will not have the benefit of carryover crop shipments which helped our results in the first and second quarters of fiscal year 2013. while we look forward to another productive year , total volumes shipped may be lower in fiscal year 2014. we remain committed to being a leader in our industry and are excited about the future . story_separator_special_tag revenues for the segment of $ 1.9 billion were relatively flat as higher overall volumes combined with lower prices in most regions and a less favorable mix . operating income for the north america segment declined by $ 29.2 million to $ 30.0 million for fiscal year 2012 , as results included the full impact of lower toll processing volumes there . the lower processing volumes were partly mitigated by reduced overhead costs , including savings from restructuring initiatives . results for both fiscal years 2012 and 2011 also reflected sales of uncommitted leaf inventories . revenues for the segment were down 8 % to $ 314.2 million . 22 other tobacco operations in the other tobacco operations segment , operating income for fiscal year 2012 declined by $ 15.8 million to $ 12.8 million , due primarily to lower volumes and margins in the dark tobacco operations as a result of a decline in global market sales . the oriental joint venture also experienced lower overall sales volumes and margins for fiscal year 2012 , partially mitigated by reduced overhead costs and the benefit from business realignment charges taken in fiscal year 2011. revenues for this segment for fiscal year 2012 decreased by $ 47.5 million , to $ 239.2 million . the majority of this change was due to the transfer of special services business to the other regions segment and lower dark tobacco volumes . other items cost of goods sold decreased by about 4 % to $ 2.0 billion for the year ended march 31 , 2012 , primarily as a result of reduced green leaf prices in most origins , offset somewhat by higher volumes . selling , general , and administrative costs fell by $ 7.4 million for the year . the decline included a favorable comparison on costs related to a smaller farmer base in south america and a positive variance from the reversal of non-income tax provisions due to a favorable tax ruling in south america , partially offset by unfavorable variances on currency remeasurement primarily in south america and asia . interest expense was down 1 % to $ 22.8 million for the year ended march 31 , 2012 , primarily reflecting lower average borrowing levels . interest income for fiscal year 2012 was about $ 1.4 million lower , due to the previous year 's recognition of interest income on the return of funds that had been escrowed to bond the appeal of the european commission fine in spain . the consolidated effective income tax rate on pretax earnings was approximately 38 % for the fiscal year ended march 31 , 2012. the rate was higher than the 35 % u.s. statutory tax rate because we did not record an income tax benefit on the non-deductible fine portion of the charge for the european commission fine and interest in italy . without that item , the effective income tax rate for fiscal year 2012 would have been approximately 29 % . that rate was lower than the u.s. statutory rate primarily due to the effect of exchange rate movements on deferred taxes and recognition of benefits on fiscal year 2011 operating losses of certain foreign subsidiaries , and to recoveries of state income taxes . the effective income tax rate for the year ended march 31 , 2011 , was approximately 32 % . the effective rate for 2011 was less than the statutory rate due to the reversal of previously recorded liabilities for uncertain tax positions and recognition of benefits on fiscal year 2010 operating losses of certain foreign subsidiaries . during the first quarter of fiscal year 2012 , an insurance settlement was received for replacement cost recovery on the factory and equipment destroyed in a fire at our sheet tobacco operations in europe in 2010. the settlement generated a gain of $ 9.6 million . in the third quarter of fiscal year 2012 , we sold land and storage buildings in brazil in exchange for other property and $ 9.4 million in cash . the transaction resulted in a gain of $ 11.1 million . both of these gains are reported in other income in the consolidated statements of income . accounting pronouncements in february 2013 , the fasb issued accounting standards update 2013-02 , โ comprehensive income ( topic 220 ) : reporting of amounts reclassified out of accumulated other comprehensive income. โ the new guidance requires entities to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income unless the amounts are not reclassified in their entirety to net income . for amounts that are not required to be reclassified in their entirety to net income in the same reporting period , entities are required to cross-reference other disclosures that provide additional detail about those amounts . the new guidance is effective prospectively for all interim and annual periods beginning after december 15 , 2012 , with early adoption permitted . the company does not expect any impact on the company 's results of operations , cash flows or financial position as the guidance relates only to additional disclosures . we believe the other new accounting guidance issued during fiscal year 2013 would not have a material impact on our financial statements . 23 liquidity and capital resources overview during the fiscal year ended march 31 , 2013 , our operations generated positive operating cash flows . seasonal working capital requirements were lower this fiscal year largely due to smaller crops , the completion of carryover shipments from last year 's large crops in some origins , and sales of uncommitted inventories . we had more than sufficient liquidity to meet our needs . we also continued our conservative financial policies , maintained our discipline on using our free cash flow , ended the fiscal year with lower uncommitted tobacco inventory levels , and reduced our leverage ratios while returning funds to shareholders .
| results of operations fiscal year ended march 31 , 2013 , compared to the fiscal year ended march 31 , 2012 net income for the fiscal year ended march 31 , 2013 , was $ 132.8 million , or $ 4.66 per diluted share , compared with last year 's net income of $ 92.1 million , or $ 3.25 per diluted share . the comparison of the current and prior fiscal year is affected by several unusual items , which are described below , amounting to net pretax charges of $ 4.1 million ( $ 0.06 per diluted share ) , and $ 40.1 million ( $ 1.42 per diluted share ) for fiscal years 2013 and 2012 , respectively . segment operating income for fiscal year 2013 , which excludes those unusual items , was $ 232.8 million , up $ 9.2 million compared with the prior year , as improved performance in our other regions and other tobacco operations segments was partially offset by a decline in our north america segment . revenues for fiscal year 2013 of $ 2.5 billion were relatively flat compared with the previous year , on lower volumes at higher average prices . the following table sets forth the unusual items included in the annual results , none of which are included in segment results : replace_table_token_4_th ( 1 ) fines and accumulated interest from the september 9 , 2011 , decision by the general court of the european union rejecting an italian subsidiary 's application to reinstate immunity related to infringements of european union antitrust law in the italian raw tobacco market . ( 2 ) restructuring charges , primarily related to workforce reductions in the united states , south america , europe , and africa . ( 3 ) the fire loss insurance settlement related to a plant fire in europe in 2010. the operating assets were replaced .
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the third loan agreement bears interest at 8 % per annum and was repayable at the time the company completed an ipo or story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with the financial statements and related notes appearing elsewhere in this annual report on form 10-k. some of the information in this discussion and analysis contains forward-looking statements reflecting our current expectations and involves risk and uncertainties . for example , statements regarding our expectations as to our plans and strategy for our business , future financial performance , expense levels and liquidity sources are forward-looking statements . our actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors , including those set forth under the โ risk factors โ section and elsewhere in this annual report on form 10-k. please also see the section entitled โ special note regarding forward-looking statements. โ overview we are a clinical-stage biopharmaceutical company focused on the development and commercialization of a portfolio of product candidates to treat patients suffering from central nervous system , or cns , diseases . leveraging our scientific insights and clinical experience , we have acquired or in-licensed four development-stage proprietary compounds that we believe have innovative mechanisms of action and therapeutic profiles that potentially can address the unmet needs of patients with these diseases . our product portfolio and potential indications includes : min-101 for the treatment of schizophrenia ; min-202 ( also known as jnj-42847922 ) , a compound we are co-developing with janssen pharmaceutica nv , or janssen , for the treatment of insomnia disorder and adjunctive major depressive disorder , or mdd ; min-117 for the treatment of mdd ; and min-301 for the treatment of parkinson 's disease . we believe our product candidates have significant potential to improve the lives of a large number of affected patients and their families who are currently not well-served by available therapies . in november 2013 , cyrenaic pharmaceuticals , inc. , or cyrenaic , and sonkei pharmaceuticals , inc. , or sonkei , merged , and the combined company was renamed minerva neurosciences , inc. cyrenaic had been incorporated in 2007 and had exclusively licensed min-101 from mitsubishi tanabe pharma corporation , or mtpc . sonkei had been incorporated in 2008 and had exclusively licensed min-117 from mtpc . we executed the merger as we saw an opportunity to better serve an underserved patient population through combining a portfolio of promising product candidates targeting cns diseases . as a result of the merger , we have the rights to develop and commercialize min-101 and min-117 globally , excluding most of asia . we further expanded our product candidate portfolio in february 2014 by acquiring the shares of mind-nrg sa , or mind-nrg , which had exclusive rights to develop and commercialize min-301 . in addition , in february 2014 we entered into a co-development and license agreement with janssen , one of the janssen pharmaceutical companies of johnson & johnson . pursuant to this agreement we are co-developing min-202 and have the right to commercialize this compound in europe , subject to royalty payments to janssen , with janssen having commercialization rights outside of the european union , subject to royalty payments to us . our relationships with janssen and mtpc help inform our clinical development and regulatory strategies . we have not received regulatory approvals to sell any of our product candidates , and we have not generated any revenue from the sales or license of our product candidates . we have incurred significant operating losses since inception . we expect to incur net losses and negative cash flow from operating activities for the foreseeable future in connection with the clinical development and the potential regulatory approval , infrastructure development and commercialization of our product candidates . in january and february 2016 , certain investors in our march 2015 private placement exercised their warrants and received an aggregate of 3,039,514 shares of our common stock . we received gross proceeds of approximately $ 17.5 million from the exercise of these warrants . financial overview presentation on february 11 , 2014 , we acquired mind-nrg in order to acquire mind-nrg 's lead product candidate , min-301 . the results of mind-nrg are included in our accompanying financial statements beginning february 11 , 2014. the fair value of the 1,481,583 shares of common stock issued to the stockholders of mind-nrg was approximately $ 16.5 million , substantially all of which was allocated to in-process research and development and goodwill . 53 revenue none of our product candidates have been approved for commercialization and we have not received any revenue in connection with the sale or license of our product candidates . research and development expenses research and development expenses consists of costs incurred in connection with the development of our product candidates , including : fees paid to consultants and clinical research organizations , or cros , including in connection with our non-clinical and clinical trials , and other related clinical trial fees , such as for investigator grants , patient screening , laboratory work , clinical trial database management , clinical trial material management and statistical compilation and analysis ; licensing fees ; costs related to acquiring clinical trial materials ; costs related to compliance with regulatory requirements ; and costs related to salaries , benefits , bonuses and stock-based compensation granted to employees in research and development functions . we expense research and development costs as they are incurred . the historic direct costs relating to each of our product candidates are summarized as follows ( in thousands ) : replace_table_token_2_th ( 1 ) the expense for the years ended december 31 , 2015 and 2014 excludes non cash stock-based compensation expense of $ 0.6 million and $ 13.1 million , respectively . story_separator_special_tag the internal revenue code , or irc , limits the amounts of net operating loss carryforwards that a company may use in any one year in the event of certain cumulative changes in ownership over a threeโyear period as described in section 382 of the irc . we have not performed a detailed analysis to determine whether an ownership change occurred upon consummation of the merger between us and sonkei or the acquisition of mindโnrg . however , as a result of these transactions , our initial public offering and the shares issued to jjdc and shareholders of mindโnrg as part of the private placements consummated concurrently with our initial public offering , it is likely that an ownership change would occur or has occurred . such an ownership change could also be triggered by subsequent sales of securities by us or our stockholders . such a change in ownership would limit the utilization of our net operating losses . as a result , we may not be able to take full advantage of these tax carryforwards for federal tax purposes . costs associated with the acquisitions and financings we incurred legal and other professional fees associated with the acquisition of sonkei and mindโnrg , which costs were expensed as incurred . we also incurred professional fees associated with entering into the coโdevelopment and licensing agreement with janssen and engaging valuation specialists . 55 on november 12 , 2013 , cyrenaic pharmaceuticals , inc. , or cyr enaic , merged with sonkei , with cyrenaic being the surviving company , which was renamed minerva . in the merger , each share of sonkei common stock was converted into 0.383 shares of cyrenaic common stock , resulting in the issuance of 2,423,368 shares of cyr enaic common stock to the former sonkei stockholders . although there were certain venture funds that were common stockholders of each of sonkei and cyrenaic , since the underlying investors in the venture funds were not โ substantially similar โ , the merger w as accounted for a business combination with cyrenaic being treated as the acquirer . we merged with sonkei in order to acquire sonkei 's lead product candidate , min โ117 . at the date of the merger , a sonkei consultant held 1,112,500 shares of sonkei common stock with a nonrecourse note due to sonkei , which was being treated as a stock option for accounting purposes . in connection with the merger , we issued 426,176 shares of common stock to this consultant ( discussed further in note 9 โ stockholders ' equity to our financial statements appearing elsewhere in this form 10-k ) in order to replace the holder 's common stock in sonkei . due to the nonrecourse note , these shares were treated as stock options for accounting purposes and the holder of the option could only vest in the stock options if the holder continues to provide services to us through the time of a change in control . as a change in control was not deemed probable as of the merger date , the value of the options was not included as part of the consideration transferred in the merger for accounting purposes . rather , we recognized all of the compensation expense for these stock options in our statement of operations upon the closing of our initial public offering . the merger accounting purchase price was therefore determined based upon the remaining 1,997,192 shares of common stock issued in the merger at a valuation of $ 9.49 per share for a total purchase price of approximately $ 18.9 million . merger expenses of $ 14 thousand were included in general and administrative expenses for the year ended december 31 , 2013. the fair value of our common stock issued in the merger was determined based on a number of objective and subjective factors , including external market conditions affecting the biotechnology industry sector , discounted cash flows and the likelihood of achieving a liquidity event , such as an initial public offering of common stock or our sale . substantially all of the purchase price was allocated to inโprocess research and development and goodwill . as part of the acquisition , we assumed $ 0.7 million of convertible notes , which were converted into 352,000 shares of our common stock on july 7 , 2014 at our initial public offering price of $ 6.00 per share . we acquired mindโnrg in february 2014 , and the fair value of the 1,481,583 shares of common stock issued to the stockholders of mindโnrg was approximately $ 16.5 million . the fair value of the common shares issued and the allocation of the purchase price was based upon our valuation of our common stock as approved by our board of directors . substantially all of the purchase price was allocated to inโprocess research and development and goodwill . in connection with the acquisition , we entered into loan agreements for working capital up to a maximum of $ 0.6 million . the mindโnrg loans had an interest rate of 8 % per annum , added to the principal . the mindโnrg loans , including accrued interest , were repaid in full in april 2014 for $ 0.5 million . we subsequently entered into two loan agreements for $ 0.6 million and $ 1.0 million , the april bridge loan and the may bridge loan , respectively . the april bridge loan and may bridge loan each had an interest rate of 8 % per annum and were repaid in full out of the proceeds of our initial public offering . as part of the mindโnrg acquisition , we also paid proteosys a final license payment of 0.5 million ( or $ 0.7 million , as converted ) upon the closing of our initial public offering .
| results of operations comparison of the years ended december 31 , 2015 and december 31 , 2014 ( in thousands ) replace_table_token_3_th 56 research and development expenses research and development expenses were $ 18.5 million for the year ended december 31 , 2015 compared to $ 42.9 million for the same period in 2014 , a decrease of $ 24.4 million . research and development expenses in the year ended december 31 , 2014 included $ 22.0 million license fee paid to janssen pursuant to our co-development agreement for min-202 . research and development expenses in the years ended december 31 , 2015 and 2014 included non-cash stock-based compensation expenses of $ 0.6 million and $ 13.1 million , respectively . the decrease in stock-based compensation expense was primarily due to the vesting of 926,604 shares of common stock and 441,973 options to purchase common stock that were issued and fully vested during the year ended december 31 , 2014. excluding stock-based compensation and the $ 22.0 million license fee , total research and development expenses related to drug development programs for the year ended december 31 , 2015 and 2014 was $ 17.9 million and $ 7.8 million , respectively , an increase of $ 10.1 million . this increase in research and development expenses primarily reflects increased expenses related to our phase iib clinical trial of min-101 , our phase iia clinical trial of min-117 and the min-202 phase i and ii clinical trials . general and administrative expenses total general and administrative expenses were $ 7.6 million for the year ended december 31 , 2015 compared to $ 12.0 million for the same period in 2014 , a decrease of approximately $ 4.4 million . general and administrative expenses in the year ended december 31 , 2015 and 2014 included non-cash stock-based compensation expenses of $ 1.6 million and $ 4.9 million , respectively .
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the company story_separator_special_tag the following discussion and analysis of our results of operations and financial condition for the fiscal years ended march 31 , 2016 , 2015 and 2014 , should be read in conjunction with our audited consolidated financial statements and the notes to those statements included in item 8. financial statements and supplementary data , of this annual report on form 10-k. our discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties , such as our plans , objectives , opinions , expectations , anticipations and intentions and beliefs . actual results and the timing of events could differ materially from those anticipated in those forward-looking statements as a result of a number of factors . see โ cautionary note regarding forward-looking statements , โ โ business โ and โ risk factors , โ sections elsewhere in this annual report on form 10-k. in the following discussion and analysis of results of operations and financial condition , certain financial measures may be considered โ non-gaap financial measures โ under the sec rules . these rules require supplemental explanation and reconciliation , which is provided in this annual report on form 10-k. enersys ' management uses the non-gaap measures , ebitda and adjusted ebitda , in its computation of compliance with loan covenants . these measures , as used by enersys , adjust net earnings determined in accordance with gaap for interest , taxes , depreciation and amortization , and certain charges or credits as permitted by our credit agreements , that were recorded during the periods presented . enersys ' management uses the non-gaap measures , '' primary working capital '' and `` primary working capital percentage '' ( see definition in โ overview โ below ) along with capital expenditures , in its evaluation of business segment cash flow and financial position performance . these non-gaap disclosures have limitations as analytical tools , should not be viewed as a substitute for cash flow or operating earnings determined in accordance with gaap , and should not be considered in isolation or as a substitute for analysis of the company 's results as reported under gaap , nor are they necessarily comparable to non-gaap performance measures that may be presented by other companies . this supplemental presentation should not be construed as an inference that the company 's future results will be unaffected by similar adjustments to operating earnings determined in accordance with gaap . overview enersys ( the โ company , โ โ we , โ or โ us โ ) is the world 's largest manufacturer , marketer and distributor of industrial batteries . we also manufacture , market and distribute products such as battery chargers , power equipment , battery accessories , and outdoor equipment enclosure solutions . additionally , we provide related aftermarket and customer-support services for our products . we market our products globally to over 10,000 customers in more than 100 countries through a network of distributors , independent representatives and our internal sales force . we operate and manage our business in three geographic regions of the worldโamericas , emea and asia , as described below . our business is highly decentralized with manufacturing locations throughout the world . more than half of our manufacturing capacity is located outside the united states , and approximately 50 % of our net sales were generated outside the united states . the company has three reportable business segments based on geographic regions , defined as follows : americas , which includes north and south america , with our segment headquarters in reading , pennsylvania , usa ; emea , which includes europe , the middle east and africa , with our segment headquarters in zug , switzerland ; and asia , which includes asia , australia and oceania , with our segment headquarters in singapore . we evaluate business segment performance based primarily upon operating earnings exclusive of highlighted items . highlighted items are those that the company deems are not indicative of ongoing operating results , including those charges that the company incurs as a result of restructuring activities and those charges and credits that are not directly related to ongoing business segment performance . all corporate and centrally incurred costs are allocated to the business segments based principally on net sales . we evaluate business segment cash flow and financial position performance based primarily upon capital expenditures and primary working capital levels ( see definition of primary working capital in โ liquidity and capital resources โ below ) . although we monitor the three elements of primary working capital ( receivables , inventory and payables ) , our primary focus is on the total amount due to the significant impact it has on our cash flow . 22 our management structure , financial reporting systems , and associated internal controls and procedures , are all consistent with our three geographic business segments . we report on a march 31 fiscal year-end . our financial results are largely driven by the following factors : global economic conditions and general cyclical patterns of the industries in which our customers operate ; changes in our selling prices and , in periods when our product costs increase , our ability to raise our selling prices to pass such cost increases through to our customers ; the extent to which we are able to efficiently utilize our global manufacturing facilities and optimize our capacity ; the extent to which we can control our fixed and variable costs , including those for our raw materials , manufacturing , distribution and operating activities ; changes in our level of debt and changes in the variable interest rates under our credit facilities ; and the size and number of acquisitions and our ability to achieve their intended benefits . we have two primary product lines : reserve power products and motive power products . story_separator_special_tag during fiscal 2013 , we announced further restructuring related to improving the efficiency of our manufacturing operations in emea , primarily consisting of cash expenses for employee severance-related payments and non-cash expenses associated with the write-off of certain fixed assets and inventory . these actions were substantially completed in fiscal 2015 and resulted in the reduction of approximately 140 employees . our fiscal 2015 operating results reflect the full benefit of the estimated $ 7.0 million of favorable annualized pre-tax earnings impact of the fiscal 2013 programs . there are no further costs to be incurred under these programs . during fiscal 2014 , we announced additional restructuring programs to improve the efficiency of our manufacturing , sales and engineering operations in emea including the restructuring of its manufacturing operations in bulgaria . the restructuring of the bulgaria operations was announced during the third quarter of fiscal 2014 and consists of the transfer of motive power and a portion of reserve power battery manufacturing to our facilities in western europe . these actions resulted in the reduction of approximately 500 employees upon completion during fiscal 2016. our fiscal 2015 operating results reflect substantially all of the approximately $ 19.0 million of expected favorable annualized pre-tax earnings impact of the fiscal 2014 programs . during fiscal 2016 we announced restructuring programs related to improving operational efficiencies in emea and the americas . these actions when completed in fiscal 2017 are expected to result in the reduction of approximately 240 employees and the closure of our cleveland , ohio manufacturing facility . approximately $ 3.0 million pre-tax in savings have been reflected in the fiscal 2016 results . 24 critical accounting policies and estimates our significant accounting policies are described in notes to consolidated financial statements in item 8. in preparing our financial statements , management is required to make estimates and assumptions that , among other things , affect the reported amounts in the consolidated financial statements and accompanying notes . these estimates and assumptions are most significant where they involve levels of subjectivity and judgment necessary to account for highly uncertain matters or matters susceptible to change , and where they can have a material impact on our financial condition and operating performance . we discuss below the more significant estimates and related assumptions used in the preparation of our consolidated financial statements . if actual results were to differ materially from the estimates made , the reported results could be materially affected . revenue recognition we recognize revenue when the earnings process is complete . this occurs when risk and title transfers , collectibility is reasonably assured and pricing is fixed or determinable . shipment terms to our battery product customers are either shipping point or destination and do not differ significantly between our business segments . accordingly , revenue is recognized when risk and title is transferred to the customer . amounts invoiced to customers for shipping and handling are classified as revenue . taxes on revenue producing transactions are not included in net sales . we recognize revenue from the service of reserve power and motive power products when the respective services are performed . management believes that the accounting estimates related to revenue recognition are critical accounting estimates because they require reasonable assurance of collection of revenue proceeds and completion of all performance obligations . also , revenues are recorded net of provisions for sales discounts and returns , which are established at the time of sale . these estimates are based on our past experience . asset impairment determinations we test for the impairment of our goodwill and indefinite-lived trademarks at least annually and whenever events or circumstances occur indicating that a possible impairment has been incurred . we perform our annual goodwill impairment test on the first day of our fourth quarter for each of our reporting units based on the income approach , also known as the discounted cash flow ( โ dcf โ ) method , which utilizes the present value of future cash flows to estimate fair value . we also use the market approach , which utilizes market price data of companies engaged in the same or a similar line of business as that of our company , to estimate fair value . a reconciliation of the two methods is performed to assess the reasonableness of fair value of each of the reporting units . the future cash flows used under the dcf method are derived from estimates of future revenues , operating income , working capital requirements and capital expenditures , which in turn reflect specific global , industry and market conditions . the discount rate developed for each of the reporting units is based on data and factors relevant to the economies in which the business operates and other risks associated with those cash flows , including the potential variability in the amount and timing of the cash flows . a terminal growth rate is applied to the final year of the projected period and reflects our estimate of stable growth to perpetuity . we then calculate the present value of the respective cash flows for each reporting unit to arrive at the fair value using the income approach and then determine the appropriate weighting between the fair value estimated using the income approach and the fair value estimated using the market approach . finally , we compare the estimated fair value of each reporting unit to its respective carrying value in order to determine if the goodwill assigned to each reporting unit is potentially impaired . if the carrying amount of a reporting unit exceeds its fair value , we are required to perform a second step of the goodwill impairment test to measure the amount of impairment loss , if any .
| overview our sales in fiscal 2016 were $ 2.3 billion , an 8 % decrease from prior year 's sales . this was the result of a 7 % decrease due to foreign currency translation impact and a 2 % decrease in organic volume , partially offset by a 1 % increase from acquisitions . 28 gross margin percentage in fiscal 2016 increased by 80 basis points to 26.4 % compared to fiscal 2015 , mainly due to lower commodity costs and favorable product mix combined with the benefits of restructuring programs in emea , despite a small decline in organic volume and an increase in warranty costs . a discussion of specific fiscal 2016 versus fiscal 2015 operating results follows , including an analysis and discussion of the results of our reportable segments . net sales net sales by reportable segment were as follows : replace_table_token_4_th the americas segment 's revenue decreased by $ 46.4 million or 3.5 % in fiscal 2016 , as compared to fiscal 2015 , primarily due a decrease in currency translation impact and organic volume of approximately 2 % , each . the emea segment 's revenue decreased by $ 161.4 million or 17.0 % in fiscal 2016 , as compared to fiscal 2015 , primarily due to a decrease in currency translation impact and organic volume of approximately 12 % and 6 % , respectively , partially offset by a 1 % increase in pricing . the asia segment 's revenue increased by $ 18.5 million or 7.9 % in fiscal 2016 , as compared to fiscal 2015 , primarily due to an increase from acquisitions and organic volume of approximately 13 % and 6 % , respectively , partially offset by a 10 % decrease in currency translation impact and a 1 % decrease due to pricing .
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in light of the changing nature of the covid-19 pandemic , we are unable to predict the extent that its impact will have on our financial condition , results of operations and cash flows due to numerous uncertainties including , but not limited to , the duration and spread of the pandemic , its severity in our markets and elsewhere , governmental actions to contain the spread of the pandemic and respond to the reduction in global economic activity , the unknown timing or f-12 effectiveness of treatments , possible resurgences of covid-19 cases in future periods and how quickly and to what extent normal economic and operating conditions can resume . the company is closely monitoring the impact of the covid-19 pandemic on all aspects of its story_separator_special_tag . โ we have described below the critical accounting policies that we believe could impact our consolidated financial statements most significantly . revenue recognition . all leases on our properties are classified as operating leases , and the related rental income is recognized on a straight-line basis over the terms of the related leases . differences between rental income earned and amounts due per the respective lease agreements are capitalized or charged , as applicable , to accrued rents and accounts receivable . percentage rents are recognized as rental income when the thresholds upon which they are based have been met . recoveries from tenants for taxes , insurance , and other operating expenses are recognized as revenues in the period the corresponding costs are incurred . we combine lease and nonlease components in lease contracts , which includes combining base rent , recoveries , and percentage rents into a single line item , rental , within the consolidated statements of operations and comprehensive income ( loss ) . additionally , we have tenants who pay real estate taxes directly to the taxing authority . we exclude these costs paid directly by the tenant to third parties on our behalf from revenue recognized and the associated property operating expense . other property income primarily includes amounts recorded in connection with management fees and lease termination fees . pillarstone op pays us management fees for property management , leasing and day-to-day advisory and administrative services . their obligations are satisfied over time . pillarstone op is billed monthly and typically pays quarterly . revenues are governed by the management agreements ( as defined in note 5 to our accompanying consolidated financial statements ) . refer to note 5 to our accompanying consolidated financial statements for additional information regarding the management agreements with pillarstone op . additionally , we recognize lease termination fees in the year that the lease is terminated and collection of the fee is probable . amounts recorded within other property income are accounted for at the point in time when control of the goods or services transfers to the customer and our performance obligation is satisfied . profit-sharing method . in accordance with the financial accounting standards board 's ( โ fasb โ ) guidance applicable to sales of real estate or interests therein , specifically fasb accounting standards codification ( โ asc โ ) 360-20 , โ real estate sales , โ topic 606 , โ revenue from contracts with customers โ and asc 610 , โ other incomeโgains and losses from the derecognition of nonfinancial assets , โ we did not recognize the sale of assets to pillarstone op in the contribution and accounted for the transaction under the profit-sharing method for the year ended december 31 , 2017. we recognized pillarstone op 's real estate assets and notes payables in our consolidated balance sheets . additionally , the profits and losses of pillarstone op not attributable to the company are reported as profit sharing expense . as a result of the adoption of topic 606 and asc 610 , the company derecognized the underlying assets and liabilities associated with the contribution as of january 1 , 2018 and recognized the company 's investment in pillarstone op under the equity method . equity method . for the years prior to december 31 , 2017 , pillarstone op was accounted for under the profit-sharing method . in accordance with the fasb guidance applicable to sales of real estate or interests therein , specifically fasb asc 360-20 , โ real estate sales , โ topic 606 , โ revenue from contracts with customers โ and asc 610 , โ other incomeโgains and losses from the derecognition of nonfinancial assets , โ we adopted topic 606 and asc 610 as of january 1 , 2018 , resulting in the derecognition of the underlying assets and liabilities associated with the contribution as of january 1 , 2018 and the recognition of the company 's investment in pillarstone op under the equity method . see note 5 to our accompanying consolidated financial statements for additional disclosure on pillarstone op . development properties . land , buildings and improvements are recorded at cost . expenditures related to the development of real estate are carried at cost which includes capitalized carrying charges and development costs . carrying charges ( interest , real estate taxes , loan fees , and direct and indirect development costs related to buildings under construction ) , are capitalized as part of construction in progress . the capitalization of such costs ceases when the property , or any completed portion , becomes available for occupancy . for the year ended december 31 , 2020 , approximately $ 481,000 and $ 306,000 in interest expense and real estate taxes , respectively , were capitalized . for the year ended december 31 , 2019 , approximately $ 500,000 and $ 320,000 in interest expense and real estate taxes , respectively , were capitalized . for the year ended 39 december 31 , 2018 , approximately $ 574,000 and $ 365,000 in interest expense and real estate taxes , respectively , were capitalized . due to the covid-19 pandemic , we have taken a prudent pause in acquisitions activity and are carefully evaluating development and redevelopment activities on a case-by-case basis . story_separator_special_tag we are subject to the texas margin tax which is computed by applying the applicable tax rate ( 1 % for us ) to the profit margin , which , generally , will be determined for us as total revenue less a 30 % standard deduction . although the texas margin tax is not an income tax , fasb asc 740 , โ income taxes โ ( โ asc 740 โ ) applies to the texas margin tax . as of december 31 , 2020 , 2019 and 2018 , we recorded a margin tax provision of $ 0.4 million , $ 0.4 million and $ 0.4 million , respectively . fair value of financial instruments . our financial instruments consist primarily of cash , cash equivalents , accounts receivable , accounts and notes payable and investments in marketable securities . the carrying value of cash , cash equivalents , accounts receivable and accounts payable are representative of their respective fair values due to their short-term nature . the fair value of our long-term debt , consisting of fixed rate secured notes , variable rate secured notes and an unsecured revolving credit facility aggregate to approximately $ 646.4 million and $ 653.7 million as compared to the book value of approximately $ 645.2 million and $ 645.9 million as of december 31 , 2020 and 2019 , respectively . the fair value of our long-term debt is estimated on a level 2 basis ( as provided by asc 820 , โ fair value measurements and disclosures โ ) , using a discounted cash flow analysis based on the borrowing rates currently available to us for loans with similar terms and maturities , discounting the future contractual interest and principal payments . the fair value of our loan guarantee to pillarstone op is estimated on a level 3 basis ( as provided by asc 820 , โ fair value measurements and disclosures โ ) , using a probability-weighted discounted cash flow analysis based on a discount rate , discounting the loan balance . the fair value of the loan guarantee is $ 0.1 million and $ 0.1 million as compared to the book value of approximately $ 0.1 million and $ 0.1 million as of december 31 , 2020 and 2019 , respectively . disclosure about fair value of financial instruments is based on pertinent information available to management as of december 31 , 2020 and 2019. although management is not aware of any factors that would significantly affect the fair value amounts , such amounts have not been comprehensively revalued for purposes of these financial statements since december 31 , 2020 and current estimates of fair value may differ significantly from the amounts presented herein . derivative instruments and hedging activities . we occasionally utilize derivative financial instruments , principally interest rate swaps , to manage our exposure to fluctuations in interest rates . we have established policies and procedures for risk assessment , and the approval , reporting and monitoring of derivative financial instruments . we recognize our interest rate swaps as cash flow hedges with the effective portion of the changes in fair value recorded in comprehensive income ( loss ) and subsequently reclassified into earnings in the period that the hedged transaction affects earnings . any ineffective portion of a cash flow hedge 's change in fair value is recorded immediately into earnings . our cash flow hedges are determined using level 2 inputs under asc 820. level 2 inputs represent quoted prices in active markets for similar assets or liabilities ; quoted prices in markets that are not active ; and model-derived valuations whose inputs are observable . as of december 31 , 2020 , we consider our cash flow hedges to be highly effective . recent accounting pronouncements . in april 2020 , the fasb issued guidance on the application of topic 842 , relating to concessions being made by lessors in response to the covid-19 pandemic . the guidance notes that it would be acceptable for entities to make an election to account for lease concessions relating to the effects of the covid-19 pandemic consistent with how those concessions would be accounted for under topic 842 as though enforceable rights and obligations for those concessions existed , even if such enforceable rights and obligations are not explicitly contained in the lease contract . thus , for concessions relating to the covid-19 pandemic , an entity would not have to analyze each contract to determine whether enforceable rights and obligations for concessions exist in the contract , and would have the option to apply , or not to apply , the general lease modification guidance in topic 842 as it stands . we have elected this option to account for lease concessions relating to the effects of the covid-19 pandemic consistent with how those concessions would be accounted for under topic 842 as though enforceable rights and obligations for those concessions existed . therefore , such concessions are not accounted for as a lease modification under topic 842 . 41 in may 2014 , the fasb issued guidance , as amended in subsequent updates , establishing a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and superseded most of the existing revenue recognition guidance . the standard also required an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also required certain additional disclosures . this guidance became effective for the reporting periods beginning on or after december 15 , 2017 , and interim periods within those fiscal years . we adopted this guidance on a modified retrospective basis beginning january 1 , 2018 and have derecognized the underlying assets and liabilities associated with the contribution as of january 1 , 2018 and have recognized the company 's investment in pillarstone op under the equity method of accounting .
| results of operations year ended december 31 , 2020 compared to year ended december 31 , 2019 the comparability of our results of operations for the year ended december 31 , 2020 to future periods may be significantly impacted by the effects of the covid-19 pandemic . the following table provides a general comparison of our results of operations for the years ended december 31 , 2020 and 2019 ( dollars in thousands , except per share data ) : replace_table_token_17_th ( 1 ) excludes ( i ) new acquisitions , through the earlier of attainment of 90 % occupancy or 18 months of ownership , and ( ii ) properties that are undergoing significant redevelopment or re-tenanting . ( 2 ) for an explanation and reconciliation of funds from operations and funds from operations core to net income , see โ funds from operations โ below . ( 3 ) for a reconciliation of funds from operations core to net income , see โ ffo core โ below . ( 4 ) for an explanation and reconciliation of property net operating income to net income , see โ property net operating income โ below . 54 we define โ same stores โ as properties that have been owned for the entire period being compared . for purposes of comparing the year ended december 31 , 2020 to the year ended december 31 , 2019 , same stores include properties owned during the entire period from january 1 , 2019 to december 31 , 2020. we define โ non-same stores โ as properties acquired since the beginning of the period being compared and properties that have been sold , but not classified as discontinued operations . revenues .
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note 7 - commitments and contingencies leases on april 16 , 2018 , the company executed a service agreement with cic innovation communities , llc , to establish and lease offices at the cambridge innovation center at 1 broadway , floor 14 , cambridge , ma 02142. the company does not have a long-term agreement in place to occupy this location , but rather occupies on a month-to-month basis . on april 16 , 2018 , the company also executed a space utilization agreement with the board of regents of the university of texas system to establish and lease offices at the dell medical school located 1601 trinity street , bldg b , suite 3.322 , austin , texas 78712. the company paid $ 4,000 per month to occupy this location and the lease was effective until october 31 , 2018. in november 2018 , the company amended and renewed the lease at a rate of $ 2,050 per month effective until april 30 , 2019. commitments we have entered into a clinical trial agreement with the university of texas md anderson cancer center to administer a phase i/ii clinical trial , combining fus1-nanoparticles and erlotinib in stage iv lung cancer patients . the trial is expected to run through the end of 2018 with a projected total cost of approximately $ 2 million . payments are due and payable when invoiced throughout the clinical trial period . the agreement may be terminated at any time . in july 2018 , the company entered into a two-year sponsored research agreement with md anderson cancer center in houston , texas , to sponsor pre-clinical studies focused on the combination of tusc2 with an immunotherapy with a projected total cost of approximately $ 2 million . payments are due and payable when invoiced throughout the clinical trial period . the agreement may be terminated at any time . in 2009 , we agreed to assume certain contractual and other obligations of iri in consideration for the sublicense rights , expertise , and assistance associated with the assignment of certain technologies and intellectual property . we also agreed to pay royalties of one percent ( 1 % ) on sales of resulting licensed products , for a period of 21 years following the termination of the last of the md anderson license agreement and sublicense agreement , to iri and we assumed patent prosecution costs and an annual minimum royalty of $ 20,000 payable to the national institutes of health ( โ nih โ ) . our $ 191,393 payment obligation to the national institutes of health ( โ nih โ ) represented a current obligation , of which $ 15,393 of 2016 patent prosecution costs were paid in the fourth quarter of 2016 and $ 176,000 was included in accounts payable at december 31 , 2016 ( consisting of accrued annual royalties of $ 140,000 and patent costs of $ 36,000 ) . during the first quarter of 2017 , we modified the terms of our accrued royalty obligation to nih . under the modified agreement , nih agreed to extinguish $ 120,000 of the accrued royalties payable to them in consideration for payment by us of ( i ) accrued patent costs of $ 36,000 , ( ii ) a royalty payment of $ 20,000 , and ( iii ) a contingent payment of $ 240,000 , increasing at $ 20,000 per year starting story_separator_special_tag financial condition and results of operations . this management 's discussion and analysis of financial condition and results of operations ( โ md & a โ ) contains certain forward-looking statements . historical results may not indicate future performance . our forward-looking statements reflect our current views about future events , are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements . factors that may cause differences between actual results and those contemplated by forward- looking statements include , but are not limited to , those discussed in โ risk factors. โ we undertake no obligation to publicly update or revise any forward-looking statements , including any changes that might result from any facts , events , or circumstances after the date hereof that may bear upon forward-looking statements . furthermore , we can not guarantee future results , events , levels of activity , performance , or achievements . overview genprex is a clinical stage gene therapy company developing a new approach to treating cancer , based upon our novel proprietary technology platform , including our initial product candidate , oncoprex immunogene therapy , or oncoprex . our platform technologies are designed to encapsulate cancer fighting genes into nanoscale hollow spheres called nanovesicles , which are then administered intravenously and taken up by tumor cells where they express proteins that are missing or found in low quantities and modulate the immune environment to restore defective cancer fighting functions . we hold an exclusive worldwide license from the university of texas md anderson cancer center , or md anderson , to patents covering the therapeutic use of a series of genes that have been shown in preclinical and clinical research to have cancer fighting properties . researchers at md anderson have conducted a phase i clinical trial and the phase i portion of a phase i/ii clinical trial and are conducting the phase ii portion of that phase i/ii clinical trial in non-small cell lung cancer , or nsclc . md anderson researchers have collaborated with other researchers to identify other genes , such as those in the 3p21.3 chromosomal region , that may act as tumor suppressors or have other cancer fighting functions . story_separator_special_tag impairment of long-lived assets management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be realizable or at a minimum annually during the fourth quarter of the year . if an evaluation is required , the estimated future undiscounted cash flows associated with the asset are compared to the asset 's carrying value to determine if an impairment of such asset is necessary . the effect of any impairment would be to expense the difference between the fair value of such asset and its carrying value . components of our results of operations and financial condition operating expenses we classify our operating expenses into three categories : research and development , general and administrative , and depreciation . research and development . research and development expenses consist primarily of : costs incurred to conduct research , such as the discovery and development of our current and potential product candidates ; costs related to production and storage of clinical supplies , including fees paid to contract manufacturers , manufacturing consultants , and cold-storage facilities ; fees paid to clinical consultants , clinical trial sites and vendors , including clinical research organizations in conjunction with implementing and monitoring our clinical trials and acquiring and evaluating clinical trial data , including all related fees , such as patient screening fees , laboratory work , and statistical compilation and analysis ; and costs related to compliance with drug development regulatory requirements . we recognize all research and development costs as they are incurred . clinical trial costs , contract manufacturing and other development costs incurred by third parties are expensed as the contracted work is performed . we expect our research and development expenses to increase in the future as we advance our current and potential product candidates into and through clinical trials and pursue regulatory approval of our current and potential product candidates in the united states and europe . the process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming . the actual probability of success for our current and potential product candidates may be affected by a variety of factors 80 including the quality of our current and potential product candidates , early clinical data , investment in our clinical program , competition , manufacturing capability and commercial viability . we may never succeed in achieving regulatory approval for any of our current and potential product candidates . as a result of the uncertainties discussed above , we are unable to determine the duration and completion costs of our research and development projects or wh en and to what extent we will generate revenue from the commercialization and sale of our current and potential product candidates . general and administrative . general and administrative expense consists of personnel related costs , which include salaries , as well as the costs of professional services , such as accounting and legal , travel , facilities , information technology and other administrative expenses . we expect our general and administrative expense to increase in future periods due to the anticipated growth of our business and related infrastructure as well as accounting , insurance , investor relations , and other costs associated with being a public company . depreciation . depreciation expense consists of depreciation on our property and equipment . we depreciate our assets over their estimated useful life . we estimate computer and office equipment to have a 5-year life . story_separator_special_tag that we would otherwise prefer to develop and market ourselves . failure to receive additional funding could cause us to cease operations , in part or in full . furthermore , even if we believe we have sufficient funds for our current or future operating plans , we may seek additional capital due to favorable market conditions or strategic considerations . the following table sets forth the primary sources and uses of cash for the years ended december 31 , 2018 and 2017 : replace_table_token_4_th cash used in operating activities net cash used in operating activities was $ 6,846,534 and $ 2,171,594 for the years ended december 31 , 2018 and 2017 , respectively . the $ 4,674,940 increase in net cash used in operating activities was primarily due to increased general and administrative and research and development expenses in 2018 to support increased operations during the year .. cash used in investing activities net cash used in investing activities was $ 103,317 and $ 63,421 for the years ended december 31 , 2018 and 2017 , respectively . the increase in net cash used in investing activities of $ 39,896 was due to increased patent prosecution expenses necessary to protect our intellectual property and greater spending on computer equipment used by employees during the year ended december 31 , 2018. cash provided by financing activities net cash provided by financing activities was $ 15,389,518 and $ 793,971 for the years ended december 31 , 2018 and 2017 , respectively . the increase of $ 14,595,547 in net cash provided by financing activities was due to the company 's initial public offering and private placement . 82 item 7a . quantitative and qualitati ve disclosures about market risk . the primary objective of our investment activities is to preserve our capital to fund our operations . we also seek to maximize income from our investments without assuming significant risk . to achieve our objectives , we maintain a portfolio of cash equivalents and investments in securities of high credit quality . as of december 31 , 2018 , we had cash of $ 8,600,918 consisting of cash and investments in money market funds . a significant portion of our investments may be subject to interest rate risk and could fall in value if market interest rates increase .
| results of operations comparison of the years ended december 31 , 2018 and 2017 the following summarizes our results of operations for the years ended december 31 , 2018 and 2017. research and development expense . research and development expense consists primarily of the discovery and development of our current and potential product candidates ; costs related to production of clinical supplies , including fees paid to contract manufacturers , fees paid to clinical consultants , clinical trial sites and vendors , including clinical research organizations in conjunction with implementing and monitoring our clinical trials and acquiring and evaluating clinical trial data ; and costs related to compliance with drug development regulatory requirements . research and development expense was $ 971,427 for the year ended december 31 , 2018 as compared to $ 289,934 for the year ended december 31 , 2017. this increase of $ 681,493 was due to the company 's focus on improving clinical strategies , expanding research activities , refining existing manufacturing processes , and developing new manufacturing and logistics processes to support future research and development activities . we expect research and development expense to increase in future periods as we expand our clinical programs to a greater number of sites and our research programs to include new therapy combinations . general and administrative expense . general and administrative expense primarily consists of personnel costs , travel , information technology , facilities , and professional service fees . professional services fees primarily consist of legal , accounting and consulting costs . general and administrative expense for the year ended december 31 , 2018 was $ 11,386,229 as compared to $ 3,019,171 for the year ended december 31 , 2017. the $ 8,367,058 increase in general and administrative expense is related primarily to a larger than normal equity-based compensation amount issued in 2018 to recruit and retain executive leadership , board members , and technical experts to our team .
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deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement book values and tax bases of assets and liabilities . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . postretirement benefits : globe life accounts for its postretirement defined benefit plans by recognizing the funded status of those plans on its consolidated balance sheets in accordance with accounting guidance . periodic gains and losses attributable to changes in plan assets and story_separator_special_tag the following discussion should be read in conjunction with globe life 's consolidated financial statements and notes thereto appearing elsewhere in this report . `` globe life '' and the `` company '' refer to globe life inc. and its subsidiaries and affiliates . results of operations how globe life views its operations . globe life inc. is the holding company for a group of insurance companies that market primarily individual life and supplemental health insurance to lower middle to middle income households throughout the united states . we view our operations by segments , which are the insurance product lines of life , supplemental health , and annuities , and the investment segment that supports the product lines . segments are aligned based on their common characteristics , comparability of the profit margins , and management techniques used to operate each segment . insurance product line segments . the insurance product line segments involve the marketing , underwriting , and administration of policies . each product line is further segmented by the various distribution channels that market the insurance policies . each distribution channel operates in a niche market offering insurance products designed for that particular market . whether analyzing profitability of a segment as a whole , or the individual distribution channels within the segment , the measure of profitability used by management is the underwriting margin , as seen below : premium revenue ( policy obligations ) ( policy acquisition costs and commissions ) underwriting margin investment segment . the investment segment involves the management of our capital resources , including investments and the management of corporate debt and liquidity . our measure of profitability for the investment segment is excess investment income , as seen below : net investment income ( required interest on net policy liabilities ) ( financing costs ) excess investment income 17 gl 2020 form 10-k globe life inc. management 's discussion & analysis current highlights , comparing year to date 2020 with 2019. net income as a return on equity ( roe ) for the year ended december 31 , 2020 was 9.5 % and net operating income as an roe , excluding net unrealized gains on the fixed maturity portfolio ( 1 ) was 13.5 % . total premium increased 6 % over the same period in the prior year . life premium increased 6 % for the period from $ 2.5 billion in 2019 to $ 2.7 billion in 2020. life underwriting margin declined 4 % from $ 703 million in 2019 to $ 675 million in 2020. net investment income increased 2 % over the same period in the prior year . excess investment income declined 5 % below the prior year . total net sales increased 7 % over the same period in the prior year from $ 621 million to $ 662 million . book value per share increased 26 % over the same period in the prior year from $ 66.02 to $ 83.19. book value per share , excluding net unrealized gains on the fixed maturity portfolio ( 1 ) , increased 10 % over the prior year from $ 48.26 to $ 53.12. the company estimates $ 67 million of incurred life claims as a result of the novel coronavirus ( covid-19 ) for the year ended december 31 , 2020. for the year ended december 31 , 2020 , the company repurchased 4.5 million shares of globe life inc. common stock at a total cost of $ 380 million and an average share price of $ 85.24. the following graphs represent net income and net operating income from continuing operations for the three years ended december 31 , 2020 . ( 1 ) net operating income is the consolidated total of segment profits after tax and as such is considered a non-gaap measure . it has been used consistently by globe life 's management for many years to evaluate the operating performance of the company . it differs from net income primarily because it excludes certain non-operating items such as realized gains and losses and certain significant and unusual items included in net income . net income is the most directly comparable gaap measure . net operating income as an roe , excluding net unrealized gains on the fixed maturity portfolio , is considered a non-gaap measure . management utilizes this measure to view the business without the effect of the net unrealized gains , which are primarily attributable to fluctuation in interest rates on the available-for-sale portfolio . the impact of the adjustment to exclude net unrealized gains on fixed maturities is $ 3.2 billion and $ 2.0 billion for 2020 and 2019 , respectively . book value per share , excluding net unrealized gains on the fixed maturity portfolio , is also considered a non-gaap measure . management utilizes this measure to view the book value of the business without the effect of net unrealized gains , which are primarily attributable to fluctuation in interest rates on the available for sale portfolio . the impact of the adjustment to exclude net unrealized gains on fixed maturities is $ 30.07 and $ 17.76 for 2020 and 2019 , respectively . refer to analysis of profitability by segment for non-gaap reconciliation to gaap . story_separator_special_tag . 21 gl 2020 form 10-k globe life inc. management 's discussion & analysis a discussion of each of globe life 's segments follows . a significant factor in the performance of our various segments has been the impact of covid-19 . in response to this crisis , our crisis management and incident response teams successfully guided the company into a smooth transition of working remotely . we quickly transitioned those employees whose jobs did not require them to be in the office , averaging approximately 80-85 % of the company 's total workforce , to working remotely . the company has continued to operate effectively while taking steps to help ensure the health and safety of our employees through adherence to the cdc and local government work guidelines . with over 13 thousand exclusive agents in the field , the company was presented with a challenge to move from face-to-face sales presentations in customers ' homes and businesses to a virtual sales process . despite its challenges , the company 's agencies also had to move from in-person recruiting and training of new agents to virtual processes . the company 's exclusive agency divisions were able to quickly pivot and continue to write new business and hire new agents due in part to new and updated information technology systems put in place over the last several years . through the year ended december 31 , 2020 , the company has seen a 28 % increase in agent count at american income and a 14 % increase at family heritage compared with the prior year comparable period . our direct to consumer division continues to experience record high demand for its products through its internet and inbound phone call channels with a 31 % increase in overall net life sales for year ended december 31 , 2020 compared with the prior year comparable period . the company believes that times of crisis highlight the need for basic life protection and this has proven true with this pandemic . the discussions of our segments are presented in the manner we view our operations , as described in note 14โbusiness segments . we use three statistical measures as indicators of premium growth and sales over the near term : โ annualized premium in force , โ โ net sales , โ and โ first-year collected premium. โ annualized premium in force is defined as the premium income that would be received over the following twelve months at any given date on all active policies if those policies remain in force throughout the twelve-month period . annualized premium in force is an indicator of potential growth in premium revenue . net sales is annualized premium issued ( gross premium that would be received during the policies ' first year in force and assuming that none of the policies lapsed or terminated ) , net of cancellations in the first thirty days after issue , except in the case of our direct to consumer division . for dtc , net sales is annualized premium issued at the time the first full premium is paid after any introductory offer period has expired . management considers net sales to be a better indicator of the rate of premium growth as compared with annualized premium issued . first-year collected premium is defined as the premium collected during the reporting period for all policies in their first policy year . first-year collected premium takes lapses into account in the first year when lapses are more likely to occur , and thus is a useful indicator of how much new premium is expected to be added to premium income in the future . while it is difficult to predict sales activity in this uncertain environment , the company is expecting net life and health sales to increase 7 % for the full year 2021. due to the strength of the company 's policies in force , we expect our total life and health premiums to grow around 6 % for the full year 2021. see further discussion of the distribution channels below for life and health . 22 gl 2020 form 10-k globe life inc. management 's discussion & analysis life insurance life insurance is the company 's predominant segment . during 2020 , life premium represented 70 % of total premium and life underwriting margin represented 71 % of the total . additionally , investments supporting the reserves for life products produce the majority of excess investment income attributable to the investment segment . the following table presents the summary of results of life insurance . further discussion of the results by distribution channel is included below . life insurance summary of results ( dollar amounts in thousands ) replace_table_token_10_th the lower life insurance underwriting margins for the twelve months ended december 31 , 2020 are primarily attributed to approximately $ 67 million of covid-19 claims . 23 gl 2020 form 10-k globe life inc. management 's discussion & analysis life insurance products are marketed through several distribution channels . premium income by distribution channel for each of the last three years is as follows : life insurance premium by distribution channel ( dollar amounts in thousands ) replace_table_token_11_th annualized life premium in force was $ 2.7 billion at december 31 , 2020 , an increase of 6 % over $ 2.6 billion a year earlier . the following table shows net sales information for each of the last three years by distribution channel . life insurance net sales by distribution channel ( dollar amounts in thousands ) replace_table_token_12_th the table below discloses first-year collected life premium by distribution channel . life insurance first-year collected premium by distribution channel ( dollar amounts in thousands ) replace_table_token_13_th 24 gl 2020 form 10-k globe life inc. management 's discussion & analysis a discussion of life operations by distribution channel follows . the american income life division markets to members of labor unions and continues to diversify its lead sources by building relationships with other affinity groups , utilizing third-party internet vendor leads and obtaining referrals to facilitate sustainable growth .
| summary of results ( dollar amounts in thousands ) replace_table_token_16_th health premium increased 6 % from $ 1.08 billion in 2019 to $ 1.14 billion in 2020. health underwriting margin increased 12 % from $ 244 million in 2019 to $ 272 million in 2020 primarily due to growth in premiums and lower acquisition expenses . further discussion is included below by distribution channel . globe life markets supplemental health insurance products through a number of distribution channels . the following table is an analysis of our health premium by distribution channel for each of the last three years . health insurance premium by distribution channel ( dollar amounts in thousands ) replace_table_token_17_th of total health premium ( $ 1.1 billion ) , premium from limited-benefit plans comprise $ 588 million , or 52 % of the total , for 2020 compared with $ 556 million in the prior year . premium from medicare supplement products comprises the remaining 48 % or $ 553 million for 2020 compared with $ 521 million in 2019. annualized health premium in force was $ 1.19 billion at december 31 , 2020 , an increase of 5 % over the prior year balance of $ 1.14 billion . 27 gl 2020 form 10-k globe life inc. management 's discussion & analysis presented below is a table of health net sales by distribution channel for the last three years . health insurance net sales by distribution channel ( dollar amounts in thousands ) replace_table_token_18_th of total net sales ( $ 178 million ) , sales of limited-benefit plans comprise $ 113 million , or 63 % of the total , for 2020 compared with $ 108 million in 2019. medicare supplement sales make up the remaining 37 % , or $ 65 million for 2020 compared with $ 83 million in 2019. the following table discloses first-year collected health premium by distribution channel .
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the company recognized the final payment as interest expense using the effective interest method over the life of the credit facility . the term a loan was fully repaid in july 2018. in connection with the borrowing of the term a loan , the company issued a warrant to purchase 8,230 shares of common stock at an exercise price of $ 15.19 ( see note 4 ) . the warrant resulted in a debt discount of $ 0.1 million which was amortized into interest expense using the effective interest method over the life of the term a loan . in addition , the company incurred debt issuance costs of $ 0.1 million in connection with the borrowing of the term a loan . the debt issuance costs were capitalized and included in long-term debt on the condensed balance sheet at the inception of the term a loan , and were amortized to interest expense using the effective interest method over the same term . as of december 31 , 2018 , there was no remaining unamortized discount and debt issuance costs associated with the debt . during the years ended december 31 , 2018 , 2017 and 2016 , the company recognized less than $ 0.1 million , $ 0.2 million and $ 0.4 million of interest expense , respectively . during the years ended december 31 , 2018 , 2017 and 2016 , the company made cash interest payments related to the credit 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 elsewhere in this annual report on form 10-k. in addition to historical information , 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 certain factors . we discuss factors that we believe could cause or contribute to these differences below and elsewhere in this report , including those set forth under item 1a . `` risk factors '' and under `` forward-looking statements '' in this annual report on form 10-k. overview corporate overview we are the lipid management company , a late-stage pharmaceutical company focused on developing and commercializing complementary , cost-effective , convenient , once-daily , oral therapies for the treatment of patients with elevated low density lipoprotein cholesterol , or ldl-c. through scientific and clinical excellence , and a deep understanding of cholesterol biology , the experienced lipid management team at esperion is committed to developing new ldl-c lowering therapies that will make a substantial impact on reducing global cardiovascular disease , or cvd ; the leading cause of death around the world . bempedoic acid and our lead product candidate , the bempedoic acid / ezetimibe combination tablet , are targeted therapies that have been shown to significantly lower elevated ldl-c levels in patients with hypercholesterolemia , including patients inadequately treated with current lipid-modifying therapies . the completed clinical development program for an ldl-c lowering indication for the bempedoic acid / ezetimibe combination tablet consisted of a single pivotal phase 3 study ( 1002fdc-053 ) in patients with hypercholesterolemia and with atherosclerotic cardiovascular disease , or ascvd , and or heterozygous familial hypercholesterolemia , or hefh , including high cvd risk primary prevention patients , whose ldl-c is not adequately controlled despite receiving maximally tolerated lipid-modifying background therapy . 1002fdc-053 initiated in november 2017 , fully enrolled 382 patients in march 2018 , and we reported top-line results in august 2018. the completed global pivotal phase 3 clinical development program for an ldl-c lowering indication for bempedoic acid consisted of four clinical studies in 3,621 high cvd risk patients with hypercholesterolemia and ascvd and or hefh , or who are high cvd risk primary prevention , on optimized background lipid-modifying therapy and with elevated levels of ldl-c. these patients are on two distinct types of background lipid-modifying therapy : 1 ) patients on their maximally tolerated statin therapy , and 2 ) patients who are only able to tolerate less than the lowest approved daily starting dose of a statin , and can be considered statin intolerant . in march 2018 , we reported top-line results from the first of the phase 3 studies , study 4 ( 1002-048 ) . in may 2018 , we reported top-line results from the 52-week long-term safety study , study 1 ( 1002-040 ) , and from study 3 ( 1002-046 ) . in october 2018 , we reported top-line results from study 2 ( 1002-047 ) . on february 20 , 2019 , we submitted the new drug application , or nda , for bempedoic acid and on february 26 , 2019 , we submitted the nda for the bempedoic acid / ezetimibe combination tablet to the food and drug administration , or fda , for ldl-c lowering indications . in addition , the european medicines agency , or ema , completed formal validation of the marketing authorization applications , or maas , for bempedoic acid and the bempedoic acid / ezetimibe combination tablet for ldl-c lowering indications . the maas for bempedoic acid and the bempedoic acid / ezetimibe combination tablet were submitted to the ema on february 11 , 2019 . 81 we are also conducting a global cardiovascular outcomes trial , or cvot , ยknown as c holesterol l owering via b e mpedoic acid , an a cl-inhibiting r egimen ( clear ) outcomes , for bempedoic acid in 12,604 patients with hypercholesterolemia and high cvd risk and who can be considered statin intolerant . story_separator_special_tag during the year ended december 31 , 2018 , we incurred $ 121.7 million in expenses related to the four studies in our global pivotal phase 3 ldl-c lowering program , our clear outcomes cvot , our 1002fdc-053 study , our open-label extension study , our 1002-fdc-058 study and our phase 2 ( 1002-39 ) clinical study of bempedoic acid when added-on to an injectable proprotein convertase subtilisin/kexin type 9 inhibitor , or pcsk9i , therapy in patients with hypercholesterolemia . during the year ended december 31 , 2017 , we incurred $ 111.8 million in expenses related to the four studies in our global pivotal phase 3 ldl-c lowering program , our 1002fdc-053 study , our clear outcomes cvot , our phase 2 ( 1002-038 ) clinical study of the bempedoic acid / ezetimibe combination plus statin oral therapy , our phase 2 ( 1002-39 ) clinical study of bempedoic acid when added-on to a pcsk9i , and other clinical pharmacology studies . during the year ended december 31 , 2016 , we incurred $ 36.2 million in expenses related to the four studies in our global pivotal phase 3 ldl-c lowering program , our clear outcomes cvot , our phase 2 ( 1002-035 ) pk/pd clinical study of bempedoic acid in patients treated with atorvastatin 80 mg and our phase 1 ( 1002-037 ) clinical pharmacology study to assess the safety and tolerability of bempedoic acid , as well as the effects of bempedoic acid on the pk of single doses of four high-dose statins , and other clinical pharmacology studies . financial operations overview revenue as of december 31 , 2018 , we have not generated any revenue . in the future , we may never generate revenue from the sale of the bempedoic acid / ezetimibe combination tablet or bempedoic acid or other product candidates . pursuant to the license and collaboration agreement with dse , the consideration consists of an upfront cash payment to us of $ 150 million in 2019 and we are eligible for substantial additional sales and regulatory milestone payments and royalties . if we fail to complete the development of the bempedoic acid / ezetimibe combination tablet or bempedoic acid or any other product candidates and secure approval from regulatory authorities , our ability to generate future revenue and our results of operations and financial position will be adversely affected . 83 research and development expenses since our inception , we have focused our resources on our research and development activities , including conducting nonclinical , preclinical and clinical studies . our research and development expenses consist primarily of costs incurred in connection with the development of the bempedoic acid / ezetimibe combination tablet and bempedoic acid , which include : expenses incurred under agreements with consultants , contract research organizations , or cros , and investigative sites that conduct our preclinical and clinical studies ; the cost of acquiring , developing and manufacturing clinical study materials , including the procurement of ezetimibe in our continued development of our bempedoic acid / ezetimibe combination tablet ; employee-related expenses , including salaries , benefits , stock-based compensation and travel expenses ; allocated expenses for rent and maintenance of facilities , insurance and other supplies ; and costs related to compliance with regulatory requirements . we expense research and development costs as incurred . to date , substantially all of our research and development work has been related to the bempedoic acid / ezetimibe combination tablet and bempedoic acid . costs for certain development activities , such as clinical studies , are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment , clinical site activations or information provided to us by our vendors . our direct research and development expenses consist principally of external costs , such as fees paid to investigators , consultants , central laboratories and cros in connection with our clinical studies . we do not allocate acquiring and manufacturing clinical study materials , salaries , stock-based compensation , employee benefits or other indirect costs related to our research and development function to specific programs . our research and development expenses are expected to continue in the foreseeable future as they relate to our ongoing clear outcomes cvot , our nda and maa submissions and any other development programs or additional indications we choose to pursue . research and development expenses associated with our global pivotal phase 3 ldl-c lowering program are expected to significantly decrease as we completed the program in the fourth quarter of 2018. we can not determine with certainty the duration and completion costs associated with the ongoing or future clinical studies of the bempedoic acid / ezetimibe combination tablet and bempedoic acid . also , we can not conclude with certainty if , or when , we will generate revenue from the commercialization and sale of the bempedoic acid / ezetimibe combination tablet or bempedoic acid , if ever . we may never succeed in obtaining regulatory approval for the bempedoic acid / ezetimibe combination tablet or bempedoic acid . the duration , costs and timing associated with the development and commercialization of the bempedoic acid / ezetimibe combination tablet and bempedoic acid will depend on a variety of factors , including uncertainties associated with the results of our clinical studies and our ability to obtain regulatory approval . for example , if the fda or another regulatory authority were to require us to conduct clinical studies beyond those that we currently anticipate will be required for the completion of clinical development or post-commercialization clinical studies of the bempedoic acid / ezetimibe combination tablet or bempedoic acid , or if we experience significant delays in enrollment in any of our clinical studies , we could be required to expend significant additional financial resources and time on the completion of clinical development or post-commercialization clinical studies of the bempedoic acid / ezetimibe combination tablet and bempedoic acid .
| results of operations comparison of the years ended december 31 , 2018 and 2017 the following table summarizes our results of operations for the years ended december 31 , 2018 and 2017 : replace_table_token_29_th research and development expenses research and development expenses for the year ended december 31 , 2018 , were $ 171.5 million compared to $ 147.6 million for the year ended december 31 , 2017 , an increase of $ 23.9 million . the increase in research and development expenses was primarily related to clinical development costs for the bempedoic acid / ezetimibe combination tablet and bempedoic acid , including continued costs to support the completion of four global pivotal phase 3 studies for bempedoic acid and the pivotal phase 3 study for the bempedoic acid / ezetimibe combination tablet , the ongoing clear outcomes cvot , and increases in our headcount and stock-based compensation expense . general and administrative expenses general and administrative expenses for the year ended december 31 , 2018 , were $ 33.1 million compared to $ 21.4 million for the year ended december 31 , 2017 , an increase of $ 11.7 million . the increase in general and administrative expenses was primarily attributable to costs to support public company operations , including costs to support pre-commercialization activities , further increases in our headcount and stock-based compensation expense , and other costs to support our growth . other income , net other income , net for the year ended december 31 , 2018 , was $ 2.8 million compared to $ 2.0 million for the year ended december 31 , 2017. this increase was primarily related to an increase in interest income earned on our cash , cash equivalents and investment securities and a reduction in expense for the amortization of premiums and discounts on our investments .
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an agreement executed in conjunction with the formation of verdeca specified that if bioceres determines it requires cash to fund its contributed services ( subject to certain annual limits ) , bioceres , s.a. may elect to sell shares of its common stock to the company for an amount not exceeding $ 5.0 million in the aggregate over a four-year period . the company determined that its commitment to purchase common stock in bioceres , s.a. as a means to provide capital to verdeca resulted in a de facto agency relationship story_separator_special_tag financial condition and results of operations . the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes to those statements included herein . in addition to historical financial information , the following discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors , including those discussed under โ risk factors. โ overview we are an agricultural biotechnology trait company engaged in the development of traits that improve food , feed and fiber crops , and enhance the value of the resulting agricultural products . our traits are focused on high-value enhancements that increase crop yields by enabling plants to more efficiently manage environmental and nutrient stresses , and that enhance the quality and value of agricultural products . our distinct areas of focus are the improvement of crop yields by mitigating the impacts of abiotic stresses such as drought , heat , nutrient deficiency , water scarcity , and soil salinity and the enhancement of the nutritional quality of crops by changing the compositional quality of oilseeds and grains . our target markets are several of the largest crops within the $ 40.5 billion global seed market and specific ingredients within the $ 140 billion global nutrition and supplements markets . we have successfully developed and continue to advance a broad suite of potentially high value agricultural yield traits , such as nitrogen use efficiency ( nue ) , water use efficiency ( wue ) , and drought tolerance , in key food crops like corn , rice , wheat , and soybean . we have also commercialized and are marketing an omega-6 fatty acid nutritional supplement , sonova gamma linolenic acid ( gla ) oil . our business model is to access trait technologies that have already achieved proof of concept whether in a public research program or with commercial partners . we further develop these technologies by optimizing their function and validating their performance through intensive field trial testing in multiple crops under varying growing conditions , thereby better establishing commercial viability for resulting products . we then license our technologies to major seed and consumer product companies who perform additional testing and product development and , where needed , generate the requisite data to support regulatory submissions and approvals . we use both gm and non-gm technologies to develop our traits . this approach allows us to select the most appropriate technology tools for development of a particular trait , crop and market . however , a key component of the development cycle of gm traits is local , or in some instances , global deregulation of the trait by one or more regulatory agencies may be required . as there continues to be a significant debate about the role of gm traits in agricultural crops , we have seen this issue begin to impact some regulatory agencies which exercise control over the pace of deregulation of our products . we have recently experienced delays in the review of many of our high value traits principally due to inaction from certain of these government regulatory authorities . for example , in india , where regulators have not approved field trials for testing of gm traits for the last two years , we estimate the impact to the trait development and crop commercialization timelines of our license partner in india , mahyco , could be at least two to three years . we believe the fundamental value of these traits remains commercially significant and we , along with our development and commercialization partners , remain fully committed to their ultimate commercialization . however , to compensate for the near term impact of these regulatory delays on our anticipated commercialization revenue share , the company completed a comprehensive strategic review in the second half of 2016 of its technology programs , product pipeline , partner progress , competitive landscape and market conditions in order to prioritize and appropriately resource its most promising products and opportunities . as a result , some programs were terminated or placed on hold while investments in other programs were accelerated with the aim of generating the highest potential near term value for the company and its shareholders . we will continue to work with our partners to closely monitor the progress of deregulation activities affecting our gm traits , and at the same time , we are realigning our core capabilities and evolving our business model to accelerate the development and near-term commercialization of non-gm nutrition and quality traits . 49 o ur highest near-term priorities include the expansion of the market for our sonova gla products , bringing our non-gm traits in wheat quality and wheat yield to market , and w orking closely with our strategic partners to advance our yield trait in corn and soybeans . in the u.s , we have partnered with dow agrosciences and becks hybrids for the development of yield traits in corn . in south america , we formed verdeca , a joint vent ure with bioceres , a leading agricultural biotechnology company in argentina , to develop , deregulate and commercialize stress-tolerant soybeans . story_separator_special_tag components of our statements of operations data revenues we derive our revenues from product revenues , licensing agreements , contract research agreements , and government grants . we expect that over the next several years , a substantial majority of our revenues will consist of pre-commercial license revenues , product revenues , contract research and government grant revenues until our license revenues increase with the introduction of our seed trait products to the market ensuing value-share payments , if and when they are commercially available . further , we expect that our license revenues will vary as we enter into new license agreements and with the timing of milestone payments and recognition of deferred upfront license fees under existing license agreements . product revenues our product revenues to date have consisted solely of sales of our sonova products . we generally recognize revenue from product sales upon pick up by our third-party distributors or customers . our revenues will fluctuate depending on the timing of orders from our customers and distributors . license revenues our license revenues to date consist of up-front , nonrefundable license fees , annual license fees , and subsequent milestone payments that we receive under our research and license agreements . we generally recognize nonrefundable up-front license fees and guaranteed , time-based payments as revenue proportionally over the expected development period . we recognize annual license fees proportionally over the related term subject to cancellation provisions . we recognize milestone payments as revenue when the related performance criteria are achieved . milestones typically consist of significant stages of development for our traits in a potential commercial product , such as achievement of specific technological targets , completion of field trials , filing with regulatory agencies , completion of the regulatory process , and commercial launch of a product containing our traits . given the seasonality of agriculture and time required to progress from one milestone to the next , achievement of milestones is inherently uneven , and our license revenues are likely to fluctuate significantly from period to period . contract research and government grant revenues contract research revenues consist of amounts earned from performing contracted research primarily related to breeding programs or the genetic engineering of plants for third parties . we generally recognize revenue as these services are provided . in addition , we are entitled to receive a portion of the revenues generated from sales of products that incorporate our seed traits . products expected to result from such contract research are in various stages of the product development cycle and we do not expect to generate any revenues from the sale of any such products for at least the next two to four years . 51 we receive payments from government entities in the form of government grants . government grant revenues are recognized as eligible research and development expenses are incurred . our obligation with respect to these agreements is to perform the research on a best-efforts basis . given the nature and uncertain timing of receipt of government grants and timing of eligible research and development expenses , such revenues are likely to fluctuate significantly from period to period . operating expenses cost of product revenues cost of product revenues relates to the sale of our sonova products and consists of in-licensing and royalty fees , any adjustments to inventory reserve , as well as the cost of raw materials , including inventory and third-party services costs related to procuring , processing , formulating , packaging , and shipping our sonova products . research and development expenses research and development expenses consist of costs incurred in the discovery , development , and testing of our products and products in development incorporating our traits . these expenses consist primarily of employee salaries and benefits , fees paid to subcontracted research providers , fees associated with in-licensing technology , land leased for field trials , chemicals and supplies , and other external expenses . these costs are expensed as incurred . additionally , we are required from time to time to make certain milestone payments in connection with the development of technologies in-licensed from third parties . we expense these milestone payments at the time the milestone is achieved and deemed payable . we expect our research and development expenses to increase on an absolute dollar basis for the foreseeable future , although our research and development expenses may increase significantly if we choose to accelerate certain research and development programs or if we elect to take a greater role in the regulatory and commercialization process with respect to one or more of our seed traits or products in development incorporating our seed traits . our research and development expenses may also fluctuate from period to period as a result of the timing of various research and development projects . selling , general , and administrative expenses selling , general , and administrative expenses consist primarily of employee costs , professional service fees , and overhead costs . our selling , general , and administrative expenses may fluctuate from period to period . interest expense interest expense consists primarily of contractual interest and amortization of debt discounts on the borrowings under loan agreements . other income , net other income , net , consists of changes in the fair value of our derivative liabilities related to our convertible promissory notes , the release of warrant and derivative liabilities related to notes payable , interest income and the amortization of investment premiums on our cash and cash equivalents and investments . loss on extinguishment of debt from time to time , the company may refinance its debts if it is reasonable to do so , which may result in a gain or loss on the extinguishment of debt . loss on extinguishment of debt is composed of the release of derivative liabilities associated with the convertible promissory notes , as well as amounts related to early payoff fees , end of term fees , deferred issuance costs and unamortized debt discounts .
| results of operations comparison of the years ended december 31 , 2016 and 2015 replace_table_token_5_th revenues product revenues accounted for 21 % and 9 % of our total revenues for the years ended december 31 , 2016 and 2015 , respectively . the $ 0.2 million , or 44 % , increase in product revenues was primarily driven by the launch of new products by several of our customers , as well as an increase in distributor volumes . license revenues accounted for 5 % and 22 % of our total revenues for the years ended december 31 , 2016 and 2015 , respectively . the $ 1.1 million , or 88 % , decrease in license revenue was primarily due to delays in the estimated launch date determined in 2016 for a number of our out-licensed yield traits , thereby reducing the amount amortized into revenue each year there forward . contract research and government grant revenues comprise a significant portion of our total revenues , accounting for 74 % and 69 % of our total revenues for the years ended december 31 , 2016 and 2015 , respectively . the $ 1.4 million , or 36 % , decrease in contract research and government grant revenues was primarily driven by contracts that were completed in 2015 , and the winding down of activities on existing contract research and grants in 2016 .
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you can identify these forward-looking statements by words such as โ may , โ โ will , โ โ should , โ โ could , โ โ expect , โ โ anticipate , โ โ believe , โ โ estimate , โ โ intend , โ โ plan โ and other similar expressions . you should consider our forward-looking statements in light of the risks discussed under the heading โ risk factors , โ as well as our consolidated financial statements , related notes , and the other financial information appearing elsewhere in this report and our other filings with the united states securities and exchange commission . the forward-looking statements contained in this report are made as of the date hereof and the company assumes no obligation to update or supplement any forward-looking statements . you should read the following management 's discussion and analysis of financial condition and results of operations in conjunction with the consolidated financial statements and the related notes that appear elsewhere in this report . business overview the company the first international house of pancakes restaurant opened in 1958 in toluca lake , california . shortly thereafter , the company 's predecessor began developing and franchising additional restaurants . the company was incorporated under the laws of the state of delaware in 1976 with the name ihop corp. in november 2007 , the company completed the acquisition of applebee 's international , inc. , which became a wholly-owned subsidiary of the company . effective june 2 , 2008 , the name of the company was changed to dineequity , inc. ( โ dineequity , โ โ we โ or โ our โ ) . through various subsidiaries ( see exhibit 21 , subsidiaries of dineequity , inc. ) , we own and franchise the applebee 's neighborhood grill & bar ยฎ ( โ applebee 's โ ) concept in the bar and grill segment within the casual dining category of the restaurant industry , and own , franchise and operate the international house of pancakes ยฎ ( โ ihop โ ) concept in the family dining category of the restaurant industry . references herein to applebee 's ยฎ and ihop ยฎ restaurants are to these two concepts , whether operated by franchisees , area licensees or us . domestically , ihop restaurants are located in all 50 states and the district of columbia , while applebee 's restaurants are located in every state except hawaii . internationally , ihop restaurants are located in three united states territories and nine international countries ; applebee 's restaurants are located in two united states territories and 15 international countries . with over 3,700 restaurants combined , we believe we are the largest full-service restaurant company in the world . our vision to be the preferred franchisor of choice and deliver maximum franchisee and stockholder value . our mission to unite great franchisees , iconic brands and team members to create the world 's leading restaurant company - one guest at a time . our value creation strategy we are focused on generating strong free cash flow and returning a substantial portion of it to stockholders . to build value , we seek to maximize our business by focusing on the following key strategic priorities : innovate and evolve strong brands ; facilitate franchisee restaurant development ; and maintain strong financial discipline . our fundamental approach to brand building centers on a strategic combination of initiatives intended to continually innovate and evolve both brands . these initiatives include menu innovation , maximization of advertising and media , expanding our digital and social marketing presence , maintaining a consistent level of operational excellence , and creating new prototypes , remodels and restaurant designs . our shared services operating platform allows our senior management to focus on key factors that drive both our brands while leveraging the resources and expertise of our scalable , centralized support structure . as announced in september 2015 , we are in the process of consolidating core brand and franchisee support functions that had been based in kansas city , missouri into our glendale , california headquarters . this consolidation will enable cross-brand collaboration to provide for faster innovation and effective implementation to the benefit of both domestic and international franchisees . 28 2015 highlights updated our capital allocation strategy , increasing our quarterly dividend on common stock by 5 % , effective with the fourth quarter 2015 dividend , from $ 0.875 per share to $ 0.92 per share , and increasing the stock repurchase authorization to $ 150 million ; generated free cash flow ( cash provided by operating activities , plus receipts from notes and equipment contract receivables , less additions to property and equipment ) of approximately $ 142 million in 2015 ; returned over $ 136 million to stockholders , comprised of $ 70 million in the form of stock repurchases and $ 66 million in cash dividends ; increased ihop 's domestic system-wide same-restaurant sales by 4.5 % during 2015 , the third consecutive full year of growth in domestic system-wide same-restaurant sales and the highest yearly increase since 2004 ; generated positive traffic growth at ihop restaurants for the second consecutive year ; opened 55 new restaurants worldwide by ihop franchisees and area licensees and 44 new restaurants by applebee 's franchisees , the largest combined total of restaurant openings from both brands since 2009 ; and took strategic steps to consolidate core operations , accelerate growth in our brands and speed development . key performance indicators in evaluating the performance of each restaurant concept , we consider the key performance indicators to be net franchise restaurant development and the percentage change in domestic system-wide same-restaurant sales . story_separator_special_tag we believe the decline in guest traffic was due in part to initiatives implemented during 2015 not bold enough to resonate with customers and did not drive repeat traffic as expected . for the full year ended december 31 , 2015 , applebee 's domestic system-wide same-restaurant sales increased 0.2 % . the increase for the full year 2015 was due to an increase in average customer check substantially offset by a decrease in customer traffic . applebee 's performance for both the fourth quarter and full year of 2015 lagged that of the casual dining segment of the restaurant industry . based on data from black box intelligence , a restaurant sales reporting firm ( โ black box โ ) , the casual dining segment of the restaurant industry experienced an increase in same-restaurant sales during the fourth quarter and full year of 2015 due to increases in average customer check that were larger than applebee 's increases , partially offset by decreases in customer traffic that were less than applebee 's decreases . 32 ihop 's domestic system-wide same-restaurant sales increased 1.4 % for the three months ended december 31 , 2015 , the eleventh consecutive quarter of positive same-restaurant sales for ihop . the increase for the fourth quarter was due to an increase in average customer check partially offset by a decrease in customer traffic . the decrease in customer traffic was the first quarterly decline in customer traffic in 2015 , following three quarters of progressively larger increases in customer traffic experienced by ihop for the first nine months of 2015. the decrease in customer traffic in the fourth quarter 2015 was due in part to a large increase in customer traffic in the fourth quarter of 2014 , the period of comparison . based on data from black box , ihop outperformed the family dining segment of the restaurant industry , which experienced a smaller increase in average customer check and a larger decrease in customer traffic than ihop during the fourth quarter of 2015. for the full year ended december 31 , 2015 , ihop 's domestic system-wide same-restaurant sales increased 4.5 % , the highest annual increase since 2004. the increase for the full year 2015 was due to an increase in average customer check as well as an increase in customer traffic . based on data from black box , ihop outperformed the family dining segment of the restaurant industry , which experienced an increase in customer check that was partially offset by a decrease in customer traffic during the full year 2015. we believe the increase in ihop 's domestic system-wide same-restaurant sales during the full year 2015 resulted from a number of different factors . these factors include , but are not limited to , an increase in advertising spending and effectiveness , and a continuing positive impact on ihop domestic system-wide same-restaurant sales from redesign of ihop 's menu . there can be no assurance as to how long the positive impact of any of these factors will continue , if at all . ihop experienced an increase in customer traffic for the fiscal year 2015 while applebee 's experienced a decrease in customer traffic . based on data from black box , customer traffic declined in 2015 for the restaurant industry overall and in both the casual dining and family dining segments of the restaurant industry . in the short term , a decline in customer traffic may be offset by an increase in average customer check resulting from an increase in menu prices , a favorable change in product sales mix , or a combination thereof . a sustained decline in same-restaurant customer traffic that can not be offset by an increase in average customer check could have an adverse effect on our business , results of operations and financial condition . we continue to evaluate and assess opportunities to drive same-restaurant sales and traffic at both our brands . however , in the highly competitive restaurant industry , there can be no assurance that our efforts will achieve the intended results within the time frame anticipated . 33 results of operations - fiscal 2015 , 2014 and 2013 events impacting comparability of financial information refinancing of long-term debt in the fourth quarter of 2014 , we extinguished $ 1.225 billion principal amount of long-term debt that bore interest at a weighted average rate of approximately 7.3 % and issued $ 1.3 billion principal amount of new long-term debt bearing interest at a fixed rate of 4.277 % . as a result , our 2015 interest expense is significantly lower than it was in 2014 and 2013. we recognized a loss on extinguishment of debt of $ 64.9 million in 2014 , and as a result , our net income and net income per diluted share were significantly lower in 2014 compared to both 2015 and 2013. see โ liquidity and capital resources - refinancing of long-term debt , โ for additional information . 53rd week in fiscal 2015 our fiscal year ends on the sunday nearest to december 31 of each year . every five or six years , our fiscal year contains 53 calendar weeks . our 2015 fiscal year contained 53 calendar weeks , whereas fiscal 2014 and 2013 each contained 52 calendar weeks . the estimated impact of the 53rd week on fiscal 2015 results of operations in comparison with fiscal 2014 was an increase in revenue of $ 13.8 million , an increase in gross profit of $ 9.4 million , an increase in income before income taxes of $ 6.8 million and an increase in cash from operating activities of approximately $ 6 million . the gross margin for this one-week period is higher than that for the entire 2015 fiscal year because certain fixed costs were not incurred during the 53rd week . our fiscal 2016 will contain 52 calendar weeks .
| transaction summary on september 30 , 2014 , applebee 's funding llc and ihop funding llc ( each a โ co-issuer โ ) , each a special purpose , wholly-owned indirect subsidiary of the company , issued $ 1.3 billion of series 2014-1 4.277 % fixed rate senior notes , class a-2 ( the โ class a-2 notes โ ) in an offering exempt from registration under the securities act . the co-issuers also entered into a revolving financing facility of series 2014-1 variable funding senior notes class a-1 ( the โ variable funding notes โ ) , which allows for drawings of up to $ 100 million of variable funding notes and the issuance of letters of credit . the class a-2 notes and the variable funding notes are referred to collectively as the โ notes. โ the notes were issued in a securitization transaction pursuant to which substantially all of our domestic revenue-generating assets and our domestic intellectual property , are held by the co-issuers and certain other special-purpose , wholly-owned indirect subsidiaries of the company ( the โ guarantors โ ) that act as guarantors of the notes and that have pledged substantially all of their assets to secure the notes . on september 30 , 2014 , we repaid the entire outstanding principal balance of $ 463.6 million of our senior secured credit facility ( the โ credit facility โ ) ; there were no premiums or penalties associated with the repayment . on october 30 , 2014 , after a required 30-day notice period , we repaid the entire outstanding $ 760.8 million principal balance of our 9.5 % senior notes ( the โ senior notes โ ) , along with a required make-whole premium for early repayment of $ 36.1 million . all of our obligations under the credit facility and the senior notes terminated upon the respective repayments thereof . this transaction was accounted for as a debt extinguishment under u.s. gaap .
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our strategic approach to entering new markets is focused on three steps : identify complicated markets facing complex challenges and inefficiencies , develop products and services that address these unmet market needs , and , operate with systemic efficiency through scale and cost management . we have a proven model in the fleet space where we have developed a leading market position and a strong margin profile . we have done the same in the online travel industry where we continue to grow the business and create scale on a global basis . wex is a leader in global virtual payments in the travel space . our company was impacted by the following significant events and accomplishments in 2013 : on november 8 , 2013 , we announced plans to acquire the assets of exxonmobil 's european commercial fuel card ( โ esso card โ ) program through a majority owned subsidiary , wex europe services limited . the anticipated transaction is subject to completion of the employee information and consultation processes , and obtaining of competition authority approvals , as appropriate . upon completion of the employee information and consultation process , wex expects to enter into a definitive purchase and sale agreement related to the proposed acquisition with exxonmobil . in addition , both parties plan to enter into a long term supply agreement to serve the current and future esso card customers and to grow the business . under the terms of the proposed transaction , we will purchase exxonmobil 's commercial fleet fuel card program which includes operations , funding , pricing , and sales and marketing in nine countries in europe . in anticipation of an expected closing in late fourth quarter 2014 or first quarter 2015 , we will make investments relating to the integration of operations and systems . it is anticipated that these investments will occur over a two year period , and are expected to impact 2014 earnings by $ 10 to $ 13 million after taxes . upon completion of the deal , we estimate this portfolio will contribute approximately $ 35 million in annual revenue . on october 15 , 2013 , the company 's brazilian subsidiary unik , which we own a 51 percent controlling interest in , acquired fastcred , a company specializing in the management of electronic payment of freight . in addition to expanding the customer base , the acquisition complements the range of unik products , facilitating unik 's entry into the freight payment card industry in the brazilian market . on january 30 , 2013 , we completed a $ 400 million offering in aggregate principal amount of our 4.750 % senior notes due on february 1 , 2023 , at an issue price of 100.0 percent of the principal amount , plus accrued interest , from january 30 , 2013 , in a private placement . in connection with the $ 400 million offering , we entered into an amended and restated credit agreement ( the โ 2013 credit agreement โ ) , among the company , as borrower , wex card holdings australia pty ltd ( formerly wright express card holdings australia pty ltd ) , a wholly-owned subsidiary of the company , as specified designated borrower ( โ card holdings australia โ , and , together with the company , the โ borrowers โ ) , bank of america , n.a. , as administrative agent and letter of credit issuer ( โ bank of america โ ) , and the other lenders party thereto ( the โ lenders โ ) . the 2013 credit agreement provides for a five-year $ 300 million amortizing term loan facility , and a five-year $ 700 million secured revolving credit facility with a $ 150 million sub-limit for letters of credit . 26 total fleet transactions processed increased 10 percent from 2012 to 370.6 million in 2013. payment processing transactions increased 12 percent from 2012 to 292.1 million in 2013 , and transaction processing transactions increased 2 percent from 2012 to 78.5 million in 2013. these transactions include the operations from fleet one , subsequent to the date of acquisition of october 4 , 2012. our payment solutions purchase card product grew to $ 13.1 billion in purchase volume for 2013 , which is a 22 percent increase from 2012 . this increase is primarily due to our single use account product used for online travel-related purchases . domestic fuel prices averaged $ 3.67 per gallon during 2013 , down from an average of $ 3.73 per gallon during 2012 . australian fuel prices decreased 5 percent in 2013 as compared to 2012 , to us $ 5.39 per gallon . 27 results of operations year ended december 31 , 2013 , as compared to the year ended december 31 , 2012 fleet payment solutions segment the following table reflects comparative operating results and key operating statistics within our fleet payment solutions segment : replace_table_token_4_th ( a ) as described in item 8โnote 21 to our financial statements , financing interest expense through our corporate debt including the term loan and bond issuance , as well as net realized and unrealized gains and losses on derivative instruments are allocated solely to the fleet payment solutions segment . revenues payment processing revenue increased $ 31.8 million for 2013 , as compared to 2012 . this increase is primarily due to the organic growth from our domestic fleet business and the acquisition of fleet one during the fourth quarter of 2012. reducing the overall increase was a 2 percent decrease in the average domestic price per gallon of fuel , as compared to 2012 . transaction processing revenue increased $ 2.5 million for 2013 , as compared to 2012. this increase is primarily due to network fees at fleet one , which was acquired during the fourth quarter of 2012. account servicing revenue increased $ 8.3 million for 2013 , as compared to 2012 . story_separator_special_tag these losses are due to the overall increase in the price of fuel relative to our hedged fuel prices . esso card program on november 8 , 2013 , the company announced that it plans to acquire the assets of exxonmobil 's european commercial fuel card program through a majority owned subsidiary , wex europe services limited . the anticipated esso card program transaction is expected to close in late fourth quarter 2014 or first quarter 2015. we will make investments relating to the integration of operations and systems . it is anticipated that these investments will occur over a two year period , and are expected to impact 2014 earnings by $ 10 to $ 13 million after taxes . 30 other payment solutions segment the following table reflects comparative operating results and key operating statistics within our other payment solutions segment : replace_table_token_6_th payment processing revenue increased approximately $ 32.1 million for 2013 , as compared to 2012 . the primary driver of the increase in payment processing revenue is the increase in our corporate purchase card volume , which grew by approximately 2.4 billion in 2013 compared to 2012 . additionally , we experienced an increase in the charge card net interchange rate of 5 basis points during 2013 as compared to 2012 , primarily due to customer specific incentives from our network provider . transaction processing revenue decreased approximately $ 1.8 million for 2013 , as compared to 2012 , primarily due to lower transaction based fees from wex prepaid cards australia ( formerly wright express prepaid cards australia ) . account servicing revenue increased approximately $ 5.4 million for 2013 , as compared to 2012 . approximately $ 3.7 million of this increase is due to the acquisition of unik during 2012. the remaining increase is primarily due to domestic growth in our payroll card product . other revenue decreased $ 2.3 million for 2013 as compared to 2012 , primarily due to the decrease in the of cross-border fees from the prior year as we process these transaction with local accounts . as a result of this decrease , our associated service fees have also decreased . on november 9 , 2012 , the u.s district court granted preliminary approval to a settlement between retailer , payment networks and card issuers regarding merchant interchange settlement fees . under the terms of this settlement the domestic interchange rate for mastercard branded credit card transactions was reduced by 10 basis points for a period of 8 months , beginning on july 29 , 2013. this resulted in a revenue reduction of approximately $ 3.6 million in the second half of 2013 . 31 expenses the following table compares selected expense line items within our other payment solutions segment : replace_table_token_7_th salary and other personnel expenses increased $ 10.0 million for 2013 , as compared to 2012 . approximately $ 7.7 million of the increase is due to additional payroll costs associated with the operations of unik and corporatepay acquired during 2012. the remaining increase is due to additional staff and increased benefit expense . service fees increased by $ 1.3 million for 2013 , as compared to 2012 . service fees increased by approximately $ 3.6 million as compared to the prior year due to additional expense associated with the operations of unik and corporatepay , acquired during 2013 . the increase is offset due to lower cross border fees as compared to the prior year . provision for credit losses decreased $ 1.9 million for 2013 , as compared to 2012 . the decrease is primarily due to a bankruptcy from one customer during 2012. depreciation , amortization and impairment expenses decreased $ 16.0 million for 2013 , as compared to 2012 . this decrease is primarily due to the $ 16.2 million impairment of goodwill associated with wex prepaid cards australia in 2012. during the third quarter of 2012 , the company determined that pricing pressure in the prepaid giftcard product in australia would result in lower future earnings than forecasted at the time of the purchase of wex prepaid cards australia . technology leasing and support expenses increased $ 1.8 million for 2013 , as compared to 2012 . this increase is primarily related to the volume increase in our corporate purchase card products . our effective tax rate was 36.1 percent for 2013 and 76.1 percent for 2012 . the decrease in the effective tax rate compared to the prior year is partially due to changes in australian tax consolidation laws . during 2012 , we recorded a charge of approximately $ 5.1 million due to impact of the tax legislation enacted on june 29 , 2012 , in australia . in addition , we did not recognize a tax benefit associated the goodwill impairment expense recorded in 2012 . 32 year ended december 31 , 2012 , as compared to the year ended december 31 , 2011 fleet payment solutions segment the following table reflects comparative operating results and key operating statistics within our fleet payment solutions segment : replace_table_token_8_th ( a ) as described in item 8โnote 21 to our financial statements , financing interest expense and net realized and unrealized gains and losses on derivative instruments are allocated solely to the fleet payment solutions segment . revenues payment processing revenue increased $ 22.7 million for 2012 , as compared to 2011. approximately $ 8.7 million of this increase is due to an increase in the number of domestic payment processing transactions . in addition , the 3 percent increase in the average domestic price per gallon of fuel , as compared to 2011 , contributed approximately $ 3.9 million to this increase . the remaining increase is primarily due to the operations of fleet one , acquired in the beginning of the fourth quarter of 2012. account servicing revenue increased $ 6.3 million for 2012 , as compared to 2011. the increase in number of vehicles serviced in 2012 as compared to 2011 , resulted in additional revenue of approximately $ 2.3 million .
| 2012 highlights during 2012 , our increase in accounts receivable , net of the account receivable balances acquired with our acquisitions , is funded by operating activities as well as a $ 235 million overall increase in borrowed federal funds and deposits . the excess of now deposits is a result of the influx of capital associated with the company 's program with higher one , inc. , a technology and payment processing company , through which the company to a portion of higher one inc. 's customers . accounts receivable increased in 2012 over 2011 as a result of increased customer spend levels , primarily due to higher fuel prices . on may 11 , 2012 , we acquired all of the stock of corporatepay , a provider of corporate prepaid solutions to the travel industry in the united kingdom for $ 27.8 million , net of cash acquired . the acquisition was funded through our revolving credit facility and term loan . on august 30 , 2012 , we acquired a 51 percent ownership interest in unik , a privately-held provider of payroll cards in brazil , for $ 22.8 million . the acquisition was funded through our revolving credit facility and term loan . 37 on october 4 , 2012 , we acquired certain assets of fleet one a privately-held provider of value-based business payment processing and information management solutions for $ 376.3 million , net of cash acquired . the acquisition was funded through our revolving credit facility and term loan . we used $ 11.3 million during 2012 to repurchase our own common stock . during 2012 , we had $ 28.0 million of capital expenditures . a significant portion of our capital expenditures are for the development of internal-use computer software , primarily to enhance product features and functionality in the united states and abroad .
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our actual results may differ materially from those expressed or implied in the forward-looking statements as a result of various factors . company overview medalist diversified reit , inc. is a maryland corporation formed on september 28 , 2015. beginning with our taxable year ended december 31 , 2017 , we believe that we have operated in a manner qualifying us as a reit , and we have elected to be taxed as a reit for federal income tax purposes . our company serves as the general partner of medalist diversified holdings , lp which was formed as a delaware limited partnership on september 29 , 2015. our company was formed to acquire , reposition , renovate , lease and manage income-producing properties , with a primary focus on ( i ) commercial properties , including flex-industrial , limited service hotels , and retail properties , and ( ii ) multi-family residential properties in secondary and tertiary markets in the southeastern part of the united states , with an expected concentration in virginia , north carolina , south carolina , georgia , florida and alabama . we may also pursue , in an opportunistic manner , other real estate-related investments , including , among other things , equity or other ownership interests in entities that are the direct or indirect owners of real property , indirect investments in real property , such as those that may be obtained in a joint venture . while these types of investments are not intended to be a primary focus , we may make such investments in our manager 's discretion . our company is externally managed by medalist fund manager , inc. the manager makes all investment decisions for our company . the manager and its affiliated companies specialize in acquiring , developing , owning and managing value-added commercial real estate in the mid-atlantic and southeast regions . the manager oversees our company 's overall business and affairs and has broad discretion to make operating decisions on behalf of our company and to make investment decisions . the company 's stockholders are not involved in its day-to-day affairs . 10 as of december 31 , 2018 , our company owned and operated three investment properties , the shops at franklin square ( the โ franklin square property โ ) , a 134,239 square foot retail property located in gastonia , north carolina ( the greensboro hampton inn ) a hotel with 125 rooms on 2.162 acres in greensboro , north carolina and the hanover north shopping center ( โ hanover square north โ ) , a 73,440 square foot retail property located in mechanicsville , virginia . as of december 31 , 2018 , we owned 64 % of the greensboro hampton inn as a tenant in common with a noncontrolling owner which owned the remaining 36 % interest . the tenants in common lease the greensboro hampton inn to a taxable reit subsidiary that is also owned 64 % by us and 36 % by the noncontrolling owner . as of december 31 , 2018 , we owned 84 % of hanover square north as a tenant in common with a noncontrolling owner which owned the remaining 16 % interest . recent trends and activities there have been several significant events in 2017 and 2018 that have impacted our company . these events are summarized below . equity issuances during 2017 our company issued 1,148,000 shares of common stock at $ 10.00 per share subject to issuance costs and discounts . the net funds after issuance costs were used for the acquisition of our company 's first two investment properties . in addition , our company issued 125,000 operating partnership units , or op units , in exchange for $ 1,175,000 in contributions of equity in the greensboro hampton inn . in january 2018 , our company issued and sold 775,460 shares of common stock , and in february 2018 , our company issued and sold 63,620 shares of common stock at an offering price of $ 10.00 per share . net proceeds from the issuances totaled $ 7,684,167 , which includes the impact of discounts and offering costs , including the underwriters ' selling commissions and legal , accounting and other professional fees . the net funds after issuance costs were used to ( i ) retire the short-term notes payable used to finance the purchase of the greensboro hampton inn and ( ii ) fund our company 's acquisition of hanover square north , which closed on may 8 , 2018. on june 6 , 2018 , our company issued and sold 8,500 shares of common stock at an offering price of $ 10.00 per share . net proceeds from the issuances totaled $ 65,825 , which includes the impact of discounts and offering costs , including the underwriters ' selling commissions and legal , accounting and other professional fees . on november 30 , 2018 , our company issued and sold 240,000 shares of common stock at an offering price of $ 10.00 per share . net proceeds from the issuances totaled $ 1,838,727 , which includes the impact of discounts and offering costs , including the underwriters ' selling commissions and legal , accounting and other professional fees . on august 31 , 2018 , the company 's board of directors approved a grant of 80,000 shares of common shares to two employees of the manager who also serve as directors of the company and a grant of 6,000 common shares to the company 's three independent directors . the effective date of the grants was december 4 , 2018 , the date on which the registration of the plan shares was effective . the common shares granted vest immediately , but will be restricted for six months by a lock-up agreement associated with the company 's sale of its common shares on november 27 , 2018. in addition , the plan includes other restrictions on the sale of shares issued under the plan . story_separator_special_tag beginning in july 2018 , the usd 1-month libor bba rate exceeded two percent and remained in excess of two percent on each subsequent monthly valuation date from july 2018 through december 31 , 2018. accordingly , the company received the following payments under the interest rate protection transaction , all of which were recorded as a reduction to interest expense : replace_table_token_6_th in addition , our company issued the following short-term loans on november 3 , 2017 to finance the purchase of the greensboro hampton inn . these loans remained outstanding as of december 31 , 2017 : replace_table_token_7_th on january 29 , 2018 , the company repaid the following short-term note payable , with interest : loan payable to virginia commonwealth bank ( a ) $ 1,500,000 interest paid on this loan totaled $ 37,456 , including a loan fee due of $ 22,500 which was paid at the time of the principal repayment and which was recorded as interest during the year ended december 31 , 2018 , and $ 4,985 and $ 9,971 of interest accrued during the years ended december 31 , 2018 and 2017 , respectively . on january 29 , 2018 , the company repaid the following related party short-term notes payable , with interest : replace_table_token_8_th ( a ) interest rate of 4.223 percent per annum ( b ) interest rate of 5 percent for the term of the loan ( c ) short term loan from seller of the greensboro hampton inn which did not bear interest . 13 on a weighted average basis , the effective interest rate on the short-term loans payable was 8.0 percent per annum . each loan was issued on november 2 , 2017 and the proceeds were used to fund the purchase of the greensboro hampton inn . as of december 31 , 2018 , the company had no notes payable , short term or related party notes payable , short term outstanding . off-balance sheet arrangements as of december 31 , 2018 , we have no off-balance sheet arrangements . summary of critical accounting policies the preparation of consolidated financial statements in conformity with gaap requires management to use judgment in the application of accounting policies , including making estimates and assumptions . if our judgment or interpretation of the facts and circumstances relating to various transactions had been different , or different assumptions were made , it is possible that different accounting policies would have been applied , resulting in different financial results or a different presentation of our financial statements . below is a discussion of the accounting policies that we consider critical to an understanding of our financial condition and operating results that may require complex or significant judgment in their application or require estimates about matters which are inherently uncertain . a discussion of our significant accounting policies , including further discussion of the accounting policies described below , can be found in note 2 , โ summary of significant accounting policies , โ of our consolidated financial statements . we believe that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about our operating results and financial condition . revenue recognition principal components of our total revenues for our retail properties include base rents and tenant reimbursements . we accrue minimum ( base ) rent on a straight-line basis over the terms of the respective leases which results in an unbilled rent asset or deferred rent liability being recorded on the balance sheet . certain lease agreements contain provisions that grant additional rents based on tenants ' sales volumes ( contingent or percentage rent ) which we recognize when the tenants achieve the specified targets as defined in their lease agreements . we periodically review the valuation of the asset/liability resulting from the straight-line accounting treatment of our leases in light of any changes in lease terms , financial condition or other factors concerning our tenants . rents and other tenant receivables we record a tenant receivable for amounts due from tenants such as base rents , tenant reimbursements and other charges allowed under the lease terms . we periodically review tenant receivables for collectability and determine the need for an allowance for the uncollectible portion of accrued rents and other accounts receivable based upon customer creditworthiness ( including expected recovery of a claim with respect to any tenants in bankruptcy ) , historical bad debt levels and current economic trends . we consider a receivable past due once it becomes delinquent per the terms of the lease . a past due receivable triggers certain events such as notices , fees and other actions per the lease . acquisition of investments in real estate the adoption of asu 2017-01 , as discussed in note 2 , โ summary of significant accounting policies โ of the consolidated financial statements included in this report , has impacted our accounting framework for the acquisition of investment properties . upon acquisition of investment properties , the company estimates the fair value of acquired tangible assets ( consisting of land , buildings and improvements , and furniture , fixtures and equipment ) and identified intangible assets and liabilities , including in-place leases , above- and below-market leases , tenant relationships and assumed debt based on evaluation of information and estimates available at that date . fair values for these assets are not directly observable and estimates are based on comparable market data and other information which is subjective in nature , including estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information . 14 impairment of long-lived assets we periodically review investment properties for impairment on a property-by-property basis to identify any events or changes in circumstances that indicate that the carrying value of investment properties may not be recoverable . these circumstances include , but are not limited to , declines in the property 's cash flows , occupancy and fair market value . if any such events or changes in circumstances are identified , we perform a formal impairment analysis .
| results of operations comparison of year ended december 31 , 2018 to year ended december 31 , 2017 total revenue total revenue was $ 6,589,951 for the year ended december 31 , 2018 , consisting of $ 2,049,580 in revenues from the franklin square property , $ 864,202 in revenues from hanover square north ( which was owned by our company for eight months during 2018 ) and $ 3,676,169 in revenues from the greensboro hampton inn . total revenue was $ 1,724,657 for the year ended december 31 , 2017 , consisting of $ 1,325,155 in revenues from the franklin square property ( which was owned by our company for eight months during 2017 ) and $ 399,502 in revenues from the greensboro hampton inn ( which was owned by our company for two months during 2017 ) . total revenues for the year ended december 31 , 2018 increased by $ 4,865,294 over the year ended december 31 , 2017. this increase was a result of owning the two properties acquired in 2017 for a full year in 2018 and new revenues from the acquisition of hanover square north . total operating expenses total operating expenses for the year ended december 31 , 2018 were $ 7,654,864 , consisting of $ 758,232 in expenses for the franklin square property , $ 218,236 for hanover square north , $ 2,608,825 for the greensboro hampton inn , $ 790,340 of share based compensation expenses , $ 938,049 of legal , accounting and other professional fees , $ 106,281 in corporate general and administrative expenses , a $ 191,478 loss on impairment and $ 2,043,323 in depreciation and amortization expenses .
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however , these words are not the only way we identify forward-looking statements . in addition , any statements , which refer to expectations , projections , or other characterizations of future events or circumstances , are forward-looking statements . actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors , including those set forth in item 1a , ยrisk factors , ย those described elsewhere in this report , and those described in our other reports filed with the sec . we caution you not to place undue reliance on these forward-looking statements , which speak only as of the date of this report , and we undertake no obligation to release the results of any revisions to these forward-looking statements that could occur after the filing of this report . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( ยgaapย ) . the preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues , expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates and assumptions , including those related to revenue recognition , stock-based compensation , short-term investments , patents and intangible assets , income taxes , contingencies , and litigation . we base our estimates and assumptions on historical experience and on various other factors that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates and assumptions . we believe the following are our most critical accounting policies as they require our significant judgments and estimates in the preparation of our consolidated financial statements : revenue recognition we recognize revenues in accordance with applicable accounting standards , including accounting standards codification ( ยascย ) 605-10-s99 , ยrevenue recognitionย ( ยasc 605-10-s99ย ) ; asc 605-25 , ยmultiple element arrangementsย ( ยasc 605-25ย ) ; and asc 985-605 , ยsoftware-revenue recognitionย ( ยasc 985-605ย ) . we derive our revenues from three principal sources : royalty and license fees , product sales , and development contracts . as described below , management judgments and estimates must be made and used in connection with the revenue recognized in any accounting period . material differences may result in the amount and timing of our revenue for any period based on the judgments and estimates made by our management . specifically , in connection with each transaction , we must evaluate whether : ( i ) persuasive evidence of an arrangement exists , ( ii ) delivery has occurred , ( iii ) the fee is fixed or determinable , and ( iv ) collectibility is probable . we apply these criteria as discussed below . persuasive evidence of an arrangement exists . for a license arrangement , we require a written contract , signed by both the customer and us . for a stand-alone product sale , we require a purchase order or other form of written agreement with the customer . delivery has occurred . we deliver software and product to our customers physically and also deliver software electronically . for physical deliveries not related to software , our transfer terms typically include transfer of title and risk of loss at our shipping location . for electronic deliveries , 32 delivery occurs when we provide the customer access codes or ยkeysย that allow the customer to take immediate possession of the software . the fee is fixed or determinable . our arrangement fee is based on the use of standard payment terms which are those that are generally extended to the majority of customers . for transactions involving extended payment terms , we deem these fees not to be fixed or determinable for revenue recognition purposes and revenue is deferred until the fees become due and payable . collectibility is probable . to recognize revenue , we must judge collectibility of the arrangement fees , which we do on a customer-by-customer basis pursuant to our credit review policy . we typically sell to customers with whom we have a history of successful collection . for new customers , we evaluate the customer 's financial condition and ability to pay . if we determine that collectibility is not probable based upon our credit review process or the customer 's payment history , we recognize revenue when payment is received . royalty and license revenue ย we license our patents and software to customers in a variety of industries such as mobility , gaming , automotive , and medical devices . a majority of these are variable fee arrangements where the royalties earned by us are based on unit or sales volumes of the respective licensees . we also enter into fixed license fee arrangements . the terms of the royalty agreements generally require licensees to give notification of royalties due to us within 30 ย 45 days of the end of the quarter during which their related sales occur . as we are unable to reliably estimate the licensees ' sales in any given quarter to determine the royalties due to us , we recognize royalty revenues based on royalties reported by licensees and when all revenue recognition criteria are met . certain royalties are based upon customer shipments or revenues and could be subject to change and may result in out of period adjustments . we recognize fixed license fee revenue for licenses to our ip and software when earned under the terms of the agreements , which is generally recognized on a straight-line basis over the expected term of the license . story_separator_special_tag there currently is no market-based mechanism or other practical application to verify the reliability and accuracy of the estimates stemming from these valuation models , nor is there a means to compare and adjust the estimates to actual values . see note 10 to the consolidated financial statements for further information regarding stock-based compensation . accounting for income taxes we use the asset and liability method of accounting for income taxes . under this method , income tax expense is recognized for the amount of taxes payable or refundable for the current year . in addition , deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities , and for operating losses and tax credit carryforwards . valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized and are reversed at such time that realization is believed to be more likely than not . our judgments , assumptions , and estimates relative to the current provision for income tax take into account current tax laws , our interpretation of current tax laws , and possible outcomes of current and future audits conducted by foreign and domestic tax authorities . we have established reserves for income taxes to address potential exposures involving tax positions that could be challenged by tax authorities . although we believe our judgments , assumptions , and estimates are reasonable , changes in tax laws or our interpretation of tax laws and 34 any future tax audits could significantly impact the amounts provided for income taxes in our consolidated financial statements . our assumptions , judgments , and estimates relative to the value of a deferred tax asset take into account predictions of the amount and category of future taxable income , such as income from operations or capital gains income . actual operating results and the underlying amount and category of income in future years could render inaccurate our current assumptions , judgments , and estimates of recoverable net deferred tax assets . any of the assumptions , judgments , and estimates mentioned above could cause our actual income tax obligations to differ from our estimates , thus materially impacting our financial position and results of operations . see note 13 to the consolidated financial statements for further information concerning income taxes . short-term investments our short-term investments consist primarily of u.s. treasury bills and government agency securities purchased with an original or remaining maturity of greater than 90 days on the date of purchase . we classify all debt securities with readily determinable market values as ยavailable-for-saleย . even though the stated maturity dates of these debt securities may be one year or more beyond the balance sheet date , we have classified all debt securities as short-term investments as they are available for current operations and reasonably expected to be realized in cash or sold within one year . these investments are carried at fair market value , and using the specific identification method , any unrealized gains and losses considered to be temporary in nature are reported as a separate component of other comprehensive income ( loss ) within stockholders ' equity . for debt securities in an unrealized loss position , we are required to assess whether ( i ) we have the intent to sell the debt security or ( ii ) it is more likely than not that we will be required to sell the debt security before its anticipated recovery . if either of these conditions is met , an other-than-temporary impairment on the security must be recognized in earnings equal to the entire difference between its fair value and amortized cost basis . for debt securities in an unrealized loss position which are deemed to be other-than-temporary where neither of the criteria in the paragraph above are present , the difference between the security 's then-current amortized cost basis and fair value is separated into ( i ) the amount of the impairment related to the credit loss ( i.e. , the credit loss component ) and ( ii ) the amount of the impairment related to all other factors ( i.e. , the non-credit loss component ) . the credit loss component is recognized in earnings . the non-credit loss component is recognized in accumulated other comprehensive loss . the credit loss component is the excess of the amortized cost of the security over the best estimate of the present value of the cash flows expected to be collected from the debt security . the non-credit component is the residual amount of the other-than-temporary impairment . when calculating the present value of expected cash flows to determine the credit loss component of the other-than-temporary impairment , we estimate the amount and timing of projected cash flows on a security-by-security basis . these calculations reflect our expectations of the performance of the underlying collateral and of the issuer to meet payment obligations as applicable . the expected cash flows are discounted using the effective interest rate of the security prior to any impairment . the amortized cost basis of a debt security is adjusted for credit losses recorded to earnings . the difference between the cash flows expected to be collected and the new cost basis is accreted to investment income over the remaining expected life of the security . further information about short-term investments may be found in note 2 to the consolidated financial statements . patents and intangible assets intangible assets with finite useful lives are amortized and intangible assets with indefinite lives are not amortized but rather are tested at least annually for impairment . 35 we have acquired patents and other intangible assets . in addition , we internally develop and license ip and software , and when possible , we protect our ip and software with patents and trademarks . during the fourth quarter 2013 , we elected to change our method of accounting for external patent-related costs associated with our internally developed patents and trademarks .
| results of operations overview of 2013 we continued to invest in research , development , sales , and marketing in our key lines of business . key events in the year were as follows : we increased our royalty and license revenue by 59 % and our overall revenue by 48 % for the year ended december 31 , 2013 compared to 2012. the increase in royalty and license revenue was driven mainly by our mobility line of business along with increases from our automotive , gaming , and medical licensees as well . our income from continuing operations was $ 40.2 million for the year ended december 31 , 2013 compared to a loss from continuing operations of $ 7.4 million for the year ended december 31 , 2012. the increase in income from continuing operations of $ 47.5 was primarily due to a non-recurring increase in our benefit from taxes of $ 37.3 million and an increase in gross profit of $ 16.0 million , partially offset by an increase in expenses of $ 5.7 million , which increase consisted primarily of sales and marketing and research and development expenses . the increase in the benefit from taxes was primarily due to the partial release of our federal deferred income tax asset valuation allowance based on the assessment of our ability to utilize these deferred income tax assets . see note 13 to the consolidated financial statements for additional information on our income taxes . during the fourth quarter 2013 , we elected to change our method of accounting for external patent-related costs associated with our internally developed patents and trademarks . under the new method of accounting , external patent-related costs are expensed as incurred and classified as general and administrative expenses in our consolidated statement of operations , consistent with the classification of internal legal costs associated with internally developed patents and trademarks .
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to achieve that core principle , an entity should apply the following steps : ( i ) identify the contract ( s ) with a customer , ( ii ) identify the performance story_separator_special_tag general the following discussion and analysis of our results of operations and financial condition should be read in conjunction with the โ โ selected financial data '' and our consolidated financial statements and related notes included elsewhere in this report . in addition to historical information , this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . certain risks , uncertainties and other factors , including but not limited to those set forth under โ โ forward-looking statements , '' โ โ risk factors '' and elsewhere in this report , may cause actual results to differ materially from those projected in the forward looking statements . we assume no obligation to update any of these forward-looking statements . readers of our annual report on form 10-k should consider these risks and uncertainties in evaluating forward-looking statements and should not place undue reliance on forward-looking statements . 46 overview the company is a financial holding company headquartered in bloomington , minnesota , which is currently celebrating thirteen years of successful operations . the principal sources of funds for loans and investments are transaction , savings , time , and other deposits , and short-term and long-term borrowings . the company 's principal sources of income are interest and fees collected on loans , interest and dividends earned on investment securities and service charges . the company 's principal expenses are interest paid on deposit accounts and borrowings , employee compensation and other overhead expenses . the company 's simple , efficient business model of providing responsive support and unconventional experiences to clients continues to be the underlying principle that drives the company 's profitable growth . critical accounting policies and estimates the consolidated financial statements of the company are prepared based on the application of certain accounting policies , the most significant of which are described in note 1 of the notes to the consolidated financial statements included as a part of this report . certain of these policies require numerous estimates and strategic or economic assumptions that may prove inaccurate or subject to variation and may significantly affect the reported results and financial position for the current period or in future periods . the use of estimates , assumptions , and judgments are necessary when financial assets and liabilities are required to be recorded or adjusted to reflect fair value . assets carried at fair value inherently result in more financial statement volatility . fair values and information used to record valuation adjustments for certain assets and liabilities are based on either quoted market prices or are provided by other independent third-party sources , when available . when such information is not available , management estimates valuation adjustments . changes in underlying factors , assumptions or estimates in any of these areas could have a material impact on the future financial condition and results of operations . the jobs act permits the company an extended transition period for complying with new or revised accounting standards affecting public companies . the company has elected to take advantage of this extended transition period , which means that the financial statements included in this report , as well as any financial statements filed in the future , will not be subject to all new or revised accounting standards generally applicable to public companies for the transition period for so long as the company remains an emerging growth company or until the company affirmatively and irrevocably opts out of the extended transition period under the jobs act . the following is a discussion of the critical accounting policies and significant estimates that require us to make complex and subjective judgements . allowance for loan losses the allowance for loan losses , sometimes referred to as the โ allowance , โ is established through a provision for loan losses which is charged to expense . loan losses are charged against the allowance when management determines all or a portion of the loan balance to be uncollectible . subsequent recoveries , if any , are credited to the allowance for cash received on previously charged-off amounts . if the allowance is considered inadequate to absorb future loan losses on existing loans for any reason , including but not limited to , increases in the size of the loan portfolio , increases in charge-offs or changes in the risk characteristics of the loan portfolio , then the provision for loan losses is increased . a loan is considered impaired when , based on current information and events , it is probable that the company will be unable to collect all amounts due according to the original contractual terms of the loan agreement . the collection of all amounts due according to original contractual terms means that both the contractual interest and principal payments of a loan will be collected as scheduled in the loan agreement . an impaired loan is measured based on the present value of expected future cash flows discounted at the loan 's effective interest rate , or , as a practical expedient , at the loan 's observable market price , or the fair value of the underlying collateral , reduced by costs to sell on a discounted basis , is used if a loan is collateral dependent . 47 investment securities impairment periodically , the company may need to assess 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 . story_separator_special_tag average interest bearing liabilities increased $ 242.1 million , or 31.1 % , to $ 1.0 billion for the year ended december 31 , 2017 , from $ 777.7 million for the year ended december 31 , 2016. the increase in average interest bearing liabilities was primarily due to an increase in interest bearing deposits , federal funds purchased , and the issuance of $ 25.0 million of subordinated debentures in july of 2017. average interest earning assets produced a tax-equivalent yield of 4.76 % for the year ended december 31 , 2017 , compared to 4.78 % for the year ended december 31 , 2016. the average rate paid on interest bearing liabilities was 1.19 % for the year ended december 31 , 2017 , compared to 1.09 % for the year ended december 31 , 2016. interest income . total interest income on a tax-equivalent basis was $ 68.5 million for the year ended december 31 , 2017 , compared to $ 52.0 million for the year ended december 31 , 2016. the $ 16.5 million , or 31.7 % , increase in total interest income on a tax-equivalent basis was primarily due to growth in our loan and investment securities portfolios . interest income on loans for the year ended december 31 , 2017 was $ 60.0 million , compared to $ 46.6 million for the year ended december 31 , 2016. the $ 13.4 million , or 28.7 % , increase was primarily due to a 31.3 % increase in the average balance of loans outstanding , offset in part by a 10 basis point decrease in the average yield on loans . the increase in the average balance of loans outstanding was primarily due to loan growth in commercial real estate loans . the decrease in yield on the loan portfolio resulted primarily from the lagging of repricing from the historic low interest rate environment and competitive pricing pressure in the market . interest income on our investment securities portfolio on a fully-tax equivalent basis increased $ 3.1 million , or 61.9 % to $ 8.2 million in the year ended december 31 , 2017 , compared to the year ended december 31 , 2016. such growth in investment securities was intended to address our rising loan-to-deposit ratio and further diversify our earning asset composition . furthermore , meaningful growth in the investment securities portfolio added necessary on-balance sheet liquidity , as investment securities were more actively utilized for pledging to public entities . interest expense . interest expense on interest bearing liabilities increased $ 3.7 million , or 43.0 % , to $ 12.2 million for the year ended december 31 , 2017 , compared to $ 8.5 million for the year ended december 31 , 2016 , primarily due to increases in average balances of both deposits and borrowings . interest expense on deposits increased to $ 9.7 million for the year ended december 31 , 2017 , compared to $ 7.0 million for the year ended december 31 , 2016. the $ 2.8 million , or 39.7 % , increase in interest expense on deposits was primarily due to the average balance of deposits increasing 32.2 % combined with a 4 basis point increase in the average rate paid . interest expense on borrowings increased $ 895,000 to $ 2.5 million for the year ended december 31 , 2017 , compared to $ 1.6 million for the year ended december 31 , 2016. this increase was primarily due to the issuance of $ 25.0 million in subordinated debentures in july 2017 , as well as an increased average balance of federal funds purchased , offset in part by a reduction in interest expense on notes payable as a result of decreased principal balance . provision for loan losses 2018 compared to 2017 the allowance for loan losses increased $ 3.5 million as of december 31 , 2018 , compared to december 31 , 2017 , reflecting a provision for loan losses of $ 3.6 million and net charge-offs of $ 46,000 during 2018. the provision for loan losses was $ 3.6 million for the year ended december 31 , 2018 , a decrease of $ 600,000 , compared to the provision for loan losses of $ 4.2 million for the year ended december 31 , 2017 , due primarily to continued strength in credit quality . the allowance for loan losses at december 31 , 2018 represented 1.20 % of loans outstanding , compared to 1.22 % at december 31 , 2017 . 53 2017 compared to 2016 the allowance for loan losses increased $ 4.2 million as of december 31 , 2017 , compared to december 31 , 2016 , reflecting a provision for loan losses of $ 4.2 million and net charge-offs of $ 6,000 during 2017. the provision for loan losses was $ 4.2 million for the year ended december 31 , 2017 , an increase of $ 925,000 , compared to the provision for loan losses of $ 3.3 million for the year ended december 31 , 2016 , due primarily to growth in the loan portfolio . the allowance for loan losses at december 31 , 2017 represented 1.22 % of loans outstanding , compared to 1.23 % at december 31 , 2016. the following table presents a summary of the activity in the allowance for loan losses for the years ended december 31 , 2018 , 2017 , and 2016 : replace_table_token_7_th noninterest income 2018 compared to 2017 noninterest income was $ 2.5 million for the years ended december 31 , 2018 and 2017 , an increase of $ 7,000. the marginal increase was largely due to increased fees related to customer deposit accounts as a result of the overall increase in the number of our deposit clients , increased fees earned for letters of credit due to increased volume , and a decrease in losses on sales of securities . this activity was offset by an increased loss on sales of foreclosed assets .
| results of operations net income 2018 compared to 2017 net income was $ 26.9 million for the year ended december 31 , 2018 , a 59.4 % increase over net income of $ 16.9 million for the year ended december 31 , 2017. net income per diluted common share for the year ended december 31 , 2018 was $ 0.91 , a 35.5 % increase , compared to $ 0.68 per diluted common share for the year ended december 31 , 2017. roa was 1.51 % and 1.16 % for the years ended december 31 , 2018 and 2017 , respectively . roe was 13.87 % and 13.18 % for the years ended december 31 , 2018 and 2017 , respectively . the year ended 2017 included a one-time additional expense of $ 2.0 million related to the enactment of the tax cuts and jobs act . excluding the one-time impact of the tax cuts and jobs act , roa and roe for the year ended december 31 , 2017 would have been 1.30 % and 14.75 % , respectively . 2017 compared to 2016 48 net income was $ 16.9 million for the year ended december 31 , 2017 , a 27.8 % increase over net income of $ 13.2 million for the year ended december 31 , 2016. net income per diluted common share for the year ended december 31 , 2017 was $ 0.68 , a 15.6 % increase , compared to $ 0.58 per diluted common share for the year ended december 31 , 2016. roa was 1.16 % and 1.20 % for the years ended december 31 , 2017 and 2016 , respectively . roe was 13.18 % and 12.88 % for the years ended december 31 , 2017 and 2016 , respectively . net interest income the company 's primary source of revenue is net interest income , which is impacted by the level of interest earning assets and related funding sources , as well as changes in the levels of interest rates .
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the following discussion and certain other sections of this annual report on form 10-k contain statements reflecting the company 's views about its future performance that constitute โ forward-looking statements โ under the private securities litigation reform act of 1995. these forward-looking statements are based on current expectations , estimates , forecasts and 19 projections about the industry and markets in which the company operates and management 's beliefs and assumptions . any statements contained herein ( including without limitation statements to the effect that stanley black & decker , inc. or its management โ believes โ , โ expects โ , โ anticipates โ , โ plans โ and similar expressions ) that are not statements of historical fact should be considered forward-looking statements . these statements are not guarantees of future performance and involve certain risks , uncertainties and assumptions that are difficult to predict . there are a number of important factors that could cause actual results to differ materially from those indicated by such forward-looking statements . these factors include , without limitation , those set forth , or incorporated by reference , below under the heading โ cautionary statements โ . the company does not intend to update publicly any forward-looking statements whether as a result of new information , future events or otherwise . strategic objectives the company has maintained a consistent strategic framework over time : maintaining portfolio transition momentum by continuing diversification toward higher growth , higher profit businesses , increasing relative weighting of emerging markets and opportunistically consolidating the tool industry ; being selective and operating in markets where brand is meaningful , the value proposition is definable and sustainable through innovation and global cost leadership is achievable ; pursuing growth on multiple fronts through building existing growth platforms such as security ( both convergent and mechanical ) and engineered fastening and growing the more nascent stage infrastructure and healthcare platforms ; accelerating progress via sfs . in 2012 , the company undertook to intensify its focus on organic growth in order to achieve its long-term objective of 4-6 % organic growth amidst a global growth environment which may be weaker than normal in the near to medium term . stanley 's strategy involves industry , geographic and customer diversification , in order to pursue sustainable revenue , earnings and cash flow growth . in may 2011 , the company 's gics code was changed to โ industrials โ capital goods โ machinery โ from โ consumer discretionary โ consumer durables โ household durables โ which reflects the evolution of the company . two aspects of the company 's vision are to be a consolidator within the tool industry and to increase its relative weighting in emerging markets . these objectives have been significantly enhanced by the merger , which along with the impact from the company 's diversification strategy has driven continued improvements in financial performance . sales outside the u.s. represented 52 % of total net sales in 2012 , up from 29 % in 2002. as further illustration of the company 's diversification strategy , 2012 sales to u.s. and international home centers and mass merchants were approximately 24 % , including nearly 16 % in sales to the company 's two largest customers , which is down from 25 % in 2011 , including 17 % in sales to the company 's two largest customers . as acquisitions in the various growth platforms ( security , engineered fastening , infrastructure and healthcare ) are made in future years , the proportion of sales to these valued u.s. and international home centers and mass merchants is expected to continue to decrease although they will remain important and highly valued customers . execution of this strategy has entailed approximately $ 5.3 billion of acquisitions since 2002 ( aside from the merger ) , several divestitures ( including the sale of hhi in december 2012 ) and increased brand investment , enabled by strong cash flow generation . during the same time period , the company has returned 70 % of free cash flow to its shareowners . the company 's long-term financial objectives are : 4-6 % organic revenue growth ; 10-12 % total revenue growth ; mid-teens percentage eps growth ; free cash flow greater than or equal to net income ; return on capital employed ( roce ) or cash flow return on investment ( cfroi ) of 12-15 % ; continued dividend growth ; and strong investment grade credit rating . the company 's long-term capital allocation objectives pertaining to the deployment of free cash flow are : invest approximately 2/3 in acquisitions ; and return approximately 1/3 to shareowners , as the company remains committed to continued dividend growth and opportunistic share buy backs . the following represent recent examples of executing on the company 's strategic objectives : 20 pending acquisition on july 23 , 2012 , the company announced that it had entered into a definitive agreement to acquire infastech , a global manufacturer and distributor of specialty engineered fastening technology based in hong kong , for approximately $ 850 million . infastech designs , manufactures and distributes highly engineered fastening technologies and applications for a diverse blue-chip customer base in the industrial , electronics , automotive , construction and aerospace end markets . the acquisition of infastech is expected to contribute approximately $ 0.20 to the company 's diluted earnings per share in the first year and $ 0.35 to diluted earnings per share by year 3. infastech will be consolidated into the company 's engineered fastening business within the industrial segment . the transaction is subject to customary closing conditions and is expected to close in the first quarter of 2013 . 2012 acquisitions in august 2012 , the company acquired tong lung metal industry ( `` tong lung '' ) for $ 102.8 million , net of cash acquired , and assumed $ 20.0 million of short term debt . tong lung manufactures and sells commercial and residential locksets . story_separator_special_tag the company 's iar business within the industrial segment continues to reap benefits from its vertical integration of hand and power tools used for industrial and automotive repair purposes as well as advanced industrial storage solutions . continuing to invest in the stanley black & decker brands the company has a strong portfolio of brands associated with high-quality products including stanleyยฎ , fatmaxยฎ , d e waltยฎ , black & deckerยฎ , porter-cableยฎ , bostitchยฎ , facomยฎ , macยฎ , protoยฎ , crcยฎ , emhart teknologies , vidmarยฎ , and niscayahยฎ . the stanleyยฎ , black & deckerยฎ and d e waltยฎ brands are recognized as three of the world 's great brands and are amongst the company 's most valuable assets . sustained brand support has yielded a steady improvement across the spectrum of legacy stanley brand awareness measures , notably a climb in unaided stanley hand tool brand awareness from 27 % in 2005 to 47 % in 2012. during 2012 , stanley and d e walt had prominent signage at 11 major league baseball stadiums or 40 % of all major league baseball games . the company is also maintaining long-standing nascar racing sponsorships which will provide brand exposure over 36 race weekends in 2013. the company is in year five of a ten year alliance agreement with the walt disney world resortยฎ whereby stanleyยฎ logos are displayed on construction walls throughout the theme parks and stanleyยฎ , macยฎ , protoยฎ , and vidmarยฎ brand logos and or products are featured in various attractions where they will be seen by millions of visitors each year . additionally , stanley is โ the official tool provider of the walt disney world resortยฎ. โ in 2009 , the company also began advertising in the english premier league , which is the number one soccer league in the world , watched weekly by 650 million people . from the beginning of 2012 through the end of 2013 , the company will advertise in approximately 225 televised events . starting in 2011 , the company became a sponsor of the liverpool football club and the fulham football club including player rights , hospitality assets and stadium signage . the company advertises in 60 televised professional bull riders events in the us and brazil and sponsors five riders . additionally , the company sponsors a team and two riders in moto gp , the world 's premiere motorcycle racing series . the company will continue to allocate its brand and advertising spend wisely generating more than 25 billion brand impressions annually . the stanley fulfillment system ( sfs ) sfs employs continuous improvement techniques to streamline operations and drive efficiency throughout the supply chain . sfs has five primary elements that work in concert : sales and operations planning ( โ s & op โ ) , operational lean , complexity reduction , global supply management , and order-to-cash excellence . s & op is a dynamic and continuous unified process that links and balances supply and demand in a manner that produces world-class fill rates while minimizing dsi ( days sales of inventory ) . operational lean is the systemic application of lean principles in progressive steps throughout the enterprise to optimize flow toward a pre-defined end state by eliminating waste , increasing efficiency and driving value . complexity reduction is a focused and overt effort to eradicate costly and unnecessary complexity from the company 's products , supply chain and back room process and organizations . complexity reduction enables all other sfs elements and , when successfully 22 deployed , results in world-class cost , speed of execution and customer satisfaction . global supply management focuses on strategically leveraging the company 's scale to achieve the best possible price and payment terms with the best possible quality , service and delivery among all categories of spend . order-to-cash excellence is a methodical , process-based approach that provides a user-friendly , automated and error-proof customer experience from intent-to-purchase to shipping and billing to payment , while minimizing cash collection cycle time and dso ( days sales outstanding ) . other benefits of sfs include reductions in lead times , rapid realization of synergies during acquisition integrations , and focus on employee safety . sfs disciplines helped to mitigate the substantial impact of material and energy price inflation that was experienced in recent years . sfs is instrumental in the reduction of working capital as evidenced by the improvement in working capital turns for legacy stanley from 4.6 in 2003 to 8.6 at the end of 2009 , directly preceding the merger . closing out 2010 , once blended with the legacy black & decker working capital turns of 4.7 , working capital turns for the combined company were 5.7. the continued efforts to deploy sfs across the entire company and increase turns has created significant opportunities to generate incremental free cash flow . working capital turns have experienced a 32 % improvement from 5.7 at the end of 2010 to 7.5 at the end of 2012. going forward , the company plans to further leverage sfs to generate ongoing improvements both in the existing business and future acquisitions in working capital turns , cycle times , complexity reduction and customer service levels , with a goal of achieving 10 working capital turns by mid-decade . certain items impacting earnings merger and acquisition-related and other charges impacting 2012 , 2011 and 2010 earnings throughout md & a , the company has provided a discussion of the outlook and results both inclusive and exclusive of the merger and acquisition-related and other charges . merger and acquisition-related charges relate primarily to the black & decker merger and niscayah acquisition while other charges relate to the 2012 cost actions and the loss on extinguishment of debt . the amounts and measures , including gross profit and segment profit , on a basis excluding such charges are considered relevant to aid analysis and understanding of the company 's results aside from the material impact of these charges .
| results of operations below is a summary of the company 's operating results at the consolidated level , followed by an overview of business segment performance . terminology : the terms โ organic โ and โ core โ are utilized to describe results aside from the impact of acquisitions during their initial 12 months of ownership . this ensures appropriate comparability to operating results of prior periods . the company has included information as if the black & decker merger had occurred on january 3 , 2010 for the year ended january 1 , 2011 ( โ pro forma โ information ) . this โ pro forma โ analysis is provided to aid understanding of the 2011 and 2010 trends since the merger occurred march 12 , 2010. net sales : net sales were $ 10.191 billion in 2012 , up 8 % compared to $ 9.436 billion in 2011 . organic sales volume provided a 2 % increase in net sales and the impact of acquisitions provided an additional 8 % increase , while unfavorable effects of foreign currency translation resulted in a decrease of 2 % to net sales . the cdiy segment grew 5 % organically in comparison to 2011 , which was driven by successful new products and market share gains under the d e walt and black & decker brands . in the 24 industrial segment , organic sales grew 1 % relative to 2011 due to strong organic growth in the engineered fastening business , which was partially offset by iar exposure to weakening european markets and declines in the infrastructure business due to lagging results in the onshore pipeline business . organic net sales in the security segment declined 4 % compared to 2011 , which was attributable to a difficult european market impacting the css business and weakness within the mas business in the u.s. tied to slow commercial construction as well as soft national account spending .
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our foreign currency forward contracts are typically short-term and , as they do not qualify for hedge accounting treatment , we classify the changes in their fair value in other , net . we do not hold or issue financial instruments for speculative or trading purposes . foreign currency translation and transaction gains and losses certain of our operations outside of the united states use the related local currency as their functional currency . we translate revenue and expense at average rates of exchange during the period . we translate assets and liabilities at the rates of exchange as of the consolidated balance sheet dates and include foreign currency translation gains and losses as a component of accumulated other comprehensive income ( ยociย ) . due to the nature of our operations and our corporate structure , we also have subsidiaries that have significant transactions in foreign currencies other than their functional currency . we record transaction gains and losses in our consolidated statements of operations related to the recurring remeasurement and settlement of such transactions . to the extent practicable , we attempt to minimize this exposure by maintaining natural hedges between our current assets and current liabilities of similarly denominated foreign currencies . additionally , as discussed above , we use foreign currency forward contracts to economically hedge certain merchant revenue exposures and in lieu of holding certain foreign currency cash for the purpose of economically hedging our foreign currency-denominated operating liabilities . debt issuance costs we defer costs we incur to issue debt and amortize these costs to interest expense over the story_separator_special_tag overview expedia , inc. is an online travel company , empowering business and leisure travelers with the tools and information they need to efficiently research , plan , book and experience travel . we have created a global travel marketplace used by a broad range of leisure and corporate travelers , offline retail travel agents and travel service providers . we make available , on a stand-alone and package basis , travel products and services provided by numerous airlines , lodging properties , car rental companies , destination service providers , cruise lines and other travel product and service companies . we also offer travel and non-travel advertisers access to a potential source of incremental traffic and transactions through our various media and advertising offerings on our transaction-based websites . for additional information about our portfolio of brands , see the disclosure set forth in part i , item 1 , business , under the caption ยmanagement overview.ย all percentages within this section are calculated on actual , unrounded numbers . summary of the spin-off of tripadvisor , inc. on december 6 , 2011 , our stockholders and board of directors approved a spin-off transaction that separated expedia , inc. into two separately traded public companies : tripadvisor , inc. , which includes the domestic and international operations previously associated with the tripadvisor media group , which includes its flagship brand as well as 18 other travel media brands , and expedia , inc. , which continues to include the domestic and international operations of our travel transaction brands including expedia.com , hotels.com , elong , hotwire , egencia , expedia affiliate network , cruiseshipcenters , venere , classic vacations and carrentals.com . immediately prior to the spin-off , expedia affected a one-for-two reverse stock split . the spin-off was completed following the close of trading on the nasdaq stock market on december 20 , 2011. in connection with the spin-off , we entered into various agreements with tripadvisor , a related party due to common ownership , including , among others , a separation agreement , a tax sharing agreement , an employee matters agreement and a transition services agreement . in addition , we will continue to work together with tripadvisor pursuant to various commercial agreements between subsidiaries of expedia , on the one hand , and subsidiaries of tripadvisor , on the other hand . the various commercial agreements , including click-based advertising agreements , content sharing agreements and display-based and other advertising agreements , have terms of up to one year . our leisure segment recognized approximately $ 207 million of sales and marketing expense from tripadvisor in 2011 through the spin-off date , and $ 171 million and $ 140 million of sales and marketing expense for the years ended december 31 , 2010 and 2009. we recorded $ 4 million to sales and marketing expense related to these various agreements from december 21 , 2011 to december 31 , 2011. trends the travel industry , including offline agencies , online agencies and other suppliers of travel products and services , has historically been characterized by intense competition , as well as rapid and significant change . generally , 2011 represented a year of gradual improvement for the travel industry . however , natural disasters , such as the earthquake and tsunami in japan , political and social unrest in the middle east and north africa , the rising price of oil , and ongoing sovereign debt and economic issues in several european countries , all contribute to a somewhat uncertain forward environment for the travel industry . online travel increased usage and familiarity with the internet have driven rapid growth in online penetration of travel expenditures . according to phocuswright , an independent travel , tourism and hospitality research firm , approximately 54 % of u.s. leisure , unmanaged and corporate travel expenditures occur online , compared with approximately 39 % of european travel . online penetration in the asia pacific region is estimated to be over 20 % , lagging behind that of europe . these penetration rates have increased over the past few years , and are expected to continue growing . this significant growth has attracted many competitors to online travel . this competition has intensified in recent years , and the industry is expected to remain highly competitive for the foreseeable future . story_separator_special_tag for example , we launched our new hotels.com global platform in the first quarter of 2010 , enabling us to significantly increase the innovation cycle for that brand . since then , we have been successful in improving conversion and driving much faster growth rates for the hotels.com brand . we are in the midst of a similar transformation for our expedia brand , having rolled out its new hotel platform in the second half of 2011 , with expectations that the new air and package platforms will be launched in 2012. global expansion . our expedia , hotels.com , egencia , ean , and hotwire brands operate both domestically and through international points of sale , including in europe , asia pacific , canada and latin america . we own a majority share of elong , which is the second largest online travel company in china . we also own venere , a european brand , which focuses on marketing hotel rooms in europe . egencia , our corporate travel business , operates in 46 countries around the world and continues to expand aggressively . we also partner in a 50/50 joint venture with airasia ย a low cost carrier serving the asia - pacific region ย to jointly grow an online travel 34 agency business . although the results for the joint venture are not consolidated in our financial statements , we consider this business to be a key part of our asia pacific strategy . in 2011 , approximately 39 % of our worldwide gross bookings and 42 % of worldwide revenue were international up from 22 % for both worldwide gross bookings and revenue in 2005. we have a stated goal of driving more than half of our gross bookings and revenue through international points of sale . in expanding our global reach , we leverage significant investments in technology , operations , brand building , supplier relationships and other initiatives that we have made since the launch of expedia.com in 1996. we intend to continue leveraging these investments when launching additional points of sale in new countries , introducing new website features , adding supplier products and services including new business model offerings , as well as proprietary and user-generated content for travelers . our scale of operations enhances the value of technology innovations we introduce on behalf of our travelers and suppliers . we believe that our size and scale affords the company the ability to negotiate competitive rates with our supply partners , provide breadth of choice and travel deals to our traveling customers through an increasingly larger supply portfolio and creates opportunities for new value added offers for our customers such as our loyalty programs . the size of expedia 's worldwide traveler base makes our sites an increasingly appealing channel for travel suppliers to reach customers . in addition , the sheer size of our user base and search query volume allows us to test new technology very quickly in order to determine which innovations are most likely to improve the travel research and booking process , and then roll those features out to our worldwide audience in order to drive improvements to conversion . new channel penetration . today , the vast majority of online travel bookings are generated through typical desktop and laptop computers . however , recent technological innovations and developments are creating new opportunities including travel bookings made through mobile devices . in the past few years , each of our brands made significant progress creating new mobile websites and mobile applications that are receiving strong reviews and solid download trends . we own a leading travel application company called mobiata which is responsible for several top travel applications , such as flighttrack , flighttrack pro and flightboard , and is now creating new mobile applications for our expedia brand , most recently launching the mobile expedia hotels application for both the iphone and the ipad . we believe mobile bookings present an opportunity for incremental growth as they are typically completed within one day of the travel or stay which is a much shorter booking window than we have historically experienced via more traditional online booking methods . we are also working with suppliers on specific mobile offerings which can represent a unique value proposition and offer customers room nights for as much as a 50 % discount from retail rates . other recent developments in new channels include the proliferation of the ยdaily deals ' space for which we have multiple efforts . for example , our expedia brand has an exclusive partnership with groupon , groupon getaways with expedia , where we work with suppliers to offer consumers deeply discounted travel opportunities on a limited basis . we believe this may also represent incremental travel bookings as it typically represents an impulse purchase compared to historical travel purchasing activity which tends to be a highly considered and deliberate transaction . our hotwire brand also operates the travel-ticker brand which sources and markets deep discount travel . virtually all of our leisure brands have efforts related to the daily deals or deep discount space . many of our brands are also actively participating in facebook , twitter and other ยsocial ' channels and we anticipate the importance of these channels to consumers and to our industry to increase over time . it is our intention to grow our ยsocial ' efforts alongside this trend . seasonality we generally experience seasonal fluctuations in the demand for our travel products and services . for example , traditional leisure travel bookings are generally the highest in the first three quarters as travelers plan and book their spring , summer and holiday travel . the number of bookings typically decreases in the fourth quarter . because revenue in the merchant business is generally recognized when the travel takes place rather than when it is booked , revenue typically lags bookings by several weeks or longer . the seasonal revenue impact is exacerbated with respect to income by the more stable nature of our fixed costs .
| results of operations revenue replace_table_token_7_th in 2011 and 2010 , the increase in revenue was primarily due to an increase in worldwide hotel revenue within our leisure segment . worldwide hotel revenue increased 18 % in 2011 compared to 2010 primarily due to an 18 % increase in room nights stayed . revenue per room night was flat year over year . competitive pricing actions on hotels and packages as well as accruals for loyalty programs at expedia and hotels.com offset most of the 5 % increase in adrs . worldwide hotel revenue increased 11 % in 2010 compared to 2009 primarily due to a 14 % increase in room nights stayed , partially offset by a 3 % decline in revenue per room night . worldwide air revenue decreased 4 % in 2011 compared to 2010 due to an 8 % decrease in air tickets sold , partially offset by a 4 % increase in revenue per air ticket . the decrease in air tickets sold was partially due to an 11 % increase in average air ticket prices . revenue per ticket increased in 2011 due to certain regional and interline consumer booking fees and performance-based incentives , partially offset by lower net supplier economics . worldwide air revenue increased 12 % in 2010 compared to 2009 due to an 11 % increase in air tickets sold and a 1 % increase in revenue per air ticket . worldwide revenue other than hotel and air discussed above , which includes car rental , advertising and media , destination services and fees related to our corporate travel business , increased by 8 % in 2011 compared to 2010 and 7 % in 2010 compared to 2009. in addition to the above segment and product revenue discussion , our revenue by business model is as follows : replace_table_token_8_th the increase in merchant revenue in 2011 and 2010 was due to an increase in hotel revenue primarily driven by an increase in room nights stayed .
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these variables can be affected by both internal and external events such as changes in claims handling procedures , changes in individuals involved in the reserve estimation process , legal trends and legislative changes . we have undertaken a number of steps during the past two years to improve our workers ' compensation claims administration practices . these steps include hiring additional claim administrators in response to our business growth , and working to story_separator_special_tag overview the company is a leading provider of business management solutions for small-and mid-sized companies . the company has developed a management platform that integrates tools from the human resource outsourcing industry and knowledge-based approach from the management consulting industry . this platform , through the effective leveraging of human capital , assists our business owner clients in more effectively running their business . we deliver the managerial resources and guidance of a large company to small and mid-sized businesses . our professional employer service fees are generated from client services agreements with our clients ; we enter into a co-employment arrangement in which we become the administrative employer and the client maintains care , custody and control of their operations . revenues from client services agreements are recognized on a net basis in accordance with current accounting guidance for revenue recognition and principal/agent considerations . consequently , service fee revenues represent the gross margin generated from our professional employer services after deducting the amounts invoiced to co-employed clients for direct payroll expenses such as salaries , wages , health insurance and employee out-of-pocket expenses incurred incidental to employment . these amounts are also excluded from cost of revenues . our fees also include amounts invoiced to our clients for employer payroll-related taxes and workers ' compensation coverage . we generate staffing services revenues primarily from short-term staffing , contract staffing , on-site management and direct placement services . we recognize revenues from our staffing services for all amounts invoiced , including direct payroll , employer payroll-related taxes , workers ' compensation coverage and a service fee ( equivalent to a mark-up percentage ) . through centralized operations at our headquarters in vancouver , washington , we prepare invoices weekly for our staffing services customers and following the end of each payroll processing cycle for clients under a client services agreement . we invoice our customers and clients as each payroll is processed . payment terms for staffing customers are generally 30 days , while co-employed clients ' invoices are generally due on the invoice date . our business is concentrated in california and we expect to continue to derive a majority of our revenues from this market in the future . revenues generated in our california offices accounted for 77 % of our total net revenues in 2014 , 74 % in 2013 and 69 % in 2012. consequently , any weakness in economic conditions or changes in the regulatory environments in california could have a material adverse effect on our financial results . - 27 - our cost of revenues is comprised of direct payroll costs for staffing services , employer payroll-related taxes and employee benefits and workers ' compensation . direct payroll costs represent the gross payroll earned by staffing services employees based on salary or hourly wages . payroll taxes and employee benefits consist of the employer 's portion of social security and medicare taxes , federal and state unemployment taxes , and staffing services employee reimbursements for materials , supplies and other expenses , which are paid by the customer . workers ' compensation expense consists primarily of the costs associated with our self-insured workers ' compensation program , such as claims reserves , claims administration fees , legal fees , state administrative agency fees and excess insurance costs for catastrophic injuries . we also maintain separate workers ' compensation insurance policies for employees working in states where we are not self-insured . the largest portion of workers ' compensation expense is the cost of workplace injury claims . when an injury occurs and is reported to us , our respective independent tpa or our internal claims management personnel analyze the details of the injury and develop a case reserve , which becomes the estimate of the cost of the claim based on similar injuries and their professional judgment . we then record or accrue an expense and a corresponding liability based upon our estimate of the ultimate claim cost . as cash payments are made by our tpa against specific case reserves , the accrued liability is reduced by the corresponding payment amount . the tpa and our in-house claims administrators also review existing injury claims on an on-going basis and adjust the case reserves as new or additional information for each claim becomes available . our reserve includes a provision both for future anticipated increases in costs ( ยadverse loss developmentย ) of the claims reserves for open claims and for claims incurred but not reported related to prior and current periods ( together ibnr ) . this provision for ibnr is based upon an actuarial estimate provided by our independent actuary . we believe our operational policies and internal claims reporting system help to limit the occurrence of unreported incurred claims . selling , general and administrative expenses represent both branch office and corporate-level operating expenses . branch operating expenses consist primarily of branch office staff payroll and personnel related costs , advertising , rent , office supplies , professional and legal fees and branch incentive compensation . corporate-level operating expenses consist primarily of executive and office staff payroll and personnel related costs , professional and legal fees , travel , occupancy costs , information systems costs and executive and corporate staff incentive compensation . depreciation and amortization represents depreciation of property and equipment and amortization of intangible assets consisting of the amortization of software costs , covenants not to compete , and if material , customer related intangibles . property and equipment are depreciated using the straight-line method over their estimated useful lives , which generally range from two to thirty-nine years . story_separator_special_tag nevertheless , it is possible that adjustments to such estimates may be required in future periods if the development of claim costs varies materially from our estimates and such adjustments , if necessary , could be material to results of operations . safety incentives liability . our accrued safety incentives represent cash incentives paid to certain clients under our client services agreement for maintaining safe-work practices in order to minimize workplace injuries . the incentive is based on a percentage of annual payroll and is paid annually to customers who meet predetermined workers ' compensation claims cost objectives . safety incentive payments are made only after closure of all workers ' compensation claims incurred during the customer 's contract period . the liability is estimated and accrued each month based upon the expected payout as determined by historical incentive payment trends . the safety incentive expense is netted against peo revenues on our consolidated statements of operations . allowance for doubtful accounts . we are required to make estimates of the collectability of accounts receivables . management analyzes historical bad debts , customer concentrations , customer creditworthiness , current economic trends and changes in the customers ' payment tendencies when evaluating the adequacy of the allowance for doubtful accounts . if the financial condition of our customers deteriorates , resulting in an impairment of their ability to make payments , additional allowances may be required . goodwill . we assess the recoverability of goodwill annually and whenever events or changes in circumstances indicate that the carrying value might be impaired . factors that are - 30 - considered include significant underperformance relative to expected historical or projected future operating results , significant negative industry trends and significant change in the manner of use of the acquired assets . management 's current assessment of the carrying value of goodwill indicates there was no impairment as of december 31 , 2014. if these estimates or their related assumptions change in the future , we may be required to record impairment charges for these assets whenever events or circumstances occur indicating that goodwill might be impaired . investments in marketable securities . we consider available evidence in evaluating potential impairment of our investments , including the duration and extent to which fair value is less than cost and our ability and intent to hold the investment . investments in securities classified as trading are reported at fair value , with unrealized gains or losses reported in other income in our consolidated statements of operations . investments in securities classified as available-for-sale are reported at fair value , with unrealized gains or losses reported net of tax in accumulated other comprehensive ( loss ) income in stockholders ' equity . in the event a loss on our available-for-sale investments is determined to be other-than-temporary , the loss will be recognized in our statement of operations . investments in securities classified as held-to-maturity are reported at amortized cost . income taxes . our income taxes are accounted for using an asset and liability approach . this requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement and tax basis of assets and liabilities at the applicable tax rates . the determination of our provision for income taxes requires significant judgment , the use of estimates , and the interpretation and application of complex tax laws . significant judgment is required in assessing the timing and amounts of deductible and taxable items and the probability of sustaining uncertain tax positions . the impact of uncertain tax positions would be recorded in our financial statements only after determining a more-likely-than-not probability that the uncertain tax positions would withstand challenge , if any , from taxing authorities . at december 31 , 2014 , we had deferred income tax assets of $ 23.0 million and deferred tax liabilities of $ 15.4 million for net deferred income tax assets of $ 7.6 million . we assess the realization of the deferred income tax assets as significant changes in circumstances may require adjustments during future periods . the amount of the deferred income tax assets actually realized could vary , if there are differences in the timing or amount of future reversals of existing deferred income tax assets or changes in the actual amounts of future taxable income as compared to operating forecasts . if our operating forecast is determined to no longer be reliable due to uncertain market conditions , our long-term forecast may require reassessment . as a result , in the future , a valuation allowance may be required to be established for all or a portion of the deferred income tax assets . such a valuation allowance could have a significant effect on our future results of operations and financial position . recent accounting pronouncements for a discussion of recent accounting pronouncements and their potential effect on the company 's results of operations and financial condition , refer to note 1 in the notes to the consolidated financial statements beginning at page [ f-8 ] of this annual report on form 10-k. - 31 - forward-looking information statements in this item or in items 1 and 1a of this report which are not historical in nature , including discussion of economic conditions in the company 's market areas and effect on revenue levels , the potential for and effect of acquisitions , the effect of changes in the company 's mix of services on gross margin , continued retention of customers following price increases , the adequacy of the company 's workers ' compensation reserves and the effect of changes in estimate of its claims liabilities on its workers ' compensation liability , the effect of changes in its reserving practices and claims management process on its actuarial estimates and workers ' compensation reserves , the ability of the company to generate sufficient taxable income in the future to utilize its deferred tax assets , the effect of changes in the interest rate environment on the value of the company 's investment securities and
| fluctuations in quarterly operating results we have historically experienced significant fluctuations in our quarterly operating results and expect such fluctuations to continue in the future . our operating results may fluctuate due to a number of factors such as seasonality , wage limits on statutory payroll taxes , claims experience for workers ' compensation , demand for our services and competition and the effect of acquisitions . payroll taxes , as a component of cost of revenues , generally decline throughout a calendar year as the applicable statutory wage bases for federal and state unemployment taxes and social security taxes are exceeded on a per employee basis . our revenue levels may be higher in the third quarter due to the effect of increased business activity of our customers ' businesses in the agriculture , food processing and forest products-related industries . in addition , revenues in the fourth quarter may be affected by many customers ' practice of operating on holiday-shortened schedules . workers ' compensation expense varies with both the frequency and severity of workplace injury claims reported during a quarter and the estimated future costs of such claims . in addition , adverse loss development of prior period claims during a subsequent quarter may also contribute to the volatility in the company 's estimated worker 's compensation expense .
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at the end of each reporting period , story_separator_special_tag the following discussion and analysis should be read with โ selected financial data โ and our financial statements and notes included elsewhere in this annual report on form 10-k. story_separator_special_tag uncertain because they depend on a number of factors , including market acceptance of xermelo , the success of our sales , marketing , distribution and other commercialization activities and the cost and availability of reimbursement for xermelo . future revenues from our existing collaborations are uncertain because they depend , to a large degree , on the achievement of milestones and payment of royalties we earn from any future products developed under the collaborations . our ability to secure future revenue-generating agreements will depend upon our ability to address the needs of our potential future collaborators and licensees , and to negotiate agreements that we believe are in our long-term best interests . we may determine , as we have with certain of our drug candidates , including xermelo in the united states and japan , that our interests are better served by retaining rights to our discoveries and advancing our therapeutic programs to a later stage , which could limit our near-term revenues and increase expenses . because of these and other factors , our operating results have fluctuated in the past and are likely to do so in the future , and we do not believe that period-to-period comparisons of our operating results are a good indication of our future performance . since our inception , we have incurred significant losses and , as of december 31 , 2018 , we had an accumulated deficit of $ 1.5 billion . our losses have resulted principally from costs incurred in research and development , selling , general and administrative costs associated with our operations , and non-cash stock-based compensation expenses associated with stock options and restricted stock granted to employees and consultants . research and development expenses consist primarily of salaries and related personnel costs , external research costs related to our nonclinical and clinical efforts , material costs , facility costs , depreciation on property and equipment , and other expenses related to our drug discovery and development programs . selling , general and administrative expenses consist primarily of salaries and related expenses for executive , sales and marketing , and administrative personnel , professional fees and other corporate expenses , including information technology , facilities costs and general legal activities . we expect to continue to incur significant research and development costs in connection with the continuing development of our drug candidates . as a result , we will need to generate significantly higher revenues to achieve profitability . during the year ended december 31 , 2018 , we identified errors in our previously issued financial statements for the interim and annual periods prior to the quarter ended december 31 , 2018 related to the recognition of research and development expense and accrued liabilities for our intandem1 , intandem2 and intandem3 clinical trials of sotagliflozin . we recognized research and development expense based on our estimates of clinical trial costs , but in 2018 we determined that the design of our controls were not sufficiently precise to prevent the overstatement of estimated pass-through costs recorded in the clinical trial expense accrual . in december 2018 , we were notified by the third party vendor performing such clinical trials that the aggregate pass-through costs payable by us with respect to such clinical trials would be $ 19.0 million less than previously estimated . as a result , our accruals of expenses for such clinical trials were overstated by such amount . we assessed the materiality of these errors in accordance with the securities and exchange commission staff accounting bulletins no . 99 , materiality and no . 108 , considering the effects of prior year misstatements when quantifying misstatements in current year financial statements ( โ sab 108 โ ) , using both the rollover method and the iron curtain method , as defined in sab 108. we concluded that the errors , including other adjustments discussed below , were immaterial to prior years but , if corrected in the current year , would have been material to the current year . under sab 108 , such prior year misstatements must be corrected by adjusting the prior year financial statements if such corrections would be material to the current year if made in the current year . correcting prior year financial statements for such immaterial misstatements does not require previously filed reports to be amended . in addition to the adjustments related to research and development expense and accrued liabilities for the intandem1 , intandem2 and intandem3 clinical trials , we recorded other adjustments related to the years ended december 31 , 2016 and 2015 and the quarterly periods in the nine months ended september 30 , 2016 to correct for immaterial errors related to research 41 and development and selling , general and administrative expense . these other adjustments were not previously recorded in the appropriate periods , as we concluded that they were immaterial to our previously issued consolidated financial statements . critical accounting policies revenue recognition product revenues product revenues consist of commercial sales of xermelo in the united states and sales of bulk tablets of xermelo to ipsen . product revenues are recognized when the customer obtains control of the company 's product , which occurs upon delivery to the customer . the company recognizes product revenue net of applicable reserves for variable consideration , including allowances for customer credits , estimated rebates , chargebacks , discounts , returns , distribution service fees , and government rebates , such as medicare part d coverage gap reimbursements in the united states , as discussed below . the company 's net product revenues reflect the company 's best estimates of the amounts of consideration to which it is entitled based on the terms of the respective underlying contracts . story_separator_special_tag for agreements that include sales-based royalties , including milestones based on a level of sales , the license is deemed to be the predominant item to which the royalties relate and we recognize revenue at the later of ( i ) when the related sales occur or ( ii ) when the performance obligation to which some or all of the royalty has been allocated has been satisfied ( or partially satisfied ) . we may receive payments from our licensees based on billing schedules established in each contract . up-front payments and fees are recorded as deferred revenue upon receipt or when due , and may require deferral of revenue recognition to a future period until we perform our obligations under these agreements . amounts are recorded as accounts receivable when our right to consideration is unconditional . research and development expenses research and development expenses consist of costs incurred for research and development activities solely sponsored by us as well as collaborative research and development activities . these costs include direct and research-related overhead expenses and are expensed as incurred . technology license fees for technologies that are utilized in research and development and have no alternative future use are expensed when incurred . we are presently devoting most of our resources to the commercialization or development of our four most advanced drug programs : xermelo ( telotristat ethyl ) , an orally-delivered small molecule drug that we are commercializing for carcinoid syndrome diarrhea and developing for biliary tract cancer ; sotagliflozin , an orally-delivered small molecule drug candidate that we are developing as a treatment for type 1 and type 2 diabetes ; lx9211 , an orally-delivered small molecule drug candidate , that we are developing as a treatment for neuropathic pain ; and lx2761 , an orally-delivered small molecule drug candidate , that we are developing as a treatment for diabetes . compounds from our most advanced drug programs , as well as compounds from a number of additional drug discovery and development programs that we have advanced into various stages of clinical and preclinical development , originated from our own internal drug discovery efforts . these efforts were driven by a systematic , target biology-driven approach in which we used gene knockout technologies and an integrated platform of advanced medical technologies to systematically study the physiological and behavioral functions of almost 5,000 genes in mice and assessed the utility of the proteins encoded by the corresponding human genes as potential drug targets . we have identified and validated in living animals , or in vivo , more than 100 targets with promising profiles for drug discovery . 43 the drug development process takes many years to complete . the cost and length of time varies due to many factors including the type , complexity and intended use of the drug candidate . we estimate that drug development activities are typically completed over the following periods : phase estimated completion period preclinical development 1-2 years phase 1 clinical trials 1-2 years phase 2 clinical trials 1-2 years phase 3 clinical trials 2-4 years we expect research and development costs to remain substantial in the future as we continue to fund our nonclinical and clinical development efforts and advance new drug candidates into clinical development . due to the variability in the length of time necessary for drug development , the uncertainties related to the cost of these activities and ultimate ability to obtain governmental approval for commercialization , accurate and meaningful estimates of the ultimate costs to bring our potential drug candidates to market are not available . we record significant accrued liabilities related to unbilled expenses for products or services that we have received from service providers , specifically related to ongoing nonclinical studies and clinical trials . these costs primarily relate to clinical study management , monitoring , laboratory and analysis costs , drug supplies , toxicology studies and investigator grants . we have multiple drugs in concurrent nonclinical studies and clinical trials at clinical sites throughout the world . in order to ensure that we have adequately provided for ongoing nonclinical and clinical development costs during the period in which we incur such costs , we maintain accruals to cover these expenses . substantial portions of our nonclinical studies and clinical trials are performed by third-party laboratories , medical centers , contract research organizations and other vendors . for nonclinical studies , we accrue expenses based upon estimated percentage of work completed and the contract milestones remaining . for clinical studies , expenses are accrued based upon the number of patients enrolled and the duration of the study . we monitor patient enrollment , the progress of clinical studies and related activities to the extent possible through internal reviews of data reported to us by the vendors and clinical site visits . our estimates depend on the timeliness and accuracy of the data provided by our vendors regarding the status of each program and total program spending . we periodically evaluate the estimates to determine if adjustments are necessary or appropriate based on information we receive . although we use consistent milestones or subject or patient enrollment to drive expense recognition , the assessment of these costs is a subjective process that requires judgment . upon settlement , these costs may differ materially from the amounts accrued in our consolidated financial statements . we record our research and development costs by type or category , rather than by project . significant categories of costs include personnel , facilities and equipment costs and third-party and other services . in addition , a significant portion of our research and development expenses is not tracked by project as it benefits multiple projects . consequently , fully-loaded research and development cost summaries by project are not available .
| overview we are a biopharmaceutical company with a mission of pioneering medicines that transform patients ' lives . we are devoting most of our resources to the commercialization or development of our four most advanced drug programs : we are commercializing xermelo ( telotristat ethyl ) , an orally-delivered small molecule drug , in the united states for the treatment of carcinoid syndrome diarrhea in combination with somatostatin analog , or ssa , therapy in adults inadequately controlled by ssa therapy . we have granted ipsen pharma sas , or ipsen , an exclusive , royalty-bearing right to commercialize xermelo outside of the united states and japan . ipsen is commercializing xermelo in multiple countries , including the united kingdom and germany , and is preparing to commercialize xermelo in certain additional countries . we are also developing telotristat ethyl as a treatment for biliary tract cancer and are conducting a phase 2a clinical trial of telotristat ethyl in biliary tract cancer patients . we are developing sotagliflozin , an orally-delivered small molecule drug candidate , as a treatment for type 1 and type 2 diabetes . we have granted sanofi-aventis deutschland gmbh , or sanofi , an exclusive , worldwide ( excluding japan ) , royalty-bearing right to develop , manufacture and commercialize sotagliflozin . we have reported positive data from two pivotal phase 3 clinical trials and a third phase 3 clinical trial of sotagliflozin in type 1 diabetes patients . sanofi has submitted applications for regulatory approval to market sotagliflozin for type 1 diabetes in the united states , the european union and certain additional countries , and we and sanofi are preparing for the commercial launch of sotagliflozin for the treatment of type 1 diabetes , if approved . sanofi is also conducting a comprehensive phase 3 development program for sotagliflozin in type 2 diabetes . we are developing lx9211 , an orally-delivered small molecule drug candidate , as a treatment for neuropathic pain .
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dividend payments totaled $ 5.5 million . the company 's main sources of liquidity are cash , cash flows from operations and credit arrangements . as of june 30 , 2016 and 2015 , the company had cash totaling $ 36.8 million and $ 1.3 million , respectively . the company entered into an unsecured credit agreement on june 30 , 2016 , that provides short-term working capital financing up to $ 10.0 million with interest of libor plus 1 % , including up to $ 4.0 million of letters of credit . the company reduced the borrowing availability from $ 30.0 million to $ 10.0 million to align with current business needs . letters of credit outstanding at june 30 , 2016 totaled $ 2.3 million . other than the aforementioned letters of credit , the company did not utilize borrowing availability under the credit facility , leaving borrowing availability of $ 7.7 million as of june 30 , 2016. the credit agreement expires june 30 , 2017. at june 30 , 2016 , the company was in compliance with all of the financial covenants contained in the credit agreement . a director of the company is a director at a bank where the company maintains an additional unsecured $ 10.0 million line of credit , with interest at prime minus 2 % , and where its routine banking transactions are processed . no amount was outstanding on the line of credit at june 30 , 2016. this line of credit matures december 31 , 2016. in addition , the supplemental retirement plans assets , held in a rabbi trust , of $ 2.4 million are administered by this bank 's trust department . the company receives no special services or pricing on the services performed by the bank due to the directorship of this director . net cash provided by operating activities was $ 54.4 million and $ 3.3 million in fiscal years 2016 and 2015 , respectively . the company had net income of $ 24.2 million that included $ 9.6 million in non-cash charges in fiscal year 2016 and was offset by cash utilized for operating assets and liabilities of $ 20.6 million . non-cash charges included depreciation of $ 7.6 million . in fiscal year 2015 , the company had net income of $ 22.3 million that included $ 5.8 million in non-cash charges including depreciation of $ 4.9 million and was offset by cash utilized for operating assets and liabilities of $ 24.8 million . net cash used in investing activities was $ 4.7 million and $ 32.6 million in fiscal years 2016 and 2015 , respectively . in fiscal year 2016 , the company made capital expenditures of $ 7.4 million partially offset by $ 2.8 million of proceeds from life insurance policies . in fiscal year 2015 , the company made capital expenditures of $ 37.4 million partially offset by $ 5.1 million of proceeds from life insurance policies . net cash used in financing activities was $ 14.2 million in fiscal year 2016 which included repayments of current notes payable of $ 11.9 million and dividends payment of $ 5.5 million . these amounts were offset by proceeds from issuance of common stock of $ 1.6 million and excess tax benefit from stock-based payment arrangements of $ 1.8 million . net cash provided by financing activities was $ 8.4 million in fiscal year 2015 which included proceeds from current notes payable of $ 11.9 million , proceeds from issuance of common stock of $ 0.8 million and excess tax benefit from stock-based payment arrangements of $ 0.8 million . these amounts were offset by payment of dividends of $ 5.1 million . management believes that the company has adequate cash , cash flows from operations and credit arrangements to meet its operating and capital requirements for fiscal year 2017. in the opinion of management , the company 's liquidity and credit resources provide it with the ability to react to opportunities as they arise , to pay quarterly dividends to its shareholders , and to purchase productive capital assets that enhance safety and improve operations . at june 30 , 2016 , the company had no long-term debt obligations and therefore , had no interest payments related to long-term debt . the following table summarizes the company 's contractual obligations at june 30 , 2016 and the effect these obligations are expected to have on the company 's liquidity and cash flow in the future ( in thousands ) : replace_table_token_7_th the long-term portion of the contractual obligations associated with the company 's supplemental retirement plans are included in the table above under more than five years as the company can not predict when the events that trigger payment will occur . at june 30 , 2016 , the company had no capital lease obligations , and no purchase obligations for raw materials or finished goods . the purchase price on all open purchase orders was fixed and denominated in u.s. dollars . additionally , the company has excluded the uncertain tax positions from the above table , as the timing of payments , if any , can not be reasonably estimated . 11 financing arrangements see note 6 to the consolidated financial statements of this annual report on form 10-k. outlook the company believes that demand for furniture products in the united states continues to be modest due to political and economic uncertainty . the company may experience lower residential net sales in the first half of fiscal 2017 versus the prior year , when backlog was shipped due to the clearing of the west coast port congestion . the company expects commercial net sales growth to continue during fiscal 2017. the company will focus on streamlining product commercialization to increase sales with customers and continue controlling discretionary spending . during fiscal year 2017 , the company expects to have the following expenditures : ยท $ 14 million for capital story_separator_special_tag dividend payments totaled $ 5.5 million . the company 's main sources of liquidity are cash , cash flows from operations and credit arrangements . as of june 30 , 2016 and 2015 , the company had cash totaling $ 36.8 million and $ 1.3 million , respectively . the company entered into an unsecured credit agreement on june 30 , 2016 , that provides short-term working capital financing up to $ 10.0 million with interest of libor plus 1 % , including up to $ 4.0 million of letters of credit . the company reduced the borrowing availability from $ 30.0 million to $ 10.0 million to align with current business needs . letters of credit outstanding at june 30 , 2016 totaled $ 2.3 million . other than the aforementioned letters of credit , the company did not utilize borrowing availability under the credit facility , leaving borrowing availability of $ 7.7 million as of june 30 , 2016. the credit agreement expires june 30 , 2017. at june 30 , 2016 , the company was in compliance with all of the financial covenants contained in the credit agreement . a director of the company is a director at a bank where the company maintains an additional unsecured $ 10.0 million line of credit , with interest at prime minus 2 % , and where its routine banking transactions are processed . no amount was outstanding on the line of credit at june 30 , 2016. this line of credit matures december 31 , 2016. in addition , the supplemental retirement plans assets , held in a rabbi trust , of $ 2.4 million are administered by this bank 's trust department . the company receives no special services or pricing on the services performed by the bank due to the directorship of this director . net cash provided by operating activities was $ 54.4 million and $ 3.3 million in fiscal years 2016 and 2015 , respectively . the company had net income of $ 24.2 million that included $ 9.6 million in non-cash charges in fiscal year 2016 and was offset by cash utilized for operating assets and liabilities of $ 20.6 million . non-cash charges included depreciation of $ 7.6 million . in fiscal year 2015 , the company had net income of $ 22.3 million that included $ 5.8 million in non-cash charges including depreciation of $ 4.9 million and was offset by cash utilized for operating assets and liabilities of $ 24.8 million . net cash used in investing activities was $ 4.7 million and $ 32.6 million in fiscal years 2016 and 2015 , respectively . in fiscal year 2016 , the company made capital expenditures of $ 7.4 million partially offset by $ 2.8 million of proceeds from life insurance policies . in fiscal year 2015 , the company made capital expenditures of $ 37.4 million partially offset by $ 5.1 million of proceeds from life insurance policies . net cash used in financing activities was $ 14.2 million in fiscal year 2016 which included repayments of current notes payable of $ 11.9 million and dividends payment of $ 5.5 million . these amounts were offset by proceeds from issuance of common stock of $ 1.6 million and excess tax benefit from stock-based payment arrangements of $ 1.8 million . net cash provided by financing activities was $ 8.4 million in fiscal year 2015 which included proceeds from current notes payable of $ 11.9 million , proceeds from issuance of common stock of $ 0.8 million and excess tax benefit from stock-based payment arrangements of $ 0.8 million . these amounts were offset by payment of dividends of $ 5.1 million . management believes that the company has adequate cash , cash flows from operations and credit arrangements to meet its operating and capital requirements for fiscal year 2017. in the opinion of management , the company 's liquidity and credit resources provide it with the ability to react to opportunities as they arise , to pay quarterly dividends to its shareholders , and to purchase productive capital assets that enhance safety and improve operations . at june 30 , 2016 , the company had no long-term debt obligations and therefore , had no interest payments related to long-term debt . the following table summarizes the company 's contractual obligations at june 30 , 2016 and the effect these obligations are expected to have on the company 's liquidity and cash flow in the future ( in thousands ) : replace_table_token_7_th the long-term portion of the contractual obligations associated with the company 's supplemental retirement plans are included in the table above under more than five years as the company can not predict when the events that trigger payment will occur . at june 30 , 2016 , the company had no capital lease obligations , and no purchase obligations for raw materials or finished goods . the purchase price on all open purchase orders was fixed and denominated in u.s. dollars . additionally , the company has excluded the uncertain tax positions from the above table , as the timing of payments , if any , can not be reasonably estimated . 11 financing arrangements see note 6 to the consolidated financial statements of this annual report on form 10-k. outlook the company believes that demand for furniture products in the united states continues to be modest due to political and economic uncertainty . the company may experience lower residential net sales in the first half of fiscal 2017 versus the prior year , when backlog was shipped due to the clearing of the west coast port congestion . the company expects commercial net sales growth to continue during fiscal 2017. the company will focus on streamlining product commercialization to increase sales with customers and continue controlling discretionary spending . during fiscal year 2017 , the company expects to have the following expenditures : ยท $ 14 million for capital
| results of operations the following table has been prepared as an aid in understanding the company 's results of operations on a comparative basis for the fiscal years ended june 30 , 2016 , 2015 and 2014. amounts presented are percentages of the company 's net sales . replace_table_token_6_th 9 fiscal 2016 compared to fiscal 2015 net sales for fiscal year 2016 were $ 500.1 million compared to $ 466.9 million in the prior fiscal year , an increase of 7.1 % . for the fiscal year ended june 30 , 2016 , residential net sales were $ 420.9 million compared to $ 393.1 million for the year ended june 30 , 2015 , an increase of 7.1 % . the residential net sales increase of $ 27.8 million for the year ended june 30 , 2016 was substantially due to increased sales volume in upholstered and ready-to-assemble products partially offset by discounting of certain case goods and lower delivery charges associated with lower fuel costs . commercial net sales were $ 79.2 million for the year ended june 30 , 2016 , an increase of 7.3 % from net sales of $ 73.8 million for the year ended june 30 , 2015. the increase in commercial net sales was substantially due to volume . gross margin for the fiscal year ended june 30 , 2016 was 22.7 % compared to 23.5 % for the prior fiscal year . the company 's investment in its expanded distribution network , designed to meet current and future customer needs while improving operations became operational in the fourth quarter of fiscal year 2015. this investment increased costs by $ 2.5 million during fiscal year 2016 or 0.5 % of net sales . selling , general and administrative ( sg & a ) expenses for the fiscal year ended june 30 , 2016 were 15.6 % of net sales compared to 16.2 % of net sales in the prior fiscal year .
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the company has focused its growth efforts on building financial partnerships and more enduring and complete relationships with businesses and individuals through a very personal and local approach to banking and financial services . the company and its operations are guided by a strategic plan which includes growth through acquisitions and through office expansion in market areas including virginia , west virginia , north carolina , south carolina , and tennessee . while the company 's mission remains that of a community bank , management believes that entry into new markets will accelerate the company 's growth rate by diversifying the demographics of its customer base and customer prospects and by generally increasing its sales and service network . economy the local economies in which the company operates are diverse and span a four-state region . the economies of west virginia and southwest virginia have significant exposure to extractive industries , such as coal , timber and natural gas . the local economies in the central portion of north carolina have suffered in recent years due to foreign competition in both furniture and textiles , as well as consolidation in the financial services industry . despite these detractions , the economies in this region continue to benefit from national companies operating in the triad and central piedmont area of north carolina . the eastern virginia local economies have , in recent years , benefited from key corporate and government activities . the economy in eastern tennessee continues to benefit from the stability of higher education , healthcare services and tourism . despite the stable and positive aspects of the regional economies in which the company primarily operates , the company 's markets have experienced significant declines in residential development and construction , not inconsistent with national trends . these declines have led to contraction in residential land development and construction , which has historically been important components of the company 's lending activities . the economies of the company 's southwest virginia and west virginia markets have remained stable compared with the national economy and unemployment levels were generally lower than the national average at december 31 , 2011. competition as the company competes for increased market share and growth in both loans and deposits , it continues to encounter strong competition from many sources . many of the markets targeted by the company are also being entered by other banks in nearby and distant markets . the expansion of banks , credit unions , and other non-depository financial companies over recent years has intensified competitive pressures on core deposit generation and retention . competitive forces impact the company through pressure on interest yields , product fees , and loan structure and terms ; however , the company has countered these pressures with its relationship style of banking , competitive pricing , cost efficiencies , and a disciplined approach to loan underwriting . application of critical accounting policies the company 's consolidated financial statements are prepared in accordance with u.s. generally accepted accounting principles ( ยgaapย ) and conform to general practices within the banking industry . the company 's financial position and results of operations are affected by management 's application of accounting policies , including judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues , expenses and related disclosures . different assumptions in the application of these policies could result in material changes in the company 's consolidated financial position and consolidated results of operations . estimates , assumptions , and judgments are necessary principally when assets and liabilities are required to be recorded at estimated fair value , when a decline in the value of an asset carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established , or when an asset or liability needs to be recorded based upon the probability of occurrence of a future event . carrying assets and liabilities at fair value inherently results in more financial statement volatility . the fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by third party sources , when available . when third party information is not available , valuation adjustments are estimated by management primarily through the use of financial modeling techniques and appraisal estimates . the company 's accounting policies are fundamental to understanding management 's discussion and analysis of financial condition and results of operation . the following is a summary of the company 's more subjective and complex ยcritical 25 accounting policies.ย in addition , the disclosures presented in the notes to consolidated financial statements and in management 's discussion and analysis of financial condition and results of operations provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined . based on the valuation techniques used and the sensitivity of financial statement amounts to the methods , assumptions , and estimates underlying those amounts , management has identified investment valuation , determination of the allowance for loan losses , accounting for acquisitions and intangible assets , and accounting for income taxes as the accounting areas that require the most subjective or complex judgments . investment securities management performs an extensive review of the investment securities portfolio quarterly to determine the cause of declines in the fair value of each security within each segment of the portfolio . the company uses inputs provided by an independent third party to determine the fair values of its investment securities portfolio . inputs provided by the third party are reviewed and corroborated by management . evaluations of the causes of the unrealized losses are performed to determine whether the impairment is temporary or other-than-temporary in nature . story_separator_special_tag the end results for both reporting units are then compared to the respective book values to consider if impairment is evident . to determine the overall reasonableness of the reporting unit computations , the combined computed fair value is then compared to the overall market capitalization of the consolidated company to determine the level of implied control premium . the discounted cash flow analysis uses estimates in the form of growth and attrition rates , anticipated rates of return , and discount rates . these estimates have a direct bearing on the results of the impairment testing and serve as the basis for management 's conclusions as to potential impairment . the results of the step 1 analysis performed during the fourth quarter of 2011 determined that no impairment was evident for the banking reporting unit . for the insurance reporting unit the step 1 analysis indicated impairment . a step 2 analysis was performed for the insurance reporting unit resulting in impairment to goodwill of $ 1.24 million . an adjustment to the weighting of the results , a decline in the market multiples used , further decline in the banking and retail insurance industry valuations , or further decline in our common stock price could result in future potential impairment . income taxes the establishment of provisions for federal and state income taxes is a complex area of accounting which also involves the use of judgments and estimates in applying relevant tax statutes . the company operates in multiple state tax jurisdictions and this requires the appropriate allocation of income and expense to each state based on a variety of apportionment or allocation bases . the company is also subject to audit by federal and state tax authorities . results of these audits may produce indicated liabilities which differ from company estimates and provisions . the company continually evaluates its exposure to possible tax assessments arising from audits and records its estimate of possible exposure based on current facts and circumstances . deferred tax assets and liabilities are recognized for the tax effects of differing carrying values of assets and liabilities for tax and financial statement purposes that will reverse in future periods . deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled . as changes in tax laws or rates are enacted , deferred tax assets and liabilities are adjusted through the provision for income taxes . when uncertainty exists concerning the recoverability of a deferred tax asset , the carrying value of the asset may be reduced by a valuation allowance . the amount of any valuation allowance established is based upon an estimate of the deferred tax asset that is more likely than not to be recovered . increases or decreases in the valuation allowance result in increases or decreases to the provision for income taxes . recent acquisitions and divestitures in july 2009 , the company acquired tristone community bank ( ยtristoneย ) , based in winston-salem , north carolina . tristone had two full service locations in winston-salem , north carolina . at acquisition , tristone had total assets of $ 166.82 million , total loans of $ 132.23 million and total deposits of $ 142.27 million . each outstanding common share of tristone was exchanged for .5262 shares of the company 's common stock and the overall acquisition cost was $ 10.78 million . the acquisition of tristone significantly augmented the company 's market presence and human resources in the winston-salem , north carolina market . greenpoint insurance group ( ยgreenpointย ) , a wholly-owned subsidiary of the company , has acquired seven insurance agencies and sold three since its acquisition by the company in september 2007. in 2011 , greenpoint recorded a net gain of $ 67 thousand on the sale of two insurance agencies and has the potential to recognize an additional $ 650 thousand over time as 27 earn-out payments are received . in connection with those sales , the company eliminated $ 1.30 million of goodwill and $ 379 thousand of other intangibles to the company 's balance sheet in 2011. in 2010 , greenpoint acquired one insurance agency and issued cash consideration of $ 190 thousand . story_separator_special_tag style= '' margin-top:0px ; margin-bottom:0px '' > rate and volume analysis of interest the following table summarizes the changes in tax-equivalent interest earned and paid detailing the amounts attributable to ( i ) changes in volume ( change in the average volume times the prior year 's average rate ) , ( ii ) changes in rate ( changes in the average rate times the prior year 's average volume ) , and ( iii ) changes in rate/volume ( change in the average volume column times the change in average rate ) : replace_table_token_7_th provision for loan losses the provision for loan losses is determined by management as the amount to be added to the allowance for loan losses after net charge-offs have been deducted to bring the allowance to a level which , in management 's best estimate , is necessary to absorb probable losses within the existing loan portfolio . the provision for loan losses for 2011 was $ 9.05 million , a decrease of $ 5.71 million compared to 2010. the decrease in the loan loss provision is primarily attributed to decreasing net charge-offs during 2011 ; however , qualitative risk factors for the loan portfolio remained high , reflective of the elevated risk of inherent loan losses due to continued high unemployment , recessionary pressures , and devaluations of various categories of collateral . net charge-offs for 2011 and 2010 were $ 9.32 million and $ 12.55 million , respectively . net charge-offs , as a percentage of average loans , decreased to 0.67 % for 2011 from 0.90 % for 2010. see ยfinancial position ย allowance for loan lossesย for additional information .
| results of operations 2011 compared to 2010 net income available to common shareholders for 2011 was $ 19.33 million , a decrease of $ 2.52 million from $ 21.85 million in 2010. basic and diluted earnings per common share for 2011 were $ 1.08 and $ 1.07 , respectively , as compared to basic and diluted earnings per common share of $ 1.23 in 2010. the company 's return on average assets was 0.88 % in 2011 compared to 0.97 % in 2010. return on average common equity was 6.81 % in 2011 compared to 8.11 % in 2010. net interest income the primary source of the company 's earnings is net interest income , the difference between income on earning assets and the cost of funds supporting those assets . significant categories of earning assets are loans and securities while deposits and borrowings represent the major portion of interest-bearing liabilities . net interest income was $ 72.03 million for 2011 , as compared to $ 73.86 million for 2010 , a decrease of $ 1.83 million , or 2.48 % . tax equivalent net interest income totaled $ 74.99 million for 2011 , a decrease of $ 2.23 million , or 2.89 % , from $ 77.22 million reported for 2010. the decrease in tax equivalent net interest income was primarily due to decreases in the balances of loans and securities coupled with lower rates of interest earned on those assets . for purposes of the following discussion , comparison of net interest income is performed on a tax equivalent basis , which provides a common basis for comparing yields on earning assets exempt from federal income taxes to those assets which are fully taxable ( see the table titled average balance sheets and net interest income analysis ) . average earning assets decreased $ 44.31 million while average interest-bearing liabilities decreased $ 102.80 million during 2011 , as compared to the prior year .
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99 | financial statements and schedules delek us holdings , inc. consolidated financial statements as of december 31 , 2019 and 2018 and for each of the three years ended december 31 , 2019 , 2018 and 2017 index to financial statements reports of independent registered public accounting firm f-2 audited financial statements : consolidated balance sheets f-5 consolidated statements of income f-6 consolidated statements of comprehensive income f-7 consolidated statements story_separator_special_tag forward-looking statements this annual report on form 10-k contains `` forward-looking statements '' within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the securities exchange act of 1934 , as amended . these forward-looking statements reflect our current estimates , expectations and projections about our future results , performance , prospects and opportunities . forward-looking statements include , among other things , the information concerning our planned capital expenditures by segment for 2020 , possible future results of operations , business and growth strategies , financing plans , expectations that regulatory developments or other matters will or will not have a material adverse effect on our business or financial condition , our competitive position and the effects of competition , the projected growth of the industry in which we operate , and the benefits and synergies to be obtained from our completed and any future acquisitions , statements of management 's goals and objectives , and other similar expressions concerning matters that are not historical facts . words such as `` may , '' `` will , '' `` should , '' `` could , '' `` would , '' `` predicts , '' `` potential , '' `` continue , '' `` expects , '' `` anticipates , '' `` future , '' `` intends , '' `` plans , '' `` believes , '' `` estimates , '' `` appears , '' `` projects '' and similar expressions , as well as statements in future tense , identify forward-looking statements . forward-looking statements should not be read as a guarantee of future performance or results , and will not necessarily be accurate indications of the times at , or by , which such performance or results will be achieved . forward-looking information is based on information available at the time and or management 's good faith belief with respect to future events , and is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements . important factors that , individually or in the aggregate , could cause such differences include , but are not limited to : volatility in our refining margins or fuel gross profit as a result of changes in the prices of crude oil , other feedstocks and refined petroleum products ; reliability of our operating assets ; actions of our competitors and customers ; changes in , or the failure to comply with , the extensive government regulations applicable to our industry segments ; our ability to execute our strategy of growth through acquisitions and capital projects and changes in the expected value of and benefits derived therefrom , including any inability to successfully integrate acquisitions , realize expected synergies or achieve operational efficiency and effectiveness ; diminishment in value of long-lived assets may result in an impairment in the carrying value of the assets on our balance sheet and a resultant loss recognized in the statement of operations ; general economic and business conditions affecting the southern , southwestern and western united states , particularly levels of spending related to travel and tourism ; volatility under our derivative instruments ; deterioration of creditworthiness or overall financial condition of a material counterparty ( or counterparties ) ; unanticipated increases in cost or scope of , or significant delays in the completion of , our capital improvement and periodic turnaround projects ; risks and uncertainties with respect to the quantities and costs of refined petroleum products supplied to our pipelines and or held in our terminals ; operating hazards , natural disasters , casualty losses and other matters beyond our control ; increases in our debt levels or costs ; changes in our ability to continue to access the credit markets ; compliance , or failure to comply , with restrictive and financial covenants in our various debt agreements ; the inability of our subsidiaries to freely make dividends , loans or other cash distributions to us ; seasonality ; acts of terrorism ( including cyber-terrorism ) aimed at either our facilities or other facilities that could impair our ability to produce or transport refined products or receive feedstocks ; disruption , failure , or cybersecurity breaches affecting or targeting our it systems and controls , our infrastructure , or the infrastructure of our cloud-based it service providers ; changes in the cost or availability of transportation for feedstocks and refined products ; and other factors discussed under item 1a , risk factors and item 7 , management 's discussion and analysis of financial condition and results of operations and in our other filings with the sec . in light of these risks , uncertainties and assumptions , our actual results of operations and execution of our business strategy could differ materially from those expressed in , or implied by , the forward-looking statements , and you should not place undue reliance upon them . in addition , past financial and or operating performance is not necessarily a reliable indicator of future performance , and you should not use our historical performance to anticipate future results or period trends . we can give no assurances that any of the events anticipated by any forward-looking statements will occur or , if any of them do , what impact they will have on our results of operations and financial condition . all forward-looking statements included in this report are based on information available to us on the date of this report . we undertake no obligation to revise or update any forward-looking statements as a result of new information , future events or otherwise . story_separator_special_tag our convenience stores typically offer various grades of gasoline and diesel under the dk or alon brand name and food products , food service , tobacco products , non-alcoholic and alcoholic beverages , general merchandise as well as money orders to the public , primarily under the 7-eleven and dk or alon brand names pursuant to a license agreement with 7-eleven , inc. in november 2018 , we terminated the license agreement with 7-eleven , inc. and the terms of such termination require the removal of all 7-eleven branding on a store-by-store basis by december 31 , 2021. merchandise sales at our convenience store sites will continue to be sold under the 7-eleven brand name until 7-eleven branding is removed pursuant to the termination . as of december 31 , 2019 , we have removed the 7-eleven brand name at 57 of our store locations . substantially all of the motor fuel sold through our retail segment is supplied by our big spring refinery , which is transferred to the retail segment at prices substantially determined by reference to published commodity pricing information . in connection with our retail strategic initiatives , we closed or sold 30 under-performing or non-strategic store locations during 2019 . corporate and other overview our corporate activities , results of certain immaterial operating segments ( including our asphalt terminal operations effective with the delek/alon merger ) , our non-controlling equity interest of approximately 47 % of the outstanding shares in alon ( which was accounted for as an equity method investment ) prior to the delek/alon merger , results and assets of discontinued operations and intercompany eliminations are reported in the corporate , other and eliminations in our segment disclosures . additionally , our corporate activities include the majority of our commodity and other hedging activities . strategic overview the company 's overall strategy has been to take a disciplined approach that looks to balance returning cash to our shareholders and prudently investing in the business to support safe and reliable operations , while exploring opportunities for growth . our goal has been to balance the different aspects of this program based on evaluations of each opportunity and how it matches our strategic goals for the company , while factoring in market conditions and expected cash generation . 2019 strategic goals and developments the following is a summary of our most significant 2019 strategic goals , and the actions we completed during 2019 in pursuit of those goals : maintain and continue to enhance our safe operations . as we invest in and grow our business , we remain focused on safe and compliant operations for the benefit of our employees , communities , customers and shareholders . capitalize on the successful integration of the alon transaction . since the delek/alon merger , we expended significant efforts to fully integrate the alon organization . now that the integration is complete , our goal is to continue to implement best practices to improve the performance of our larger organization which includes focusing on simplifying the organization structure and the balance sheet . we are continuing to realize synergies that are expected to have a positive effect on our combined operations . build on a winning culture . we believe our team responded well to our larger scale , as steps were taken to integrate the two companies following the acquisition of alon in july 2017. we are now a larger and more diverse company , but our focus is to foster a culture that has the ability to act quickly in a changing environment to take advantage of opportunities . in order to support this operation , we continue to be focused on expanding our team , developing systems and providing the resources to position the organization for success in the future . enhance our position in the permian basin . our 302,000 barrels per day of crude throughput capacity is primarily a wti-linked crude oil slate that is weighted to supply from the permian basin through our access to approximately 200,000 barrels per day . in addition , we have complementary retail and logistics presence in the area . our strategic focus will be to evaluate options to utilize our position to create additional growth across our businesses , while working toward reducing our susceptibility to volatility in the crude and refined product markets . grow our logistics operations . the combination of our access to the permian basin and larger refining operation should allow us to continue to grow our logistics footprint . we will look for opportunities to capitalize on this position to increase our crude gathering operations , support the refining system and third-party customers . this includes exploring opportunities for continued development through joint ventures and opportunities to acquire assets in markets that are complementary to our existing geographic footprint . optimization of our refining system . we have doubled the size of our refining system since 2016. this gives us the opportunities to utilize the best practices from each location to improve reliability , efficiencies and yields in an effort to maximize performance . this should enhance our competitive position and free cash flow potential . 56 | management 's discussion and analysis use our financial flexibility and cash flow to create shareholder value . we are focused on managing the cash flow in our business to support our capital allocation program that includes : 1 ) returning cash to shareholders through dividends and share repurchases , 2 ) investing in our business and 3 ) growing through acquisitions - all of which combine to serve our central goal of increasing long-term value for our shareholders . in addition to the above , it continues to be a strategic and operational objective to manage price and supply risk related to crude oil that is used in refinery production , and to develop strategic sourcing relationships .
| resulting in a $ 15.2 million decrease when compared to net cash provided by operating activities from continuing operations for 2019 . cash receipts from customers and cash payments to suppliers and for salaries decreased resulting in a net $ 28.2 million decrease in cash from operating activities mainly due to a decline in the volume of refined product sold . additionally , cash paid for debt interest increased by $ 6.1 million . this decrease was partially offset by a $ 9.7 million decrease in cash paid for taxes and a $ 15.1 million increase in cash received for dividends . cash flows from investing activities net cash used in investing activities was $ 691.3 million for the year ended december 31 , 2019 , compared to $ 125.3 million in the comparable period of 2018 . the increase in cash flows used in investing activities was primarily due to an increase in cash purchases of property , plant and equipment expenditures related to turnaround activities , which increased from $ 322.0 million in 2018 , to $ 413.0 million in 2019 , and a $ 267.2 million increase in equity method investment contributions in the current year , $ 124.7 million of which related to our obtaining a 33 % membership interest in red river in may 2019 and $ 126.7 million of which related to our obtaining a 15 % interest in the wwp in july 2019. also contributing to this increase was the sale of asphalt assets and discontinued operations in 2018 , for which we received proceeds of $ 110.8 million and $ 55.5 million , respectively . cash flows from financing activities net cash used in financing activities was $ 7.9 million for the year ended december 31 , 2019 , compared to $ 297.6 million in the comparable 2018 period .
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this report contains statements that the company believes may be โ forward-looking statements โ within the meaning of section 21e of the securities exchange act of 1934 , particularly statements relating to the company 's objectives , plans or goals , future actions , future performance or results of current and anticipated products , sales efforts , expenditures , and financial results . from time to time , the company also provides forward-looking statements in other publicly-released materials , both written and oral . forward-looking statements provide current expectations and forecasts of future events such as new products , revenues and financial performance , and are not limited to describing historical or current facts . they can be identified by the use of words such as โ outlook , โ โ forecast , โ โ believes , โ โ expects , โ โ plans , โ โ intends , โ โ anticipates , โ and other words and phrases of similar meaning . forward-looking statements are necessarily based on assumptions , estimates and limited information available at the time they are made . a broad variety of risks and uncertainties , both known and unknown , as well as the inaccuracy of assumptions and estimates , can affect the realization of the expectations or forecasts in these statements . many of these risks and uncertainties are difficult to predict or are beyond the company 's control . consequently , no forward-looking statements can be guaranteed . actual future results may vary materially . significant factors affecting the expectations and forecasts are set forth under โ item 1a โ risk factors โ in this annual report on form 10-k. the company undertakes no obligation to update any forward-looking statements to reflect events or circumstances that arise after the date hereof . investors should refer to the company 's subsequent filings under the securities exchange act of 1934 for further disclosures . executive summary worldwide sales decreased 1 % in 2019 to $ 1.791 billion as compared with $ 1.808 billion in 2018. foreign exchange had an unfavorable impact on sales of $ 32.8 million or 2 % . consolidated income from operations was $ 208.7 million as compared with $ 255.9 million in the prior year . included in income from operations for 2019 were restructuring and other items of $ 13.2 million and a $ 10.9 million charge related to litigation expenses associated with the bankruptcy of novinda corp. included in income from operations in 2018 were restructuring and other costs of $ 2.5 million and acquisition-related transaction and integration costs of $ 1.7 million . net income was $ 132.7 million in 2019 , as compared to $ 169.0 million in the prior year . the company reported diluted earnings of $ 3.78 per share in 2019 as compared with $ 4.75 per share in the prior year . in 2019 , the company continued to execute on its growth strategies of geographic expansion and new product innovation . the company delivered sales growth across several product lines and geographies , increased volumes through capacity expansions and a new pcc satellite facility , and capitalized on customer demand for our latest innovative products . our 2019 results reflect operational and strategic execution while experiencing weaker market conditions in several of the markets we serve . long term debt as of december 31 , 2019 was $ 824.3 million . during 2019 , we repaid $ 88 million of our long-term debt . since the acquisition of amcol in 2014 , we repaid approximately $ 732 million of our term loan debt . additionally , in 2019 , we repurchased $ 41 million of treasury shares . our balance sheet continues to be strong . cash , cash equivalents and short-term investments were $ 243.2 million as of december 31 , 2019. cash flow from operations for 2019 was $ 238.3 million . our intention is to maintain a balanced approach to capital deployment , by using excess cash flow for investments in growth , continued debt reduction and selective share repurchases . 32 outlook looking forward , we remain cautious about the state of the global economy and the impact it will have on our product lines . the company will continue to focus on innovation and new product development and other opportunities for sales growth in 2020 from its existing businesses , as follows : โ increase our presence and gain penetration of our bentonite-based foundry customers for the metalcasting industry in emerging markets , such as china and india . โ increase our presence and market share in global pet care products , particularly in emerging markets . โ deploy new products in pet care such as lightweight litter . โ increase our presence and market share in asia and in the global powdered detergent market . โ continue the development of our proprietary enersol ยฎ products for agricultural applications worldwide . โ pursue opportunities for our products in environmental and building and construction markets in the middle east , asia pacific and south america regions . โ increase our presence and market share for geosynthetic clay liners within the environmental products product line . โ develop multiple high-filler technologies under the fulfill ยฎ platform of products , to increase the fill rate in freesheet paper and continue to progress with commercial discussions and full-scale paper machine trials . โ develop products and processes for waste management and recycling opportunities to reduce the environmental impact of the paper mill , reduce energy consumption and improve the sustainability of the papermaking process , including our newyield ยฎ and envirofil ยฎ products . โ further penetration into the packaging segment of the paper industry . โ increase our sales of pcc for paper by further penetration of the markets for paper filling at both freesheet and groundwood mills , particularly in emerging markets . โ expand the company 's pcc coating product line using the satellite model . โ promote the company 's expertise in crystal engineering , especially in helping papermakers customize pcc morphologies for specific paper applications . story_separator_special_tag household , personal care & specialty products sales increased 47 percent , primarily driven by higher pet care revenue , including the acquisition of sivomatic , and increased european fabric care sales . environmental products sales rose 19 percent due to several large projects . this growth was partially offset by lower sales in building materials resulting from fewer large projects and a decrease in basic minerals due to the company 's exit from the bulk chromite business . income from operations decreased $ 2.9 million to $ 116.8 million in 2018 and represented 14.1 % of net sales as compared to $ 119.7 million and 16.3 % of sales in 2017 , primarily due to higher raw material , logistics and energy costs , which were partially offset by increased selling prices and higher volume . 37 specialty minerals segment replace_table_token_10_th 2019 v 2018 net sales in the specialty minerals segment decreased 3 percent to $ 574.4 million in 2019 from $ 589.3 million in 2018. worldwide sales of pcc products decreased to $ 434.0 million in 2019 from $ 445.4 million in the prior year largely due to previously announced customer paper machine shutdowns in north america , including the closure of two u.s. paper mills in the first and fourth quarters of 2019. these shutdowns were offset by a 3 percent increase in paper pcc volumes in asia as a result of the ramp up of a new satellite and additional capacity . specialty pcc increased 3 percent primarily due to demand-driven expansions . sales of processed minerals products decreased 2 percent to $ 140.4 million in 2019 primarily driven by a reduction of sales in the automotive and construction markets . income from operations decreased $ 12.3 million to $ 83.1 million in 2019 and represented 14.5 % of net sales compared to $ 95.4 million and 16.2 % of sales in the prior year . this decrease was primarily driven by the paper mill shutdowns in north america and lower volumes in europe , which was partially offset by higher pricing . included in income from operations for 2019 were restructuring and impairment charges of $ 2.5 million . 2018 v 2017 net sales in the specialty minerals segment increased 1 percent to $ 589.3 million in 2018 from $ 584.8 million in 2017. worldwide sales of pcc products were up slightly to $ 445.4 million as higher sales in asia were partially offset by reduced sales in north america due to customer paper machine shutdowns in late 2017 and early 2018. sales of processed minerals products rose 2 percent to $ 143.9 million . ground calcium carbonate sales grew 4 percent , driven by higher volumes in the construction market , while talc sales decreased 2 percent . income from operations increased $ 6.5 million to $ 95.4 million in 2018 and represented 16.2 % of net sales compared to $ 88.9 million and 15.2 % of sales in the prior year . this increase was primarily due to $ 12.4 million in restructuring and bad debt costs recorded in the prior year . excluding the impact of the restructuring and bad debt costs recorded in the prior year , there was a decrease in operating income due to paper machine shutdowns in north america , and higher logistics and energy costs . included in income from operations for 2018 were restructuring and impairment charges of $ 0.7 million . 38 refractories segment replace_table_token_11_th 2019 v 2018 net sales in the refractories segment decreased 4 percent to $ 298.1 million in 2019 , driven by lower sales of refractory products globally , partially offset by higher metallurgical products and laser equipment sales . income from operations decreased $ 5.6 million to $ 39.8 million and represented 13.4 % of net sales in 2019 compared to $ 45.4 million or 14.6 % of sales in 2018 due to lower refractory volumes globally . included in income from operations for 2019 were restructuring and impairment charges of $ 0.8 million and a $ 2.5 million bad debt reserve relating to a customer bankruptcy . 2018 v 2017 net sales in the refractories segment increased 12 percent to $ 311.9 million in 2018 , driven by higher volumes of refractory products and from increased pricing to offset higher raw material costs . income from operations increased $ 5.6 million to $ 45.4 million and represented 14.6 % of net sales in 2018 compared to $ 39.8 million or 14.2 % of sales in 2017. energy services segment replace_table_token_12_th 2019 v 2018 net sales in the energy services segment increased $ 16.9 million in 2019 or 22 percent , driven by higher well testing and filtration activity in the north sea and gulf of mexico and increased equipment sales and filtration activity in the asia pacific region . the segment recorded income from operations of $ 7.8 million in 2019 as compared to $ 4.5 million in the prior year . included in income from operations was $ 1.8 million of restructuring and impairment charges in 2019 . 2018 v 2017 net sales in the energy services segment increased $ 1.6 million in 2018 or 2 percent , driven by higher filtration activity in the gulf of mexico and in the north sea . the segment recorded income from operations of $ 4.5 million in 2018 as compared to $ 6.1 million in the prior year . included in income from operations was $ 1.8 million of additional restructuring charges relating to the exit of certain businesses in 2016 . 39 liquidity and capital resources cash provided from continuing operations in 2019 was $ 238.3 million , compared with $ 203.6 million in prior year . cash flows provided from operations in 2019 were principally use to repay debt , fund capital expenditures , repurchase shares and to pay the company 's dividend to common shareholders . the company 's intention is to use excess cash flow for investments in growth , continued debt reduction and selective share repurchases .
| results of operations consolidated income statement review replace_table_token_7_th * not meaningful net sales replace_table_token_8_th 34 worldwide net sales in 2019 decreased 1 % from the previous year to $ 1,791.0 million . foreign exchange had an unfavorable impact on sales of approximately $ 32.8 million or 2 percentage points . net sales in the united states increased 0.1 % to $ 962.4 million in 2019 and represented 54 % of consolidated net sales . international sales decreased 2.1 % to $ 828.6 million in 2019 and represented 46 % of consolidated net sales . worldwide net sales in 2018 increased 8 % from the previous year to $ 1,807.6 million . foreign exchange had a favorable impact on sales of approximately $ 13.0 million or 1 percentage point . the company 's results in 2018 include $ 61.8 million of sales from sivomatic . net sales in the united states increased 2.4 % to $ 961.6 million in 2018 and represented 53 % of consolidated net sales . international sales increased 14.9 % to $ 846.0 million in 2018 and represented 47 % of consolidated net sales . operating costs and expenses consolidated cost of sales was $ 1,350.4 million , $ 1,346.2 million and $ 1,208.5 million in 2019 , 2018 and 2017 , respectively . production margin as a percentage of net sales was 24.6 % in 2019 , 25.5 % in 2018 and 27.9 % in 2017. the decrease in production margin was primarily due to an unfavorable product mix and higher raw materials and logistics costs across all segments . marketing and administrative costs were $ 187.5 million , $ 178.6 million and $ 180.7 million in 2019 , 2018 and 2017 , respectively .
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story_separator_special_tag included in item 7 of this annual report . all periods presented in the table below prior to april 16 , 2014 , the date of our initial public offering , reflect the operations of our predecessor . the historical combined financial data for our predecessor is not necessarily indicative of our results of operations , cash flows or financial position following the completion of our initial public offering . replace_table_token_4_th ( 1 ) for definitions and reconciliations of net income to earnings before interest , taxes , depreciation and amortization , or ebitda , adjusted ebitda , funds from operations , or ffo , and adjusted ffo , or affo , as well as a statement disclosing the reasons why our management believes that ebitda , adjusted ebitda , ffo and affo provide useful information to investors and , to the extent material any additional purposes for which our management uses such measures , see โ management 's discussion and analysis of financial condition and results of operations โ non-gaap financial measures. โ 41 item 7. management 's discussion and analysis of financial condition and results of operations the following analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the notes thereto contained elsewhere in this annual report on form 10-k. overview and background we are an internally managed real estate company that owns and seeks to acquire high-quality farmland located in agricultural markets throughout north america . as of the date of this annual report , we own farms with an aggregate of approximately 142,223 acres in alabama , arkansas , california , colorado , florida , georgia , illinois , kansas , louisiana , michigan , mississippi , nebraska , north carolina , south carolina , texas , and virginia . as of the date of this annual report , approximately 75 % of the acres in our portfolio are used to grow primary crops , such as corn , soybeans , wheat , rice and cotton , and approximately 25 % of the acres in our portfolio produce specialty crops , such as blueberries , vegetables , citrus , nuts and edible beans . we believe our portfolio gives investors exposure to the increasing global food demand trend in the face of growing scarcity of high quality farmland and will reflect the approximate breakdown of u.s. agricultural output between primary crops and animal protein ( whose production relies principally on primary crops as feed ) , on one hand , and specialty crops , on the other . in addition , in august 2015 , we announced the launch of the fpi loan program , an agricultural lending product aimed at farmers , as a complement to our primary business of acquiring and owning farmland and leasing it to farmers . under the fpi loan program , we make loans to third-party farmers ( both tenant and non-tenant ) to provide partial financing for working capital requirements and operational farming activities , farming infrastructure projects , and for other farming and agricultural real estate related purposes . we were incorporated in maryland on september 27 , 2013 , and we are the sole member of the sole general partner of the operating partnership , which is a delaware limited partnership that was formed on september 27 , 2013. all of our assets are held by , and our operations are primarily conducted through , the operating partnership and its wholly owned subsidiaries . as of the date of this annual report we own 83.8 % of the op units and none of the preferred units . see note 9 to our consolidated financial statements for additional information regarding the preferred units . as of december 31 , 2016 , we owned 75.1 % of the op units in the operating partnership . we elected and qualified to be taxed as a reit for u.s. federal income tax purposes commencing with our short taxable year ended december 31 , 2014 . 42 recent developments merger with american farmland company we acquired the properties listed in the table below in connection with the afco mergers which closed on february 2 , 2017 , and , as a result , our portfolio now consists of approximately 75 % row crop farmland and 25 % specialty crop farmland by value . replace_table_token_5_th in connection with the afco mergers w e issued 14,763,604 shares of our common stock as consideration in the company merger , 17,373 shares of our common stock in respect of fully earned and vested afco restricted stock units , and 218,525 op units in connection with the partnership merger at a share price of $ 11.41 per share on the date of the merger for a total consideration of $ 171.1 million . the allocation of the purchase price for the farms acquired is preliminary and may change during the measurement period , which may be up to one year from the acquisition date , if the company obtains new information regarding the assets acquired or liabilities assumed at the acquisition date . 43 2016 completed acquisitions during 2016 , we completed 24 acquisitions as set forth in the table below . the 2016 acquisitions expanded our presence to two new states , bringing our total presence to fourteen states as of december 31 , 2016. replace_table_token_6_th ( 1 ) this acquisition closed on march 2 , 2016. the purchase price of the property was comprised of ( a ) $ 50.0 million in cash , ( b ) an aggregate of 2,608,695 op units valued at $ 11.50 per op unit and ( c ) 117,000 preferred units . see โ note 9 โ stockholders ' equity and non-controlling interests โ . ( 2 ) the acquisition closed on december 21 , 2016. the purchase price of the property was comprised of approximately $ 3.3 million in cash and an aggregate of 69,691 op units valued at $ 10.95 per op unit . story_separator_special_tag in connection with the term loan 6 , on february 14 , 2017 , the company and the operating partnership each entered into a separate guaranty ( the โ term loan 6 guaranties โ ) whereby the company and the operating partnership jointly and severally agreed to unconditionally guarantee all of the borrowers ' obligations under the sixth metlife loan agreement . termination of leases the company entered into two separate sale and partial leaseback transactions in north carolina , south carolina , and virginia in december 2014 and june 2015. these leases were due to expire on december 31 , 2016 , december 31 , 2017 and december 31 , 2019. the tenant and the company agreed to terminate the leases effective as of december 31 , 2016. as part of the termination settlement , the tenant agreed to pay an additional rent amount related to 2016 of $ 2.8 million . in addition , the company fully recognized as 2016 revenue certain rent payments , totaling $ 3.7 million , of which the majority was made by the tenant in june 2015 , that the company had not yet recognized under its revenue recognition policy . sub-advisory agreement upon consummation of the afco mergers , by virtue of afco being merged with and into one of the company 's wholly-owned subsidiaries and afco op becoming a wholly-owned subsidiary of the company , the company acquired the amended and restated sub-advisory agreement , dated as of october 23 , 2015 ( the โ sub-advisory agreement โ ) , by and among afco , american farmland advisors , afco op and prudential capital mortgage company ( the โ sub- 46 advisor โ ) . on february 18 , 2017 , farmland partners inc. ( the โ company โ ) entered into a termination agreement ( the โ termination agreement โ ) with the sub-advisor pursuant to which the company and prudential agreed to terminate the sub-advisory agreement and certain related property management agreements ( together with the sub-advisory agreement , the โ prudential agreements โ ) . the termination agreement provides that , as of march 31 , 2017 , prudential will no longer provide services to the company under the prudential agreements . the company has agreed to pay prudential $ 1.6 million in cash , which is equal to the fee that would be owed to prudential for services through the quarter ended march 31 , 2017 and a termination fee of approximately $ 160,000. factors that may influence future results of operations and farmland values the principal factors affecting our operating results and the value of our farmland include global demand for food relative to the global supply of food , farmland fundamentals and economic conditions in the markets in which we own farmland , and our ability to increase or maintain rental revenues while controlling expenses . although farmland prices may show a decline from time to time , we believe that any reduction in u.s. farmland values overall is likely to be short-lived as global demand for food and agricultural commodities typically exceeds global supply . in addition , although prices for many crops experienced significant declines in 2014 and 2015 , we do not believe that such declines represent a trend that will continue over the long term . rather , we believe that long-term growth trends in global population and gdp per capita will result in increased prices for primary crops over time . demand we expect that global demand for food , driven primarily by significant increases in the global population and gdp per capita , will continue to be the key driver of farmland values . we further expect that global demand for most crops will continue to grow to keep pace with global population growth , which we anticipate will lead to either higher prices and or higher yields and , therefore , higher rental rates on our farmland , as well as sustained growth in farmland values over the long-term . we also believe that growth in global gdp per capita , particularly in developing nations , will contribute significantly to increasing demand for primary crops . as global gdp per capita increases , the composition of daily caloric intake is expected to shift away from the direct consumption of primary crops toward animal-based proteins , which is expected to result in increased demand for primary crops as feed for livestock . according to the united nations ' food and agriculture organization ( โ un fao โ ) , these factors are expected to require more than one billion additional tons of global annual grain production by 2050 , a 45.5 % increase from 2005-2007 levels and more than two times the 475 million tons of grain produced in the united states in 2014. furthermore , we believe that , as gdp per capita grows , a significant portion of additional household income is allocated to food and that once individuals increase consumption of , and spending on , higher quality food , they will strongly resist returning to their former dietary habits , resulting in greater inelasticity in the demand for food . as a result , we believe that , as global demand for food increases , rental rates on our farmland and the value of our farmland will increase over the long-term . global demand for corn and soybeans as inputs in the production of biofuels such as ethanol and soy diesel also could impact the prices of corn and soybeans , which , in the long-term , could impact our rental revenues and our results of operations . however , the success of our business strategy is not dependent on growth in demand for biofuels and we do not believe that demand for corn and soybeans as inputs in the production of biofuels will materially impact our results of operations or the value of our farmland , primarily because we believe that growth in global population and gdp per capita will be more significant drivers of global demand for primary crops over the long-term .
| results of operations comparison of the year ended december 31 , 2016 to the year ended december 31 , 2015 replace_table_token_10_th nm = not meaningful 54 our rental income for 2016 was impacted by the 26 acquisitions that took place in 2015 , primarily in the fourth quarter , in addition to the 24 acquisitions that took place throughout 2016. to highlight the effect of changes due to acquisitions , we have separately discussed the rental income for the same-property portfolio , which includes only properties owned and operated for the entirety of both periods presented . total rental income under leases for the same-property portfolio increased to $ 9.1 million for the year ended december 31 , 2016 , from $ 8.9 million for the year ended december 31 , 2015 , as a result of average annual rent for the same-property portfolio increasing year over year to $ 209 per acre in 2016 from $ 203 in 2015. total rental income increased $ 16.1 million , or 119.0 % , for the year ended december 31 , 2016 as compared to the prior year . this increase was the result of the 50 acquisitions completed over the last two years and payments received in connection with the the early termination of certain leases in december 2016. as part of the termination , the company recognized $ 3.7 million due to cash received under the contract greater than rental income previously recognized and $ 2.8 million in early termination fees . for the year ended december 31 , 2016 , the average annual cash rent for the entire portfolio increased to $ 224 per acre from $ 215 per acre in 2015. leases in place in 2015 that provide for tenant payment of property taxes required the tenant to reimburse us for the tax amount we paid in 2016 for the 2015 taxable year .
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forward-looking statements can also be identified by words such as `` aim , '' `` anticipate , '' `` believe , '' `` estimate , '' `` expect , '' `` forecast , '' `` future , '' `` intend , '' `` outlook , '' `` plan , '' `` potential , '' `` predict , '' `` project , '' `` seek , '' `` may , '' `` can , '' `` will , '' `` would , '' `` could , '' `` should , '' the negatives thereof and other similar expressions . forward-looking statements are not guarantees of future performance and actual results may differ significantly from the results discussed in the forward-looking statements . factors that might cause such differences include , but are not limited to , those discussed in part i , item 1a of this form 10-k under the heading โ risk factors , โ which are incorporated herein by reference . the following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in part ii , item 8 of this form 10-k. all information presented herein is based on our fiscal calendar . unless otherwise stated , references to particular years , quarters , months or periods refer to our fiscal years and the associated quarters , months and periods of those fiscal years . we undertake no obligation to revise or update any forward-looking statements for any reason , except as required by law . overview shake shack is a modern day `` roadside '' burger stand serving a classic american menu of premium burgers , hot dogs , crinkle-cut fries , shakes , frozen custard , beer and wine . as of december 31 , 2014 , there were 63 shacks worldwide , comprised of 31 domestic company-operated shacks , 5 domestic licensed shacks and 27 international licensed shacks . during the three-year period ended december 31 , 2014 , we grew from 14 shacks to 63 shacks across 10 states , the district of columbia and eight other countries , representing a 65 % compound annual growth rate ( `` cagr `` ) . as a result , our total revenue grew from $ 38.6 million in fiscal 2011 to $ 118.5 million in fiscal 2014 , a 45 % cagr . compared to fiscal 2013 , total revenue increased 43.7 % . net income for fiscal 2014 was $ 2.1 million , compared to net income of $ 5.4 million for fiscal 2013. net income for fiscal 2014 included approximately $ 2.6 million of after-tax expenses incurred in connection with our ipo . adjusted ebitda , a non-gaap measure , increased 30.6 % to $ 18.9 million for fiscal 2014 from $ 14.5 million for fiscal 2013. for a reconciliation of adjusted ebitda , a non-gaap measure , to net income , see `` โebitda and adjusted ebitda ( non-gaap financial measures ) . '' our brand power and thoughtful approach to growth have resulted in strong shack performance across a variety of geographic areas and formats . in fiscal 2014 , we opened 10 domestic company-operated shacks , including five shacks in the fourth quarter . we executed our plan to enter a number of new markets , orlando , chicago , atlanta and las vegas , while deepening our roots in our current markets of new york , new jersey , and washington , d.c. we opened our first shack west of the mississippi river on the las vegas strip , outside the mgm new york - new york , where a brand new public park and las vegas ' newest and largest arena will open in 2016. we also expanded our international footprint by opening 12 international licensed shacks in several countries , including kuwait , turkey , the united arab emirates , lebanon and russia . in december 2014 , we entered into an exclusive licensing agreement with a leading retail and food operator for the development of up to 10 new shacks in japan over the next five years . the first shack in japan is expected to open in 2016. fiscal 2014 highlights โช total revenue increased 43.7 % to $ 118.5 million . โช shack sales increased 42.6 % to $ 112.0 million . โช same-shack sales increased 4.1 % , excluding sales from the 53rd week . โช shack-level operating profit * , a non-gaap measure , increased 31.5 % to $ 26.9 million . โช adjusted ebitda * , a non-gaap measure , increased 30.6 % to $ 18.9 million . โช net income was $ 2.1 million , or $ 0.07 per pro forma diluted unit , which included approximately $ 2.6 million , or $ 0.09 per pro forma diluted unit , of after-tax expenses associated with the company 's ipo . โช 23 system-wide shack openings , comprised of 10 domestic company-operated shacks , one domestic licensed shack and 12 international licensed shacks , representing a 57.5 % increase in system-wide shack count . * shack-level operating profit and adjusted ebitda are non-gaap measures . reconciliations of shack-level operating profit to operating income ( loss ) and adjusted ebitda to net income ( loss ) , the most directly comparable financial measures presented in accordance with gaap , are set forth on page 41 and 42 . 36 growth strategies we plan to continue to expand our business , drive shack sales and enhance our competitive positioning by executing on the following strategies : โช open new domestic company-operated shacks . our domestic company-operated shack growth strategy is focused on both existing and new markets . given that we are still in a nascent stage of growth , a substantial portion of our growth will come from opening shacks in markets where we currently have little to no presence . in fiscal 2014 , we opened 10 domestic company-operated shacks . given that our primary growth driver will be the opening of new domestic company-operated shacks , we are keenly focused on maintaining a rigorous site selection process . story_separator_special_tag other operating expenses were $ 11.2 million for fiscal 2014 compared to $ 7.3 million for fiscal 2013 , an increase of $ 3.9 million or 53.0 % , primarily due to the opening of 10 new domestic company-operated shacks in fiscal 2014. as a percentage of shack sales , other operating expenses increased to 10.0 % in fiscal 2014 compared to 9.3 % in fiscal 2013. this increase was due to the opening of more target-volume shacks and the impact of fixed operating expenses at these shacks . other operating expenses were $ 7.3 million for fiscal 2013 compared to $ 5.1 million for fiscal 2012 , an increase of $ 2.2 million or 44.0 % , primarily due to the opening of eight new domestic company-operated shacks in fiscal 2013. as a percentage of shack sales , other operating expenses increased to 9.3 % in fiscal 2013 compared to 9.1 % in fiscal 2012. this increase was due to the opening of more target-volume shacks and the impact of fixed operating expenses at these shacks . occupancy and related expenses occupancy and related expenses consist of shack-level occupancy expenses ( including rent , common area expenses and certain local taxes ) , excluding pre-opening costs , which are recorded separately . occupancy and related expenses were $ 9.8 million for fiscal 2014 compared to $ 6.9 million for fiscal 2013 , an increase of $ 2.9 million or 41.5 % , primarily due to the opening of 10 new domestic company-operated shacks in fiscal 2014. as a percentage of shack sales , occupancy and related expenses 39 decreased to 8.7 % in fiscal 2014 compared to 8.8 % in fiscal 2013 , primarily due to the opening of non-manhattan shacks , where occupancy and related expenses are typically lower . occupancy and related expenses were $ 6.9 million for fiscal 2013 compared to $ 5.1 million for fiscal 2012 , an increase of $ 1.8 million or 36.4 % , primarily due to the opening of eight new domestic company-operated shacks in fiscal 2013. as a percentage of shack sales , occupancy and related expenses decreased to 8.8 % in fiscal 2013 compared to 9.1 % in fiscal 2012 , primarily due to the opening of non-manhattan shacks , where occupancy and related expenses are typically lower . general and administrative expenses general and administrative expenses consist of costs associated with corporate and administrative functions that support shack development and operations , as well as equity-based compensation expense for certain executives . general and administrative expenses were $ 18.2 million for fiscal 2014 compared to $ 12.5 million for fiscal 2013 , an increase of $ 5.7 million or 46.0 % . as a percentage of total revenue , general and administrative expenses increased to 15.3 % in fiscal 2014 from 15.1 % in fiscal 2013. this increase was primarily due to $ 2.7 million of incremental expenses incurred in connection with the company 's initial public offering , combined with increased payroll expense associated with new home office personnel hired to support future growth . partially offsetting these increases , was a $ 2.1 million decrease in deferred bonus expense related to a one-time charge incurred in fiscal 2013 related a deferred bonus payable to a member of our executive team . general and administrative expenses were $ 12.5 million for fiscal 2013 compared to $ 7.0 million for fiscal 2012 , an increase of $ 5.5 million or 78.2 % . as a percentage of total revenue , general and administrative expenses increased to 15.1 % in fiscal 2013 from 12.3 % in fiscal 2012. this increase was due primarily to an increase in payroll related to building our infrastructure through new hires at our home office to support our planned growth as well as a $ 2.1 million charge for a deferred bonus payable to a member of our executive team . depreciation expense depreciation expense consists of the depreciation of fixed assets , including leasehold improvements and equipment . depreciation expense was $ 5.8 million for fiscal 2014 compared to $ 3.5 million for fiscal 2013 , an increase of $ 2.3 million or 64.0 % . this increase was due primarily to depreciation of capital expenditures related to the opening of 10 new domestic company-operated shacks during fiscal 2014. as a percentage of total revenue , depreciation expense increased to 4.9 % in fiscal 2014 compared to 4.3 % in fiscal 2013 due to the introduction of more target-volume shacks . depreciation expense was $ 3.5 million for fiscal 2013 compared to $ 2.2 million for fiscal 2012 , an increase of $ 1.3 million or 63.8 % . this increase was due primarily to depreciation of capital expenditures related to the opening of eight new domestic company-operated shacks during fiscal 2013. as a percentage of total revenue , depreciation expense increased to 4.3 % in fiscal 2013 compared to 3.8 % in fiscal 2012 due to the introduction of more target-volume shacks . pre-opening costs pre-opening costs consist primarily of legal fees , rent , managers ' salaries , training costs , employee payroll and related expenses , all costs to relocate and compensate shack management teams prior to an opening and wages , travel and lodging costs for our opening training team and other support team members . all such costs incurred prior to the opening of a domestic company-operated shack are expensed in the period in which the expense was incurred . pre-opening costs can fluctuate significantly from period to period , based on the number and timing of domestic company-operated shack openings and the specific pre-opening costs incurred for each domestic company-operated shack . additionally , domestic company-operated shack openings in new geographic market areas will initially experience higher pre-opening costs than our established geographic market areas , such as the new york city metropolitan area , where we have greater economies of scale and incur lower travel and lodging costs for our training team .
| results of operations the following table summarizes our results of operations for 2014 , 2013 and 2012 : replace_table_token_3_th ( 1 ) we operate on a 52/53 week fiscal year that ends on the last wednesday of the calendar year . fiscal year 2014 was a 53-week year with the extra operating week ( the `` 53rd week `` ) falling in our fiscal fourth quarter . fiscal 2013 and 2012 each contained 52 weeks . ( 2 ) as a percentage of shack sales . shack sales shack sales represent the aggregate sales of food and beverages in domestic company-operated shacks . shack sales in any period are directly influenced by the number of operating weeks in such period , the number of open shacks and same shack sales . shack sales were $ 112.0 million for fiscal 2014 compared to $ 78.6 million for fiscal 2013 , an increase of $ 33.4 million or 42.6 % . the growth in shack sales was primarily driven by the opening of 10 new domestic company-operated shacks during fiscal 2014. shacks in the comparable shack base contributed $ 2.3 million of this increase while new domestic company-operated shacks contributed $ 31.1 million . the results for fiscal 2014 include the impact of the 53rd week , which contributed $ 2.8 million in shack sales . same-shack sales increased 4.1 % during fiscal 2014 , primarily driven by increased menu prices . for purposes of calculating same-shack sales growth , shack sales for 13 shacks were included in the comparable shack base and exclude the 53rd week . for fiscal 2014 , auvs for domestic company-operated shacks decreased to $ 4.6 million as a result of opening more target-volume shacks during the year . shack sales were $ 78.6 million for fiscal 2013 compared to $ 55.6 million for fiscal 2012 , an increase of $ 23.0 million or 41.4 % .
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cpi-based adjustments are contingent on future events and are therefore not included in straight-line rent calculations . we recognize rents from percentage rents as reported by the lessees , which is after the level of sales requiring a rental payment to us is reached . percentage rents were insignificant for the periods presented . we account for leases as operating or direct financing leases , as described below : operating leases โ we record real estate at cost less accumulated depreciation ; we recognize future minimum rental revenue on a straight-line basis over the non-cancelable lease term of the related leases and charge expenses to operations as incurred ( note 5 ) . direct story_separator_special_tag of operations . management 's discussion and analysis of financial condition and results of operations , or md & a , is intended to provide the reader with information that will assist in understanding our financial statements and the reasons for changes in certain key components of our financial statements from period to period . md & a also provides the reader with our perspective on our financial position and liquidity , as well as certain other factors that may affect our future results . the discussion also provides information about the financial results of the segments of our business to provide a better understanding of how these segments and their results affect our financial condition and results of operations . business overview we provide long-term financing via sale-leaseback and build-to-suit transactions for companies worldwide and manage a global investment portfolio of 1,021 properties , including our owned portfolio . our business operates in two segments โ real estate ownership and investment management , as described below . real estate ownership โ we own and invest in commercial properties in the u.s. and europe that are then leased to companies , primarily on a triple-net lease basis , which requires the tenant to pay substantially all of the costs associated with operating and maintaining the property . we earn lease revenues from our wholly-owned and co-owned real estate investments . in addition , we generate equity income through our investments in the shares of the managed reits and certain co-owned real estate investments that we do not control . in addition , through our ownership of special member interests in the operating partnerships of the managed reits , we participate in the cash flows of those reits . investment management โ we earn revenue as the advisor to the managed reits . under the advisory agreements with the managed reits , we perform various services , including but not limited to the day-to-day management of the managed reits and transaction-related services . we structure and negotiate investments and debt placement transactions for the managed reits , for which we earn structuring revenue , and we manage their portfolios of real estate investments , for which we earn asset-based management revenue . while we are raising funds for a managed reit , the reit reimburses us for certain costs , primarily broker-dealer commissions paid on its behalf and marketing and personnel costs . we also earn dealer manager fees in connection with the initial public offerings of the managed reits . 2013 economic overview in 2013 , the economic recovery in the u.s. continued . while unemployment remained relatively high , the general business environment , the lending markets and the housing sector all improved . the cpi , which generally reflects changes in economic growth and inflation , increased 1.5 % during 2013. this is a change from the negative growth , or recessionary conditions , experienced in 2009 and 2010. the slow but steady improvement in the economy caused the federal reserve to consider altering its current monetary policy and to slow or taper its acquisition of treasury and other debt securities in anticipation of better economic conditions in coming quarters . this announcement in may 2013 resulted in a sharp increase in longer term interest rates , which in turn caused interest rate sensitive stocks , such as reits , to decline . despite this increase , both short- and long-term interest rates remain historically low . commercial property yields , or capitalization rates , which typically react more slowly and tend to lag changes in interest rates , remained fairly steady throughout the course of the year . competition for net-leased properties , particularly retail assets leased to investment grade tenants , remained strong despite the change in the cost of investment capital . in europe , the economic picture was more mixed . the northern european countries , where fiscal conditions are generally more stable , saw modest economic growth rates . however , many of the southern european countries โ and those considered emerging economies , such as the eastern european countries โ experienced very low growth or recessionary conditions . the harmonized index of consumer price , or hicp , increased 0.9 % during 2013. in addition , the financial sector in europe remains under stress and lending remains constrained . the euro has strengthened since the euro crisis in 2011 and the euro/dollar exchange rate was more stable in 2013. capitalization rates in many european markets remain attractive , particularly relative to property assets with similar risk profiles in the u.s. the impact of these economic conditions on us is discussed under results of operations below . w. p. carey 2013 10-k โ 27 significant developments real estate ownership investment transactions during 2013 , we acquired seven properties for a total of $ 347.1 million . three of these properties are located in the u.s. and four are in europe . one of these properties is a warehouse/distribution facility and the remaining six are office facilities . as part of our active asset management program , we sold 28 domestic properties and our interest in an equity investment in 2013 for total proceeds of $ 175.6 million . story_separator_special_tag properties acquired in the cpa ยฎ :15 merger on september 28 , 2012 ; a decrease in asset management revenue of $ 18.5 million for the year ended december 31 , 2013 as compared to 2012 and $ 7.5 million for the year ended december 31 , 2012 as compared to 2011 , as a result of the cpa ยฎ :15 merger in september 2012 , which reduced the asset base from which we earn asset management revenue ; costs incurred in connection with the cpa ยฎ :16 merger of $ 5.0 million in 2013 and cpa ยฎ :15 merger of $ 31.7 million in 2012 ; increases in cash distributions paid of $ 89.6 million for the year ended december 31 , 2013 as compared to 2012 and $ 18.3 million for the year ended december 31 , 2012 as compared to 2011 , primarily due to distributions made on shares issued in connection with the cpa ยฎ :15 merger in september 2012 ; issuance of 28,170,643 shares on september 28 , 2012 to stockholders of cpa ยฎ :15 in connection with the cpa ยฎ :15 merger ; and revenues of $ 52.5 million earned in 2011 in connection with providing a liquidity event for cpa ยฎ :14 stockholders , through the cpa ยฎ :14/16 merger , in may 2011. w. p. carey 2013 10-k โ 29 ( in thousands , except shares ) replace_table_token_5_th _ ( a ) we consider the performance metrics listed above , including funds from operations , as adjusted , or affo , a supplemental measure that is not defined by gaap , or non-gaap , to be important measures in the evaluation of our results of operations and capital resources . we evaluate our results of operations with a primary focus on the ability to generate cash flow necessary to meet our objective of funding distributions to stockholders . see supplemental financial measures below for our definition of this non-gaap measure and a reconciliation to its most directly comparable gaap measure . total revenues and net income attributable to w. p. carey increased significantly in 2013 as compared to 2012 , due to increases within our real estate ownership segment . the growth in revenues and income was generated substantially from the properties we acquired in the cpa ยฎ :15 merger in september 2012 ( note 3 ) . these increases were partially offset by decreases in total revenues and net income in our investment management segment , primarily due to the cpa ยฎ :15 merger , which reduced the asset base from which we earn asset management revenue . net cash provided by operating activities increased in 2013 as compared to the same period in 2012 , primarily due to operating cash flow generated from the properties we acquired in the cpa ยฎ :15 merger , which was partially offset by a decrease in cash received for providing asset-based management services to the managed reits because we no longer provided such services to cpa ยฎ :15 after the completion of the cpa ยฎ :15 merger . affo increased in 2013 as compared to 2012 , primarily due to income generated from the properties we acquired in the cpa ยฎ :15 merger , partially offset by the cessation of asset management revenue received from cpa ยฎ :15 after the cpa ยฎ :15 merger was completed . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; font-style : italic ; font-weight : bold ; '' > property level contribution property level contribution includes lease and operating property revenues , less property expenses , depreciation and amortization . when a property is leased on a net-lease basis , reimbursable tenant costs are recorded as both income and property expense and , therefore , have no impact on property level contribution . the following table presents property level contribution for our consolidated leased and operating properties as well as a reconciliation to segment net operating income ( in thousands ) : replace_table_token_9_th w. p. carey 2013 10-k โ 34 same store leased properties same store leased properties are those we owned for 36 months or more . 2013 vs. 2012 โ for the year ended december 31 , 2013 as compared to 2012 , property level contribution from same store leased properties decreased by $ 0.8 million , primarily due to a decrease in lease revenues of $ 0.9 million . lease revenues decreased by $ 1.8 million as a result of restructuring of leases at several properties . this decrease was partially offset by an increase in lease revenues of $ 0.9 million as a result of scheduled rent increases at several properties . 2012 vs. 2011 โ for the year ended december 31 , 2012 as compared to 2011 , property level contribution from same store leased properties increased by $ 0.7 million , primarily due to a year-over-year decrease in depreciation and amortization expenses as a result of an out-of-period adjustment recorded in 2011 ( note 2 ) . lease revenues increased by $ 0.5 million as a result of scheduled rent increases at several properties . this increase in lease revenues was substantially offset by a decrease in lease revenues as a result of fluctuation in foreign currency exchange rates . leased properties acquired in the cpa ยฎ :15 merger in september 2012 , we acquired 305 properties in the cpa ยฎ :15 merger , of which one was sold in 2012 and nine were sold or held for sale in 2013 . 2013 vs. 2012 โ for the year ended december 31 , 2013 as compared to 2012 , property level contribution from leased properties acquired in the cpa ยฎ :15 merger in september 2012 increased by $ 96.5 million , primarily due to the impact of a full year of ownership of the assets acquired as compared to that of one quarter in the prior year .
| results of operations we have two reportable segments โ real estate ownership and investment management . we evaluate our results of operations with a primary focus on increasing and enhancing the value , quality and amount of assets in our real estate ownership segment as well as assets under management by our investment management segment . we focus our efforts on improving underperforming assets through re-leasing efforts , including negotiation of lease renewals , or selectively selling assets in order to increase value in our real estate portfolio . the ability to increase assets under management by structuring investments on behalf of the managed reits is affected , among other things , by the managed reits ' ability to raise capital and our ability to identify and enter into appropriate investments and financing . w. p. carey 2013 10-k โ 30 real estate ownership the following tables present other operating data that management finds useful in evaluating results of operations : replace_table_token_6_th replace_table_token_7_th ( a ) amounts as of december 31 , 2013 and 2012 reflect 305 properties acquired from cpa ยฎ :15 in the cpa ยฎ :15 merger in september 2012 with a total fair value of approximately $ 1.8 billion ( note 3 ) . ( b ) operating properties were a consolidated investment , that was jointly-owned with an unrelated third-party and two employees , in 20 jointly-owned self-storage properties as well as a hotel and a wholly-owned self-storage property . we sold 19 of the jointly-owned self-storage properties and the hotel in the fourth quarter of 2013 .
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this summary is not intended to be exhaustive , nor is it intended to be a substitute for the detailed discussion and analysis provided elsewhere in this form 10-k , including in the โ business โ section and the โ risk factors โ above , the remainder of this โ management 's discussion and analysis of financial condition and results of operations ( โ md & a โ ) โ , and the consolidated financial statements and related notes . about electronic arts we are a global leader in digital interactive entertainment . we develop , market , publish and distribute games , content and services that can be played by consumers on a variety of platforms , which include consoles ( such as the playstation from sony , and the xbox from microsoft ) , pcs , mobile phones and tablets . some of our games are based on our wholly-owned intellectual property ( e.g . , battlefield , mass effect , need for speed , the sims and plants vs. zombies ) , and some of our games leverage content that we license from others ( e.g . , fifa , madden nfl and star wars ) . we also publish and distribute games developed by third parties ( e.g. , titanfall ) . our products and services may be purchased through multiple distribution channels , including physical and online retailers , platform providers such as console manufacturers , providers of free-to-download pc games , mobile carriers and directly through origin , our own digital distribution platform . financial results our key financial results for our fiscal year ended march 31 , 2016 were as follows : total net revenue was $ 4,396 million , down 3 percent year-over-year . excluding the negative impact of foreign currency exchange rates , we estimate that total net revenue would have been $ 4,662 million , up 3 percent year over year . digital revenue was $ 2,409 million , up 10 percent year-over-year . international net revenue was $ 2,489 million , down 3 percent year-over-year . gross margin was 69.2 percent . operating expenses were $ 2,144 million . net income was $ 1,156 million , with diluted earnings per share of $ 3.50 . operating cash flow was $ 1,223 million . cash and cash equivalents were $ 2,493 million and short-term investments were $ 1,341 million . trends in our business digital transformation . our business continues to transform from a traditional packaged goods business model to one in which our games and services are sold and delivered digitally , with additional content , features and services helping to extend the life of our packaged goods and digital games . for example , the ultimate team mode incorporated into iterations of our fifa , madden nfl and nhl franchises and expansion packs available digitally for our star wars , battlefield and sims franchises have kept many of our players engaged with those games for longer periods of time . our digital transformation is also creating opportunities in platforms , content models and modalities of play . for example , we have leveraged franchises typically associated with consoles and traditional pc gaming , such as fifa , madden nfl , the sims , simcity and star wars , to create mobile and pc free-to-download games that are monetized through a business model through which we sell incremental content and or features in discrete transactions . we also provide our ea access service for the xbox one and origin access service on pc , which offer players access to a selection of ea games and other benefits for a monthly or annual fee . our digital transformation also gives us the opportunity to strengthen our player network . we are investing in a technology foundation to enable us to build player relationships that can last for years instead of for days or weeks by connecting our players to us and to each other . this connection allows us to market and deliver content and services for popular franchises like fifa , battlefield and star wars to our players more efficiently . that same foundation also enables new player-centric ways to discover and try new experiences , such as our subscription-based ea access and origin access services . 23 we significantly increased our digital net revenue from $ 1,833 million in fiscal year 2014 to $ 2,199 million in fiscal year 2015 and $ 2,409 million during fiscal year 2016. we expect this portion of our business to continue to grow through fiscal year 2017 and beyond as we continue to focus on developing and monetizing products and services that can be delivered digitally . foreign currency exchange rates . international sales are a fundamental part of our business , and the strengthening of the u.s. dollar ( particularly relative to the euro , british pound sterling , australian dollar , chinese yuan and south korean won ) has a negative impact on our reported international net revenue , but a positive impact on our reported international operating expenses ( particularly the swedish krona and canadian dollar ) because these amounts are translated at lower rates as compared to periods in which the u.s. dollar is weaker . while we use foreign currency hedging contracts to mitigate some foreign currency exchange risk , these activities are limited in the protection that they provide us and can themselves result in losses . we estimate that foreign currency exchange rates had a negative impact of $ 266 million on our reported net revenue during fiscal year 2016 as compared to fiscal year 2015 , but the strengthening of the u.s. dollar had a positive impact of $ 113 million on our reported operating expenses as a significant portion of those expenses are incurred outside the united states . mobile and pc free-to-download games . the proliferation of mobile phones and tablets has significantly increased the consumer base for mobile games . story_separator_special_tag can be played with or without an internet connection ) , and sales of tangible products such as hardware , peripherals , or collectors ' items . service and other revenue . our service revenue includes revenue recognized from time-based subscriptions and games or related content that requires our hosting support in order to utilize the game or related content ( i.e . , can only be played with an internet connection ) . this includes ( 1 ) entitlements to content that are accessed through hosting services ( e.g. , micro-transactions for internet-based , social network and free-to-download mobile games ) , ( 2 ) massively multi-player online ( โ mmo โ ) games ( both software game and subscription sales ) , ( 3 ) subscriptions for our battlefield premium , ea access , and pogo-branded online game services , and ( 4 ) allocated service revenue from sales of software games with an online service element ( i.e. , โ matchmaking โ service ) . our other revenue includes advertising and non-software licensing revenue . with respect to the allocated service revenue from sales of software games with a matchmaking service mentioned above , our allocation of proceeds between product and service revenue for presentation purposes is based on management 's best estimate of the selling price of the matchmaking service with the residual value allocated to product revenue . our estimate of the selling price of the matchmaking service is comprised of several factors including , but not limited to , prior selling prices for the matchmaking service , prices charged separately by other third-party vendors for similar service offerings , and a cost-plus-margin approach . we review the estimated selling price of the online matchmaking service on a regular basis and use this methodology consistently to allocate revenue between product and service for software game sales with a matchmaking service . we evaluate and recognize revenue when all four of the following criteria are met : evidence of an arrangement . evidence of an agreement with the customer that reflects the terms and conditions to deliver the related products or services must be present . fixed or determinable fee . if a portion of the arrangement fee is not fixed or determinable , we recognize revenue as the amount becomes fixed or determinable . collection is deemed probable . collection is deemed probable if we expect the customer to be able to pay amounts under the arrangement as those amounts become due . if we determine that collection is not probable as the amounts become due , we generally conclude that collection becomes probable upon cash collection . delivery . for packaged goods , delivery is considered to occur when a product is shipped and the risk of loss and rewards of ownership have transferred to the customer . for digital downloads , delivery is considered to occur when the software is made available to the customer for download . for services and other , delivery is generally considered to occur as the service is delivered , which is determined based on the underlying service obligation . if there is significant uncertainty of acceptance , revenue is recognized once acceptance is reasonably assured . 25 online-enabled games the majority of our software games and related content have online connectivity whereby a consumer may be able to download unspecified content or updates on a when-and-if-available basis ( โ unspecified updates โ ) for use with the original game software . in addition , we may also offer an online matchmaking service that permits consumers to play against each other via the internet without a separate fee . u.s. gaap requires us to account for the consumer 's right to receive unspecified updates or the matchmaking service for no additional fee as a โ bundled โ sale , or multiple-element arrangement . we have an established historical pattern of providing unspecified updates ( e.g. , player roster updates to madden nfl 16 ) to online-enabled games and related content at no additional charge to the consumer . we do not have vendor-specific objective evidence of fair value ( โ vsoe โ ) for these unspecified updates , and thus , as required by u.s. gaap , we recognize revenue from the sale of these online-enabled games and related content over the period we expect to offer the unspecified updates to the consumer ( โ estimated offering period โ ) . estimated offering period because the offering period is not an explicitly defined period , we must make an estimate of the offering period . determining the estimated offering period is inherently subjective and is subject to regular revision based on historical online usage . for example , in determining the estimated offering period for unspecified updates associated with our online-enabled games , we consider the period of time consumers are online as online connectivity is required . on an annual basis , we review consumers ' online gameplay of all online-enabled games that have been released 12 to 24 months prior to the evaluation date . for example , if our evaluation date is april 1 , 2015 , we evaluate all online-enabled games released between april 1 , 2013 and march 31 , 2014. based on this population of games , for all players that register the game online within the first six months of release of the game to the general public , we compute the weighted-average number of days for each online-enabled game , based on when a player initially registers the game online to when that player last plays the game online . we then compute the weighted-average number of days for all online-enabled games by multiplying the weighted-average number of days for each online-enabled game by its relative percentage of total units sold from these online-enabled games ( i.e. , a game with more units sold will have a higher weighting to the overall computation than a game with fewer units sold ) .
| results of operations our fiscal year is reported on a 52- or 53-week period that ends on the saturday nearest march 31. our results of operations for the fiscal year ended march 31 , 2016 contained 53 weeks and ended on april 2 , 2016. our results of operations for the fiscal years ended march 31 , 2015 and 2014 each contained 52 weeks and ended on march 28 , 2015 and march 29 , 2014 , respectively . for simplicity of disclosure , all fiscal periods are referred to as ending on a calendar month-end . net revenue net revenue consists of sales generated from ( 1 ) video games sold as packaged goods or as digital downloads and designed for play on consoles ( such as the playstation from sony and the xbox from microsoft ) and pcs , ( 2 ) video games for mobile phones and tablets , ( 3 ) separate software products and content and online game services associated with these products , ( 4 ) licensing our game software to third parties , ( 5 ) allowing other companies to manufacture and sell our products in conjunction with other products , and ( 6 ) advertisements on our online web pages and in our games . comparison of fiscal year 2016 to fiscal year 2015 net revenue for fiscal year 2016 , net revenue was $ 4,396 million and decreased $ 119 million , or 3 percent , as compared to fiscal year 2015 . this decrease was driven by a $ 757 million decrease in revenue primarily from titanfall , and the battlefield and fifa world cup franchises . this decrease was partially offset by a $ 638 million increase in revenue primarily from the star wars , madden nfl and simcity franchises .
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as a result of many factors , such as those set forth under the section entitled risk factors , cautionary note regarding forward-looking statements and elsewhere herein , our actual results may differ materially from those anticipated in these forward-looking statements . executive overview we are a global biopharmaceutical company on a mission to transform the lives of patients with serious and rare diseases . our first commercial product , arikayce , was approved in the us in september 2018 and in the eu in october 2020. our clinical-stage pipeline includes brensocatib and tpip . brensocatib is a small molecule , oral , reversible inhibitor of dipeptidyl peptidase 1 , which we are developing for the treatment of patients with bronchiectasis and other neutrophil-mediated diseases . tpip is an inhaled formulation of the treprostinil prodrug treprostinil palmitil which may offer a differentiated product profile for pulmonary arterial hypertension ( pah ) and other rare pulmonary disorders . we have legal entities in the us , france , germany , ireland , italy , the netherlands , switzerland , the united kingdom ( uk ) and japan . refer to part i , item 1 . `` business '' for a summary of our ongoing commercial and clinical programs for arikayce and our ongoing clinical programs for brensocatib and tpip . prior to 2019 , we had not generated significant revenue and through december 31 , 2020 , we had an accumulated deficit of $ 1.8 billion . we have financed our operations primarily through the public offerings of our equity securities and debt financings . although it is difficult to predict our future funding requirements , based upon our current operating plan , we anticipate that our cash and cash equivalents as of december 31 , 2020 will enable us to fund our operations for at least the next 12 months . our ability to reduce our operating loss and begin to generate positive cash flow from operations depends on the continued success in commercializing arikayce , including expanding the commercial sale of arikayce to additional territories , as well as achieving positive results from the arikayce frontline clinical trial program in order to potentially reach more patients . additionally , our continued success also depends on bringing additional clinical stage products to market , such as brensocatib and tpip . we expect to continue to incur substantial expenses related to our research and development activities as we continue the arikayce frontline clinical program , conduct the phase 3 aspen trial for brensocatib , and continue the required trials for tpip . we also expect to continue to incur significant costs related to the commercialization of arikayce , especially as we anticipate launching in new markets . our financial results may fluctuate from quarter to quarter and will depend on , among other factors , the net sales of arikayce ; the scope and progress of our research and development efforts ; and the timing of certain expenses . we can not predict whether or when new products or new indications for marketed products will receive regulatory approval or , if any such approval is received , whether we will be able to successfully commercialize such products and whether or when they may become profitable . key components of our results of operations product revenues , net product revenues , net , consist primarily of net sales of arikayce in the us and europe . in october 2018 , we began shipping arikayce to our customers in the us , which include specialty pharmacies and specialty distributors . in december 2020 , we began commercial sales of arikayce in germany . we recognize revenue for product received by our customers net of allowances for customer credits , including prompt pay discounts , service fees , estimated rebates , including government rebates , such as medicaid rebates and medicare part d coverage gap reimbursements in the us , chargebacks and returns . cost of product revenues ( excluding amortization of intangible assets ) cost of product revenues ( excluding amortization of intangible assets ) consist primarily of direct and indirect costs related to the manufacturing of arikayce sold , including third-party manufacturing costs , packaging services , freight , and allocation of overhead costs , in addition to royalty expenses and revenue-based milestones . we began capitalizing inventory upon fda approval of arikayce . all costs related to inventory for arikayce prior to fda approval were expensed as incurred and therefore not included in cost of product revenues . research and development ( r & d ) expenses r & d expenses consist primarily of salaries , benefits and other related costs , including stock-based compensation , for personnel serving in our research and development functions , including medical affairs and program management . r & d 60 expense also includes other internal operating expenses , the cost of manufacturing product candidates , including the medical devices for drug delivery , for clinical study , the cost of conducting clinical studies , and the cost of conducting preclinical and research activities . in addition , r & d expenses include payments to third parties for the license rights to products in development ( prior to marketing approval ) , such as brensocatib . our r & d expenses related to manufacturing our product candidates and medical devices for clinical study are primarily related to activities at contract manufacturing organizations ( cmos ) that manufacture brensocatib and tpip . our r & d expenses related to clinical trials are primarily related to activities at contract research organizations ( cros ) that conduct and manage clinical trials on our behalf . these contracts with cros set forth the scope of work to be completed at a fixed fee or amount per patient enrolled . payments under these contracts with cros primarily depend on performance criteria such as the successful enrollment of patients or the completion of clinical trial milestones as well as time-based fees . story_separator_special_tag interest expense interest expense was $ 29.6 million for the year ended december 31 , 2020 as compared to $ 27.7 million for 2019. the $ 1.9 million increase in interest expense in the year ended december 31 , 2020 as compared to the prior year period relates to finance lease interest expense for our corporate headquarters . provision for income taxes the income tax provision was $ 1.4 million and $ 0.8 million for the years ended december 31 , 2020 and 2019 , respectively . the income tax provision for the year ended december 31 , 2020 and december 31 , 2019 reflects the current income tax expense recorded as a result of taxable income in certain of our subsidiaries in europe and japan as well as a liability for certain state income taxes . comparison of the years ended december 31 , 2019 and 2018 please refer to the section titled `` management 's discussion and analysis of financial condition and results of operations '' in our annual report on form 10-k for the fiscal year ended december 31 , 2019 for a comparative discussion of our fiscal years ended december 31 , 2019 and december 31 , 2018. liquidity and capital resources overview there is considerable time and cost associated with developing potential pharmaceutical products to the point of regulatory approval and commercialization . we commenced commercial shipments of arikayce in october 2018. we expect to continue to incur operating losses at our us and certain international entities , as we plan to fund r & d for arikayce , brensocatib , tpip and our other pipeline programs , continue commercialization activities for arikayce in the us and europe , continue to invest in pre-commercial and regulatory activities for arikayce in japan , and other general and administrative activities . in the second quarter of 2020 , we completed an underwritten public offering of 11,155,000 shares of our common stock , including 1,455,000 shares issued pursuant to the exercise in full of the underwriters ' option to purchase additional shares , a t a public offering price of $ 23.25 per share . our net proceeds from the sale of the shares , after deducting the underwriting discounts and commissions and other offering expenses of $ 13.5 million , were $ 245.9 million . in the second quarter of 2019 , we comple ted an underwritten public offering of 10,657,692 shares of common stock , including 1,042,307 shares issued pursuant to the exercise in full of the underwriters ' option to purchase additional shares at a public offering price of $ 26.00. our net proceeds from the sale of the shares , after deducting underwriting discounts and commissions and other offering expenses of $ 16.0 million , were $ 261.1 million . the offering also included the sale of 400,000 shares from our chair and chief executive officer , from which we received no proceed s. in january 2018 , we completed an underwritten public offering of $ 450.0 million aggregate principal amount of convertible notes , including the exercise in full of the underwriter 's option to purchase additional convertible notes . our net proceeds from the offering , after deducting underwriting discounts and commissions and other offering expenses of $ 14.2 million , were $ 435.8 million . we may need to raise additional capital to fund our operations , including continued commercialization of arikayce and future clinical trials related to arikayce , to design and conduct ongoing and future clinical trials for brensocatib and tpip , and to develop , acquire , in-license or co-promote other products or product candidates , including those that address orphan or rare diseases . we believe we currently have sufficient funds to meet our financial needs for at least the next 12 months . we expect to opportunistically raise additional capital and may do so through equity or debt financing ( s ) , strategic transactions or otherwise . we expect such additional funding , if any , would be used to continue to commercialize arikayce , to conduct further trials of arikayce , to develop brensocatib , tpip and our other product candidates , or to pursue the license 64 or purchase of other technologies or products and product candidates . during 2021 , we plan to continue to support the commercialization of arikayce in the us and europe , to continue to fund further clinical development of arikayce , brensocatib and tpip , and to fund our global expansion efforts to support commercial launch activities in additional countries in europe and pre-commercial activities in japan including obtaining regulatory approvals for arikayce in japan . our cash requirements for the next 12 months will be impacted by a number of factors , the most significant of which we expect to be expenses related to our commercialization efforts and our arise and encore clinical trials for arikayce , expenses related to the aspen trial and other development activities for brensocatib , and to a lesser extent , expenses related to the clinical development of tpip . cash flows as of december 31 , 2020 , we had cash and cash equivalents of $ 532.8 million , as compared with $ 487.4 million as of december 31 , 2019. the $ 45.3 million increase was due to cash received from the underwritten public offering of our common stock in the second quarter of 2020 , partially offset by cash used in operating activities and , to a lesser extent , cash used in investing activities . our working capital was $ 504.1 million as of december 31 , 2020 as compared with $ 470.0 million as of december 31 , 2019. net cash used in operating activities was $ 219.3 million and $ 250.6 million for the years ended december 31 , 2020 and 2019 , respectively .
| results of operations covid-19 update we are committed to the safety and well-being of our workforce . in march 2020 , we implemented a number of corporate initiatives in response to the novel coronavirus ( sars-cov-2 ) global pandemic which manifests as covid-19 . these initiatives included a remote working policy for all employees in order to aid the global containment effort and allow infectious disease specialists and pulmonologists to focus exclusively on treating patients and containing the virus . the policy included all of the field-based therapeutic specialists and employees who support arikayce prescribers . beginning on june 1 , 2020 , certain of our field-based employees who support arikayce prescribers were permitted to return to the field . to date , access to prescribers has been limited with significant regional variability . our arikares ยฎ trainers are continuing to offer remote training for patients who initiate treatment with arikayce . while we continue to see use of arikayce , including new patient adds and continued prescription renewals , there remains a general uncertainty regarding the impact of covid-19 on the arikayce patient population and physicians . patients suffering from refractory ntm lung disease are typically older individuals with underlying lung conditions , and are often treated by infectious disease specialists and pulmonologists . these treating physicians are on the front lines in addressing this global pandemic and must now , understandably , focus their attention on covid-19 . there are many uncertainties regarding the covid-19 pandemic , and we are closely monitoring the impact of the pandemic on all aspects of our business , including how it will impact our patients , employees , suppliers , vendors , business partners and distribution channels . while the pandemic did not materially affect our financial results and business operations through the year ended december 31 , 2020 , we are unable to predict the impact that covid-19 will have on our financial position and operating results in future periods due to numerous uncertainties .
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spire missouri , spire alabama and spire energysouth inc. ( โ spire energysouth โ ) are wholly owned subsidiaries of the company . spire missouri , spire alabama and the subsidiaries of spire energysouth inc. are collectively referred to as the โ utilities โ . the subsidiaries of spire energysouth are spire gulf inc. ( โ spire gulf โ ) and spire mississippi inc. ( โ spire mississippi โ ) . this section includes management 's view of factors that affect the respective businesses of the company , spire missouri and spire alabama , explanations of financial results including changes in earnings and costs from the prior periods , and the effects of such factors on the company 's , spire missouri 's and spire alabama 's overall financial condition and liquidity . unless otherwise indicated , references to years herein are references to the fiscal years ending september 30 for the company and its subsidiaries . reference is made to โ item 1a . risk factors โ and โ forward-looking statements , โ which describe important factors that could cause actual results to differ from expectations and non-historical information contained herein . in addition , the following discussion should be read in conjunction with the audited financial statements and accompanying notes thereto of spire , spire missouri and spire alabama included in โ item 8. financial statements and supplementary data. โ overview the company has two key business segments : gas utility and gas marketing . spire 's earnings are primarily derived from its gas utility segment , which reflects the regulated activities of the utilities . due to the seasonal nature of the utilities ' business , earnings of spire , spire missouri and spire alabama are typically concentrated during the heating season of november through april each fiscal year . gas utility - spire missouri spire missouri is missouri 's largest natural gas distribution utility and is regulated by the missouri public service commission ( โ mopsc โ ) . spire missouri serves st. louis and eastern missouri through spire missouri east and serves kansas city and western missouri through spire missouri west . spire missouri delivers natural gas to customers at rates and in accordance with tariffs authorized by the mopsc . the earnings of spire missouri are primarily generated by the sale of heating energy . the rate design for each service territory serves to lessen the impact of weather volatility on its customers during cold winters and stabilize spire missouri 's earnings . gas utility - spire alabama spire alabama is the largest natural gas distribution utility in the state of alabama . spire alabama 's service territory is located in central and northern alabama . among the cities served by spire alabama are birmingham , the center of the largest metropolitan area in the state , and montgomery , the state capital . spire alabama is regulated by the alabama public service commission ( โ apsc โ ) . spire alabama purchases natural gas through interstate and intrastate suppliers and distributes the purchased gas through its distribution facilities for sale to residential , commercial and industrial customers and other end-users of natural gas . spire alabama also provides transportation services to large industrial and commercial customers located on its distribution system . these transportation customers , using spire alabama as their agent or acting on their own , purchase gas directly from marketers or suppliers and arrange for delivery of the gas into the spire alabama distribution system . spire alabama charges a fee to transport such customer-owned gas through its distribution system to the customers ' facilities . gas utility - spire energysouth spire gulf and spire mississippi are utilities engaged in the purchase , retail distribution and sale of natural gas to 0.1 million customers in southern alabama and south-central mississippi . spire gulf is regulated by the apsc and spire mississippi is regulated by the mississippi public service commission ( โ mspsc โ ) . 26 gas marketing spire marketing inc. ( โ spire marketing โ ) is engaged in the marketing of natural gas and related activities on a non-regulated basis and is reported in the gas marketing segment . spire marketing markets natural gas across the country with the core of its footprint located in and around the central united states ( โ u.s. โ ) . it holds firm transportation and storage contracts in order to effectively manage its customer base , which consists of producers , pipelines , power generators , storage operators , municipalities , utility companies , and large commercial and industrial customers . other other components of the company 's consolidated information include : unallocated corporate items , including certain debt and associated interest costs ; spire stl pipeline , a subsidiary of spire planning the construction and operation of a 65-mile ferc-regulated pipeline to deliver natural gas into eastern missouri ; spire storage , providing physical natural gas storage services ; and spire 's subsidiaries engaged in the operation of a propane pipeline , compression of natural gas , and risk management , among other activities . business evaluation factors based on the nature of the business of the company and its subsidiaries , as well as current economic conditions , management focuses on the following key variables in evaluating the financial condition and results of operations and managing the business . story_separator_special_tag spire marketing is committed to managing commodity price risk while it seeks to expand the services that it now provides . nevertheless , income from the gas marketing operations is subject to more fluctuations in market conditions than the utilities ' operations . the gas marketing business is directly impacted by the effects of competition in the marketplace , the impacts of new infrastructure , surplus natural gas supplies , and the addition of new demand from exports , power generation and industrial load . spire marketing 's management expects a growing need for marketing services across the country as customers manage seasonal variability and marketplace volatility . in addition to its operating cash flows , spire marketing relies on spire 's parental guaranties to secure its purchase and sales obligations of natural gas , and it also has access to spire 's liquidity resources . a large portion of spire marketing 's receivables are from customers in the energy industry . it also enters into netting arrangements with many of its energy counterparties to reduce overall credit and collateral exposure . although spire marketing 's uncollectible amounts are closely monitored and have not been significant , increases in uncollectible amounts from customers are possible and could adversely affect gas marketing 's liquidity and results of operations . 28 spire marketing carefully monitors the creditworthiness of counterparties to its transactions . it performs in-house credit reviews of potential customers and may require credit assurances such as prepayments , letters of credit or parental guaranties when appropriate . credit limits for customers are established and monitored . as a result of infrastructure optimization activities and an abundance of natural gas supply , spire marketing can not be certain that all of its wholesale purchase and sale transactions will settle physically . as such , certain transactions are designated as trading activities for financial reporting purposes , due to their settlement characteristics . results of operations from trading activities are reported on a net basis in gas marketing operating revenues ( or expenses , if negative ) , which may cause volatility in the company 's operating revenues , but have no effect on operating income or net income . in the course of its business , spire marketing enters into commitments associated with the purchase or sale of natural gas . in accordance with u.s. generally accepted accounting principles ( โ gaap โ ) , some of its purchase and sale transactions are not recognized in earnings until the natural gas is physically delivered , while other energy-related transactions , including those designated as trading activities , are required to be accounted for as derivatives , with the changes in their fair value ( representing unrealized gains or losses ) recorded in earnings in periods prior to settlement . because related transactions of a purchase and sale strategy may be accounted for differently , there may be timing differences in the recognition of earnings under gaap and economic earnings realized upon settlement . the company reports both gaap and net economic earnings ( non-gaap ) , as discussed below . non-gaap measures net income , earnings per share and operating income reported by spire , spire missouri and spire alabama are determined in accordance with gaap . spire , spire missouri and spire alabama also provide the non-gaap financial measures of net economic earnings , net economic earnings per share and contribution margin . management and the board of directors use non-gaap financial measures , in addition to gaap financial measures , to understand and compare operating results across accounting periods , for financial and operational decision making , for planning and forecasting , to determine incentive compensation and to evaluate financial performance . these non-gaap operating metrics should not be considered as alternatives to , or more meaningful than , the related gaap measures . reconciliations of non-gaap financial measures to the most directly comparable gaap measures are provided on the following pages . net economic earnings and net economic earnings per share net economic earnings and net economic earnings per share are non-gaap measures that exclude from net income the impacts of fair value accounting and timing adjustments associated with energy-related transactions , the impacts of acquisition , divestiture and restructuring activities , and the largely non-cash impacts of other non-recurring or unusual items such as certain regulatory , legislative or gaap standard-setting actions . in fiscal 2018 , these items include the revaluation of deferred tax assets and liabilities due to the tax cuts and jobs act and the write-off of certain long-standing assets as a result of disallowances in our missouri rate proceedings . in addition , net economic earnings per share excludes the impact , in the fiscal year of issuance , of shares issued to finance acquisitions that have yet to be included in net economic earnings . the fair value and timing adjustments are made in instances where the accounting treatment differs from what management considers the economic substance of the underlying transaction , including the following : net unrealized gains and losses on energy-related derivatives that are required by gaap fair value accounting associated with current changes in the fair value of financial and physical transactions prior to their completion and settlement . these unrealized gains and losses result primarily from two sources : 1 ) changes in the fair values of physical and or financial derivatives prior to the period of settlement ; and 2 ) ineffective portions of accounting hedges , required to be recorded in earnings prior to settlement , due to differences in commodity price changes between the locations of the forecasted physical purchase or sale transactions and the locations of the underlying hedge instruments ; lower of cost or market adjustments to the carrying value of commodity inventories resulting when the market price of the commodity falls below its original cost , to the extent that those commodities are economically hedged ; and realized gains and losses resulting from the settlement of economic hedges prior to the sale of the physical commodity .
| summary operating results replace_table_token_11_th operating revenues during the year ended september 30 , 2018 increased $ 113.7 from the same period last year . revenues were impacted primarily by higher gas costs of $ 83.7 passed on to customers , a $ 61.1 increase due to weather and volumetric impacts , higher gross receipts taxes of $ 8.9 , higher isrs charges of $ 5.2 , and customer growth of $ 2.6. these positive impacts on the revenue growth were partly offset by a $ 28.3 reduction in off-system sales and a $ 20.6 reduction due to the implementation of the two missouri rate cases that were resolved in march 2018. contribution margin for the year ended september 30 , 2018 increased $ 6.3 from the prior year . higher volumetric/weather impacts and isrs charges of $ 17.0 and $ 5.2 , respectively , combined with customer growth impacts of $ 2.6 , were partly offset by a $ 20.6 reduction due to two missouri rate cases ( as noted above ) . o & m for the year ended september 30 , 2018 were $ 52.5 higher than the prior year . of this increase , $ 36.6 was due to disallowed recoveries resulting from the mopsc rulings in the rate cases completed in march 2018 , and $ 7.0 was primarily related to an increase in the amount of amortization for pension and postretirement costs resulting from those rate cases . excluding these rate case impacts , o & m increased $ 8.9 , attributable to the colder weather , with higher employee-related costs and bad debt expense in the current year . depreciation and amortization increased $ 9.7 , reflecting continued infrastructure investments throughout missouri .
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these statements appear in a number of places in this discussion and analysis and include statements regarding the intent , belief or current expectations of the company , its directors or its officers with respect to , among other things , trends affecting the company 's financial condition or results of operations and the outcome of contingencies such as litigation and investigations . readers are cautioned that any forward-looking statements are not guarantees of future performance and involve risks and uncertainties . more information regarding these risks , uncertainties and other important factors that could cause actual results to differ materially from those in the forward-looking statements is set forth under the heading ยrisk factorsย in item 1a of this annual report on form 10-k ( the ยannual reportย ) . the company does not ordinarily make projections of its future operating results and undertakes no obligation ( and expressly disclaims any obligation ) to publicly update or revise any forward-looking statements , whether as a result of new information , future events or otherwise , except as required by law . readers should carefully review this document and the other documents filed by the company with the securities and exchange commission ( the ยsecย ) . this section should be read together with the consolidated financial statements of news corporation and related notes set forth elsewhere in this annual report . introduction news corporation ( together with its subsidiaries , ยnews corporation , ย ยnews corp , ย the ยcompany , ย ยwe , ย or ยusย ) is a global diversified media and information services company comprised of businesses across a range of media , including : news and information services , book publishing , digital real estate services , cable network programming in australia and pay-tv distribution in australia . during the first quarter of fiscal 2016 , management approved a plan to dispose of the company 's digital education business . as a result of the plan and the discontinuation of further significant business activities in the digital education segment , the assets and liabilities of this segment were classified as held for sale and the results of operations have been classified as discontinued operations for all periods presented . unless indicated otherwise , the information in the notes to the consolidated financial statements relates to the company 's continuing operations . ( see note 4 to the consolidated financial statements ) . the consolidated financial statements are referred to herein as the ยconsolidated financial statements.ย the consolidated statements of operations are referred to herein as the ยstatements of operations.ย the consolidated balance sheets are referred to herein as the ยbalance sheets.ย the consolidated statements of cash flows are referred to herein as the ยstatements of cash flows.ย the consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the united states of america ( ยgaapย ) . management 's discussion and analysis of financial condition and results of operations is intended to help provide an understanding of the company 's financial condition , changes in financial condition and results of operations . this discussion is organized as follows : overview of the company 's business ยthis section provides a general description of the company 's businesses , as well as developments that occurred during fiscal 2016 , fiscal 2015 and fiscal 2014 that the company believes are important in understanding its results of operations and financial condition or to disclose known trends . story_separator_special_tag `` > channels distributed via cable , satellite and ip , several interactive viewing applications and broadcast rights to live sporting events in australia including : national rugby league , the domestic football league , international cricket and australian rugby union . other ยthe other segment consists primarily of general corporate overhead expenses , the corporate strategy and creative group and costs related to the u.k. newspaper matters ( as defined in ยitem 1a . risk factorsย ) . the company 's corporate strategy and creative group was formed to identify new products and services across its businesses to increase revenues and profitability and to target and assess potential acquisitions and investments . news and information services revenue at the news and information services segment is derived from the sale of advertising , circulation and subscriptions , as well as licensing . adverse changes in general market conditions for advertising continue to affect revenues . advertising revenues at the news and information services segment are also subject to seasonality , with revenues typically being highest in the company 's second fiscal quarter due to the end-of-year holiday season in its main operating geographies . circulation and subscription revenues can be greatly affected by changes in the prices of the company 's and or competitors ' products , as well as by promotional activities . operating expenses include costs related to paper , production , distribution , third party printing , editorial and commissions . selling , general and administrative expenses include promotional expenses , salaries , employee benefits , rent and other routine overhead . the news and information services segment 's advertising volume , circulation and the price of paper are the key variables whose fluctuations can have a material effect on the company 's operating results and cash flow . the company has to anticipate the level of advertising volume , circulation and paper prices in managing its businesses to maximize operating profit during expanding and contracting economic cycles . the company continues to be exposed to risks associated with paper used for printing . paper is a basic commodity and its price is sensitive to the balance of supply and demand . the company 's expenses are affected by the cyclical increases and decreases in the price of paper . the news and information services segment 's products compete for readership and advertising with local and national competitors and also compete with other media alternatives in their respective markets . competition for circulation and subscriptions is based on the content of the products provided , pricing and , from time to time , various promotions . story_separator_special_tag the proposed acquisition is expected to broaden the company 's range of services in the u.k. , ireland and internationally . the offer is subject to customary closing conditions , including shareholder acceptances and regulatory approval , as well as the other terms set forth in the company 's offer document . as a result of u.k. takeover regulations requiring the company to demonstrate that necessary financial resources are available to enable full satisfaction of the consideration payable in the offer , the company has specifically set aside $ 315 million of cash for the offer and has classified it as restricted cash in the balance sheet as of june 30 , 2016. in june 2016 , the company entered into an agreement to purchase australian regional media ( ยarmย ) from apn news and media limited ( ยapnย ) for approximately $ 30 million . arm operates a portfolio of regional print assets and websites and extends the reach of the australian newspaper business to new customers in new geographic regions . the acquisition is subject to regulatory and apn shareholder approval . in may 2016 , rea group acquired flatmates.com.au pty ltd ( ยflatmatesย ) for $ 19 million in cash at closing and up to $ 15 million in future cash consideration related to payments contingent upon the achievement of certain performance objectives . flatmates operates the flatmates.com.au website , which is a market leading share accommodation site in australia . the acquisition enhances rea group 's australian product offering by extending its reach into the quickly growing share accommodation business . flatmates is a subsidiary of rea group , and its results are included within the digital real estate services segment . in february 2016 , the company acquired a 92 % interest in diakrit international limited ( ยdiakritย ) for approximately $ 40 million in cash . the company has the option to purchase , and the minority shareholders also have the option to sell to the company , the remaining 8 % in two tranches over the next six years at fair value . diakrit is a digital visualization solutions company that helps homeowners see the potential in their future living environment with digital visualization solutions that enable them to plan , furnish and decorate their dream home , while also helping agents and developers generate more buyer inquiries and accelerate their property sale processes . diakrit 's results are included within the digital real estate services segment , and it is considered a separate reporting unit for purposes of the company 's annual goodwill impairment review . in february 2016 , rea group increased its investment in iproperty group limited ( ยipropertyย ) from 22.7 % to approximately 86.9 % for a $ 482 million in cash ( approximately $ 340 million ) . the remaining 13.1 % not currently owned will become mandatorily redeemable during fiscal 2018 , and as a result , the company recognized a liability of approximately $ 76 million . the acquisition was funded primarily with the proceeds from borrowings under an unsecured syndicated revolving loan facility ( the ยrea facilityย ) . ( see note 9 to the consolidated financial statements ) . the acquisition of iproperty extends rea group 's market leading business in australia to attractive markets throughout southeast asia . iproperty is a subsidiary of rea group , and its results are included within the digital real estate services segment . during the fiscal year ended june 30 , 2016 , rea group recognized a gain of $ 29 million related to the revaluation of its previously held equity interest in iproperty in other , net in the statements of operations . 42 the total fair value of iproperty at the acquisition date is set forth below ( in millions ) : cash paid for iproperty equity $ 340 deferred consideration 76 total consideration 416 fair value of previously held iproperty investment 120 total fair value $ 536 on september 30 , 2015 , the company acquired unruly holdings limited ( ยunrulyย ) for approximately ยฃ60 million ( approximately $ 90 million ) in cash and up to ยฃ56 million ( approximately $ 86 million ) in future cash consideration related to payments primarily contingent upon the achievement of certain performance objectives . unruly is a leading global video distribution platform that is focused on delivering branded video advertising across websites and mobile devices . unruly 's results of operations are included within the news and information services segment , and it is considered a separate reporting unit for purposes of the company 's annual goodwill impairment review in july 2015 , the company acquired checkout 51 mobile apps ulc ( ยcheckout 51ย ) for approximately $ 13 million in cash at closing and approximately $ 10 million in deferred cash consideration which was paid during fiscal 2016. checkout 51 is a data-driven digital coupon company that provides news america marketing with a leading receipt recognition mobile app which enables packaged goods companies and brands to reach consumers with highly personalized marketing campaigns . checkout 51 's results are included within the news and information services segment . during fiscal 2015 , the company purchased a 14.99 % interest in apn for approximately $ 112 million . during fiscal 2016 , the company participated in an entitlement offer to maintain its 14.99 % interest for $ 20 million . apn operates a portfolio of australian radio and outdoor media assets . in november 2014 , the company completed its acquisition of move , a leading provider of online real estate services . the acquisition expanded the company 's digital real estate services business into the u.s. , one of the largest real estate markets . the aggregate cash payment at closing to acquire the outstanding shares of move was approximately $ 864 million , which was funded with cash on hand . the company also assumed equity-based compensation awards with a fair value of $ 67 million , of which $ 28 million was allocated to pre-combination services and included in total consideration transferred for move .
| results of operations ยthis section provides an analysis of the company 's results of operations for the three fiscal years ended june 30 , 2016 , respectively . this analysis is presented on a consolidated basis 38 and a segment basis . in addition , a brief description is provided of significant transactions and events that impact the comparability of the results being analyzed . the company 's fiscal year ends on the sunday closest to june 30. fiscal 2016 , fiscal 2015 and fiscal 2014 include 53 , 52 and 52 weeks , respectively . as a result , the company has referenced the impact of the 53rd week , where applicable , when providing analysis of the results of operations . liquidity and capital resources ยthis section provides an analysis of the company 's cash flows for the three fiscal years ended june 30 , 2016 , respectively , as well as a discussion of the company 's financial arrangements and outstanding commitments , both firm and contingent , that existed as of june 30 , 2016. critical accounting policies ยthis section discusses accounting policies considered important to the company 's financial condition and results of operations , and which require significant judgment and estimates on the part of management in application . in addition , note 2 to the consolidated financial statements summarizes the company 's significant accounting policies , including the critical accounting policy discussion found in this section . overview of the company 's businesses the company manages and reports its businesses in the following five segments : news and information services ยthe news and information services segment includes the global print and digital product offerings of the wall street journal and the dow jones media group , which includes barron 's and marketwatch , as well as the company 's suite of professional information products , including factiva , dow jones risk & compliance , dow jones newswires , dow jones pevc and djx .
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the company seeks to manage these risks by following established risk management policies and procedures including the use of derivatives to hedge interest rate risk on debt story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this annual report on form 10-k. overview we are a maryland corporation formed on july 27 , 2017 to invest in commercial real estate assets . we are externally managed by oaktree fund advisors , llc , a subsidiary of oaktree capital management , l.p. we have registered with the sec an offering of up to $ 2.0 billion in shares of common stock ( in any combination of purchases of class s , class t , class d and class i shares of our common stock ) . we also engage in private offerings of our shares . the share classes have different upfront selling commissions and ongoing stockholder servicing fees . we qualified as a reit for u.s. federal income tax purposes beginning with our taxable year ending december 31 , 2019. as of december 31 , 2020 , we own and operate four investments in real estate , and hold two investments in real estate-related loans and ten short-term real estate debt-related securities . we are not aware of any material trends or uncertainties , favorable or unfavorable , other than national economic conditions affecting real estate generally ( including covid-19 ) , that may be reasonably anticipated to have a material impact on either capital resources or the revenues or income to be derived from acquiring properties or real estate-related loans . covid-19 the ongoing covid-19 pandemic continues to adversely impact global commercial activity and has contributed to significant uncertainty and volatility in financial markets . the global impact of the outbreak has been rapidly evolving , and has spread around the world with many countries and other jurisdictions instituting quarantines , shelter in place orders , restrictions on travel , and limiting operations of non-essential businesses in an effort to reduce the spread of infection . among other effects , these actions have created a disruption in global supply chains , a reduction in purchases by consumers , significantly increased unemployment , a demand shock in oil prices and have adversely impacted a number of industries directly , such as transportation , hospitality and entertainment as well as economic stimulus and other government intervention . the outbreak is expected to have a continued adverse impact on economic and market conditions and has triggered a period of global economic slowdown with no known duration . the rapid development and fluidity of this situation is without precedent in modern history and the ultimate adverse impact of the novel coronavirus at this time is unknown . nevertheless , the covid-19 pandemic presents material uncertainty and risk with respect to the company 's performance and financial results , such as negative impact to occupancy , rent collections , results of operations or market values of its properties , increased costs of operations , increased risk of defaults in its portfolio of real estate debt investments , decreased availability of financing arrangements , changes in law and or regulation , and uncertainty regarding government and regulatory policy . we are unable to estimate the impact the novel coronavirus will have on our financial results at this time . covid-19 has resulted in rent deferrals or collection issues for our properties and could also result in rent defaults and adversely affect our ability to obtain financing for future investments on attractive terms , either of which would negatively impact our results of operations , cash flows and liquidity . the economic effects of covid-19 have not yet had a material negative impact on our net asset value , but could result in future write-downs of the fair value of our real properties or real estate-related debt investments , which would negatively impact our net asset value . the company is closely monitoring the impact of the covid-19 pandemic on all aspects of its business and across its portfolio , including how it will impact its tenants . while the company did not experience significant disruptions during the year ended december 31 , 2020 from the covid-19 pandemic , it is unable to predict the impact the covid-19 pandemic will have on its financial condition , results of operations and cash flows due to numerous uncertainties . the company received certain rent relief requests , predominately in the form of rent deferral requests , as a result of covid-19 . the company is carefully evaluating each tenant rent relief request on an individual basis , considering a number of factors . not all tenant requests will ultimately result in modification agreements , and ( to the extent practical ) the company is not foregoing its contractual rights under its lease agreements . current collections and rent relief requests to-date may not be indicative of collections or requests in any future period . as of december 31 , 2020 , we had agreed to rent abatement arrangements with respect to approximately 2 % of the aggregate rents we are entitled to receive . we will continue to work closely with our impacted tenants to address their concerns on a case-by-case basis , seeking solutions that address immediate cash flow interruptions while maintaining long term lease obligations . the impact of the covid-19 pandemic on our rental revenue in 70 future quarters can not be determined at present . the situation surrounding the covid-19 pandemic remains fluid , and we are actively managing our response in collaboration with tenants , government officials and business partners and assessing potential impacts to our financial position and operating results , as well as potential adverse developments in our business . for the years ended december 31 , 2020 and 2019 , the company recorded $ 0.8 million and $ 0 bad debt expense , respectively . story_separator_special_tag style= '' bottom:0 ; position : absolute ; width:100 % '' > 74 reimbursements and $ 1.2 million of ancillary income and fees . story_separator_special_tag our offering and operating fees and expenses include , among other things , the management fee we will pay to the adviser , stockholder servicing fees we will pay to the dealer manager , legal , audit and valuation expenses , federal and state securities filing fees , printing expenses , transfer agent fees , marketing and distribution expenses and fees related to acquiring , financing , appraising and managing our properties . we do not have any office or personnel expenses as we do not have any employees . as of december 31 , 2020 and 2019 , the adviser and its affiliates had incurred approximately $ 5.7 million and $ 5.2 million , respectively , of organization and offering expenses on our behalf , which were reimbursable only if we broke escrow for our offering . on december 6 , 2019 , the date on which we broke escrow for our offering , the company accrued approximately $ 0.9 million of organization expenses and $ 4.3 million of offering expenses payable to the adviser , which will be reimbursed ratably over the 60 months following july 6 , 2022. prior to an amendment in 2020 , the organization and offering costs would have been reimbursed ratably over 60 months following the one year anniversary of our escrow break on december 6 , 2020. organizational expenses are expensed as incurred and offering expenses are reflected as a reduction of additional paid-in capital as such amounts will be reimbursed to the adviser or its affiliates from the gross proceeds of the offering . any amount due to the adviser but not paid will be recognized as a liability on the balance sheet . our cash needs for acquisitions and other investments will be funded primarily from the sale of shares of our common stock and through the assumption or incurrence of debt . the economic effects of covid-19 may make it more difficult for us to obtain financing for our investments on attractive terms or at all . on june 5 , 2020 , the company entered into the credit agreement with oaktree fund gp i , l.p. , ( the `` lender '' ) , providing for a discretionary , unsecured , uncommitted credit facility in a maximum aggregate principal amount of $ 125.0 million , which was undrawn as of december 31 , 2020. the credit agreement expires on june 30 , 2021 , subject to one-year extension options requiring lender approval . borrowings under the credit agreement will bear interest at a rate of the then-current rate offered by a third-party lender , or , if no such rate is available , libor plus 2.25 % . as of december 31 , 2020 , our indebtedness consisted of our mortgage loans secured by our real property investments . 76 the following table summarizes the company 's mortgage loans : replace_table_token_16_th ( 1 ) the term `` l '' refers to the one-month us dollar-denominated libor . as of december 31 , 2020 and 2019 , one-month libor was equal to 0.14 % and 1.76 % , respectively . ( 2 ) the mortgage loans are subject to customary terms and conditions , and the respective joint venture was in compliance with all financial covenants it is subject to under the mortgage loan as of december 31 , 2020 . ( 3 ) the term `` sofr '' refers to the one-month secured overnight financing rate . as of december 31 , 2020 , the one-month sofr was equal to 0.08 % . cash flows the following table provides a breakdown of the net change in our cash and cash equivalents and restricted cash : replace_table_token_17_th cash flows provided by operating activities for the year ended december 31 , 2020 related primarily to cash payments and receipts associated with operations at our five property investments , two real estate-related loans and ten commercial mortgage backed securities . cash flows used in operating activities for the year ended december 31 , 2019 related to cash payments and receipts associated with operations at three property investments and two real estate-related loan investments . our cash flows provided by operating activities have been negatively impacted by covid-19 , as our rent collections have decreased slightly and we have entered into certain rent deferral arrangements . the rent deferrals are expected to result in increased cash flows provided by operating activities in future periods when deferred rent is collected . cash flows used in investing activities for the year ended december 31 , 2020 related to the acquisition of two property investments , acquisitions of ten commercial mortgage backed securities and building improvements to our real estate , partially offset by cash flows provided by selling four commercial mortgage backed security investments . cash flows used in investing activities for the year ended december 31 , 2019 related to our acquisition of three property investments and two real estate-related loan investments and building improvements to our real estate . cash flows provided by financing activities for the year ended december 31 , 2020 related to proceeds from issuance of common stock , issuance of two mortgage loans and contributions from non-controlling interests offset by repurchases of common stock and distributions paid . cash flows provided by financing activities for the year ended december 31 , 2019 related primarily to borrowings on three mortgage loans for our asset acquisitions , proceeds from our affiliate line of credit and contributions from non-controlling interests . 77 critical accounting policies below is a discussion of the accounting policies that management believes are critical to our operations . we consider these policies critical because they involve significant judgments and assumptions and require estimates about matters that are inherently uncertain and because they are important for understanding and evaluating our reported financial results . our accounting policies have been established to conform with gaap . the preparation of the financial statements in accordance with gaap requires management to use judgments in the application of such policies .
| 2020 highlights operating and capital raising results : total return without upfront selling commissions of 7.8 % for class s , and 10.0 % for class i. total return assuming maximum upfront selling commissions of 4.2 % for class s. raised $ 54.4 million of net proceeds from our offering . issued 7,878,738 shares of common stock consisting of 7,040,895 class s and 837,843 class i shares . reinvested dividends of $ 2.2 million . declared gross distributions of $ 0.4323 per share for the year ended december 31 , 2020. investments : in february 2020 , we acquired the lakes , a four story , two building office complex located in west covina , california for $ 41.0 million in december 2020 , we acquired arbors , a multifamily asset located in dallas , texas for $ 64.1 million invested $ 33.3 million into floating-rate commercial mortgage backed securities , which were collateralized by pools of commercial real estate debt . sold $ 11.6 million of floating-rate commercial mortgage backed securities and recognized a $ 0.1 million gain as a result of the sale . financings : closed an aggregate $ 71.2 million in property-level financing related to our real estate investment acquisitions entered into a line of credit agreement ( the โ credit agreement โ ) with oaktree fund gp i , l.p. ( โ lender โ ) , an affiliate of the company 's sponsor , oaktree , providing for a discretionary , unsecured , uncommitted credit facility in a maximum aggregate principal amount of $ 125 million . portfolio real estate the following table provides information regarding our portfolio of real properties as of december 31 , 2020 : replace_table_token_11_th ( 1 ) certain of the joint venture agreements entered into by the company provide the seller or the other partner a profits interest based on certain internal rate of return hurdles being achieved . such investments are consolidated by us and any profits interest due to the other partner is reported within non-controlling interests .
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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 2012 year ka steel acquisition on august 22 , 2012 , we acquired 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 . the purchase price is still subject to certain post-closing adjustments related to a contingent liability . 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 manufacturers and sells bleach in the midwest . as part of the acquisition , we expensed $ 8.3 million of acquisition costs during 2012. for segment reporting purposes , ka steel comprises the newly created chemical distribution segment . our results for the year ended december 31 , 2012 include ka steel sales of $ 156.3 million and $ 4.5 million of segment income , which includes depreciation and amortization expense of $ 5.5 million , primarily associated with the acquisition fair valuing of ka steel . as a result of acquiring ka steel , we anticipate realizing approximately $ 35 million of annual synergies at the end of three years . 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 chlor alkali products 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 . 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 will be paid semi-annually beginning on february 15 , 2013. 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 . on april 27 , 2012 , we entered into a new $ 265 million five-year senior revolving credit facility , which replaced the $ 240 million senior revolving credit facility and a $ 25 million letter of credit facility . the new credit facility will expire in april 2017. borrowing options and restrictive covenants are similar to those of our previous $ 240 million senior revolving credit facility . the $ 265 million senior revolving credit facility includes a $ 110 million letter of credit subfacility and a $ 50 million canadian subfacility . 22 restructurings on december 9 , 2010 , our board of directors approved a plan to eliminate our use of mercury in the manufacture of chlor alkali products . under the plan , the 260,000 tons of mercury cell capacity at our charleston , tn facility will be converted to 200,000 tons of membrane capacity capable of producing both potassium hydroxide and caustic soda . the board of directors also approved a plan to reconfigure our augusta , ga facility to manufacture bleach and distribute caustic soda , while discontinuing chlor alkali manufacturing at this site . we based our decision to convert and reconfigure on several factors . first , during 2009 and 2010 we had experienced a steady increase in the number of customers unwilling to accept our products manufactured using mercury cell technology . second , there was federal legislation passed in 2008 governing the treatment of mercury that significantly limits our recycling options after december 31 , 2012. we concluded that exiting mercury cell technology production after 2012 represented an unacceptable future cost risk . further , the conversion of the charleston , tn plant to membrane technology will reduce the electricity usage per ecu produced by approximately 25 % . the decision to reconfigure the augusta , ga facility to manufacture bleach and distribute caustic soda removes the highest cost production capacity from our system . mercury cell chlor alkali production at the augusta , ga facility was discontinued at the end of september , 2012 and the conversion at charleston , tn was completed in the second half of 2012 with the successful start-up of two new membrane cell lines . these actions reduced chlor alkali capacity by 160,000 tons . the completion of these projects eliminates our chlor alkali production using mercury cell technology . story_separator_special_tag capital spending of $ 255.7 million for 2012 included $ 108.1 million for the conversion of our charleston , tn facility from mercury cell technology to membrane technology , $ 58.6 million for the construction of low salt , high strength bleach facilities at our mcintosh , al ; henderson , nv ; and niagara falls , ny chlor alkali sites and $ 16.1 million for our ongoing relocation of our winchester centerfire ammunition manufacturing operations . the conversion of our charleston , tn facility was completed in the second half of 2012 with the successful start-up of two new membrane cell lines and we also completed low salt , high strength bleach facilities at mcintosh , al and niagara falls , ny in the first and third quarters of 2012 , respectively . 2011 year sunbelt acquisition on february 28 , 2011 , we acquired polyone 's 50 % interest in sunbelt for $ 132.3 million in cash plus the assumption of a polyone guarantee related to the sunbelt notes . with this acquisition , olin now owns 100 % of sunbelt . the sunbelt chlor alkali plant , which is located within our mcintosh , al facility , has approximately 350,000 tons of membrane technology capacity . we also agreed to a three year earn out , which has no guaranteed minimum or maximum , based on the performance of sunbelt . in conjunction with the acquisition , we consolidated the sunbelt notes with a fair value of $ 87.3 million for the remaining principal balance of $ 85.3 million as of february 28 , 2011. during 2011 , our consolidated results included $ 170.5 million of sunbelt sales and $ 27.2 million of additional sunbelt pretax income ( $ 38.7 million included in chlor alkali products segment income ; less $ 0.8 million of acquisition costs , $ 4.0 million of interest expense and $ 6.7 million of expense for our earn out liability ) on the 50 % interest we acquired . finally , the 2011 results included a one-time pretax , non-cash gain of $ 181.4 million associated with the remeasurement of our previously held 50 % equity interest in sunbelt . in conjunction with this remeasurement , a discrete deferred tax expense of $ 76.0 million was recorded . other highlights in 2011 , chlor alkali products ' segment income was $ 245.0 million , which more than doubled compared with 2010. chlor alkali products ' segment income included $ 38.7 million of additional income from the acquisition of the remaining 50 % interest in sunbelt . chlor alkali products also realized improved product prices for 2011 compared to 2010. operating rates in chlor alkali products for 2011 and 2010 were 80 % and 82 % , respectively . the combination of planned multi-month outages by two chlorine customers and a weakening of chlorine demand negatively impacted shipment volumes in 2011 . 24 our 2011 ecu netbacks of approximately $ 570 were 20 % higher than the 2010 netbacks of approximately $ 475. in the first quarter of 2011 , three caustic soda price increases were announced totaling $ 150 per ton . in march 2011 , we also announced a $ 60 per ton chlorine price increase . in the third quarter of 2011 , an additional caustic soda price increase was announced for $ 65 per ton , which replaced a late second quarter announced caustic soda price increase of $ 25 per ton . finally , in the fourth quarter of 2011 , an additional caustic soda price increase was announced for $ 80 per ton . the fourth quarter ecu netbacks were approximately $ 590 , which was the first decline in price since the low point in our system in the third quarter of 2009. ecu netbacks in the fourth quarter declined slightly from the third quarter levels of approximately $ 595 as chlorine prices weakened , driven by a reduced level of chlorine demand , which more than offset increases in caustic soda prices . winchester segment income was $ 37.9 million in 2011 compared to $ 63.0 million in 2010. the winchester segment income declined from the surge levels of 2010 and 2009. the decrease in 2011 compared to 2010 reflected the impact of higher commodity metals and other material costs , higher manufacturing costs and incremental costs associated with our ongoing relocation of the centerfire ammunition manufacturing operations to oxford , ms , partially offset by higher selling prices . other operating income for 2011 included a gain of $ 3.7 million on the sale of a former manufacturing site and $ 1.9 million of insurance recoveries related to our oxford , ms and st. gabriel , la facilities . income before taxes for 2011 and 2010 included $ 11.4 million and $ 7.2 million , respectively , of recoveries from third parties for environmental costs incurred and expensed in prior periods . income tax expense for 2011 included $ 7.3 million of adjustments associated with a remeasurement of deferred taxes due to an increase in state tax effective rates , the expiration of statutes of limitation in federal and state jurisdictions , and the finalization of our 2010 domestic and canadian income tax returns . income tax expense for 2011 also included a discrete deferred tax expense of $ 76.0 million related to the tax effect of the gain recorded on the remeasurement of our previously held 50 % equity interest in sunbelt . income tax expense for 2010 included $ 13.5 million of favorable adjustments associated with the expiration of statutes of limitation in domestic and foreign jurisdictions and a reduction in expense related to the release of a valuation allowance recorded against the foreign tax credit carryforward deferred tax asset generated by our canadian operations . in december 2011 , we repaid the $ 75.0 million 9.125 % senior notes ( 2011 notes ) issued in 2001 , and $ 12.2 million due under the annual requirements of the sunbelt notes . these were redeemed using cash .
| segment results we define segment results as income ( loss ) before interest expense , interest income , other operating income , other ( expense ) income , 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 $ 18.1 million for the year ended december 31 , 2012 , representing the sale of caustic soda , bleach and hydrochloric acid to chemical distribution from chlor alkali products , at prices that approximate market , have been eliminated from chlor alkali products segment sales . replace_table_token_7_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 $ 3.0 million , $ 9.6 million and $ 29.9 million for the years ended 2012 , 2011 and 2010 , respectively . on february 28 , 2011 , we acquired the remaining 50 % interest in sunbelt . since the date of acquisition , sunbelt 's results are no longer included in earnings of non-consolidated affiliates but are consolidated in our consolidated financial statements . ( 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 . pension income for the year ended 2010 included a charge of $ 1.3 million associated with an agreement to withdraw our henderson , nv chlor alkali hourly workforce from a multi-employer defined benefit pension plan .
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introduction , outlook and overview of business operations strata skin sciences is a medical technology company in dermatology and plastic surgery dedicated to developing , commercializing and marketing innovative products for the treatment of dermatologic conditions . its products include the xtracยฎ excimer laser and vtracยฎ lamp systems utilized in the treatment of psoriasis , vitiligo and various other skin conditions . the xtrac device is utilized to treat psoriasis , vitiligo and other skin diseases . the xtrac device received fda clearance in 2000 and has since become a widely recognized treatment among dermatologists . the system delivers targeted 308um ultraviolet light to affected areas of skin , leading to psoriasis clearing and vitiligo repigmentation , following a series of treatments . as of december 31 , 2019 , there were 820 xtrac systems placed in dermatologists ' offices in the united states under our dermatology recurring procedure model , up from 746 at the end of december 31 , 2018. under the dermatology recurring procedure model , the xtrac system is placed in a physician 's office and fees are charged on a per procedure basis or a fee is charged on a periodic basis not to exceed an agreed upon number of procedures . the xtrac system 's use for psoriasis is covered by nearly all major insurance companies , including medicare . the vtrac excimer lamp system , offered internationally in addition to the xtrac , provides targeted therapeutic efficacy demonstrated by excimer technology with the simplicity of design and reliability of a lamp system . there are approximately 7.5 million people in the united states and up to 125 million people worldwide suffering from psoriasis , and 1 % to 2 % of the world 's population suffers from vitiligo . in 2019 over 337,000 xtrac laser treatments were performed . effective february 1 , 2017 , we entered into an exclusive oem distribution agreement with esthetic education , llc to be the exclusive marketer and seller of private label versions of the skinstylusยฎ microsystem and associated parts under the name of stratapen . this three-year agreement has minimum annual sales requirements for renewal . the agreement expired in january 2020. during 2017 we entered into an agreement to license the nordlys product line from ellipse a/s . in 2018 , following the financing , we determined we would no longer market the line and the agreement was terminated . we discontinued carrying the nordlys product line and the distribution agreement with ellipse a/s was terminated on may 31 , 2018. in july 2019 , we signed a direct distribution agreement with our korean distributor for a combination of direct capital sells and recurring revenues for the country of south korea . the term is for twelve months with up to four additional twelve-month terms subject to certain conditions . key technology xtracยฎ excimer laser . xtrac originally received fda clearance in 2000 and has since become a widely recognized treatment among dermatologists for psoriasis and other skin diseases . the xtrac excimer laser delivers ultra-narrowband ultraviolet b ( โ uvb โ ) light to affected areas of skin . following a series of treatments typically performed twice weekly , psoriasis remission can be achieved , and vitiligo patches can be re-pigmented . xtrac is endorsed by the national psoriasis foundation , and its use for psoriasis is covered by nearly all major insurance companies , including medicare . we estimate that more than half of all major insurance companies now offer reimbursement for vitiligo as well , a figure that is increasing . in the third quarter of 2018 we announced the fda granted clearance for our multi micro dose ( mmd ) tip for our xtrac excimer laser . the mmd tip accessory is indicated for use in conjunction with the xtrac laser system to filter the narrow band uvb ( โ nb-uvb โ ) light at delivery in order to calculate and individualize the maximum non-blistering dose for a particular patient . 33 in the third quarter of 2018 we announced the launch of our s3 , the next generation xtrac . the s3 is smaller , faster and has a smart user interface . in january 2020 , we announced the fda granted clearance of our xtrac momentum excimer laser platform , vtracยฎ lamp . vtrac received fda clearance in 2005 and provides targeted therapeutic efficacy demonstrated by excimer technology with the simplicity of design and reliability of a lamp system . recent developments equity financing on may 29 , 2018 , we completed the sale and issuance ( the โ financing โ ) of 15,740,741 shares of the company 's common stock , subject to customary post-closing adjustments , to accelmed growth partners l.p. ( `` accelmed '' ) , broadfin capital llc ( `` broadfin '' ) , sabby management llc ( `` sabby '' ) , gohan investments , ltd. and dr. dolev rafaeli , our president and chief executive officer , for gross proceeds of $ 17.0 million at a per share price of $ 1.08. the various stock purchase agreements were entered into on march 30 , 2018 ( collectively , the โ spas โ ) . we incurred $ 2.3 million of costs related to the financing during the year ended december 31 , 2018 , which have been offset against the proceeds in the accompanying financial statements . in further consideration of entering into their respective stock purchase agreements , sabby and broadfin have each entered into separate agreements restricting their abilities to sell their holdings ( the โ leak-out agreements โ ) . story_separator_special_tag on an on-going basis , we evaluate our estimates , including , but not limited to , those related to revenue recognition , accounts receivable , deferred revenues , inventories , useful lives and impairment of property and equipment and of intangibles and goodwill , fair value of equity-based awards , sales and use tax , deferred taxes , financial instruments ( derivative instruments and warrants ) and accruals for warranty claims . we use authoritative pronouncements , historical experience and other assumptions as the basis for making estimates . actual results could differ from those estimates . management believes that the following critical accounting policies affect our more significant judgments and estimates in the preparation of our consolidated financial statements . revenue recognition in the dermatology recurring procedures segment we have two types of arrangements for our phototherapy treatment equipment as follows : ( i ) we place our lasers in a physician 's office at no charge to the physician , and generally charge the physician a fee for an agreed upon number of treatments ; or ( ii ) we place our lasers in a physician 's office and charge the physician a fixed fee for a specified period of time not to exceed an agreed upon number of treatments ; if that number is exceeded additional fees will have to be paid . 35 for the purposes of u.s. gaap only , these two types of arrangements are treated under the guidance of asc 842 , leases . while these arrangements are not contractually operating leases , since we sell the physician access codes in order to operate the treatment equipment , these are similar to operating leases for accounting purposes since we provide the customers limited arrangement rights to use the treatment equipment and the treatment equipment resides in the physician 's office and we may exercise the right to remove the equipment upon notice , under certain circumstances , while the physician controls the utility and output of such equipment during the term of the arrangement as it pertains to the use of access codes to treat the patients . the terms of the domestic arrangements are generally 36 months with automatic one-year renewals and include a termination clause that can be affected at any time by either party with 30 to 60 day notice . amounts paid are generally non-refundable . for the first type of arrangement , sales of access codes are considered variable treatment code payments and are recognized as revenue over the estimated usage period of the agreed upon number of treatments . for the second type of arrangement , customers purchase access codes and revenue is recognized ratably on a straight-line basis as the lasers are being used over the term period specified in the agreement . variable treatment code payments that will be paid only if the customer exceeds the agreed upon number of treatments are recognized only when such treatments are being exceeded and used . internationally , through our korean distributor , we sell access codes for a fixed amount on a monthly basis to end user customers and the terms are generally 48 months , with termination in the event of the customers ' failure to remit payments timely , and includes a potential buy-out at the end of the term of the contract . pre-paid amounts are recorded in deferred revenue and recognized as revenue over the lease term in the patterns described above . under both methods , pricing is fixed with the customer . with respect to lease and non-lease components , we adopted the practical expedient to account for the arrangement as a single lease component . in the dermatology procedures equipment segment we sell our products internationally through distributors and domestically , directly to a physician . for the product sales , we recognize revenues when control of the promised products is transferred to either our distributors or end-user customers , in an amount that reflects the consideration we expect to be entitled to in exchange for those products ( the transaction price ) . control transfers to the customer at a point in time . to indicate the transfer of control , we must have a present right to payment and legal title must have passed to the customer . we ship most of our products fob shipping point , and as such , we primarily transfer control and record revenue upon shipment . from time to time we will grant certain customers , for example governmental customers , fob destination terms , and the transfer of control for revenue recognition occurs upon receipt . we have elected to recognize the cost of freight and shipping activities as fulfillment costs . amounts billed to customers for shipping and handling are included as part of the transaction price and recognized as revenue when control of the underlying goods are transferred to the customer . the related shipping and freight charges incurred by the company are included in cost of revenues . remaining performance obligations related to asc 606 represent the aggregate transaction price allocated to performance obligations with an original contract term greater than one year , which are fully or partially unsatisfied at the end of the period . remaining performance obligations include the potential obligation to perform under extended warranties but excludes any equipment accounted for as leases . contract assets primarily relate to the company 's rights to consideration for work completed in relation to its services performed but not billed at the reporting date . the contract assets are transferred to receivables when the rights become unconditional . currently , the company does not have any contract assets which have not transferred to a receivable . contract liabilities primarily relate to extended warranties where the company has received payments , but has not yet satisfied the related performance obligations . the allocations of the transaction price are based on the price of standalone warranty contracts sold in the ordinary course of business .
| results of operations the following financial data , in this narrative , are expressed in thousands , except for the earnings per share and per treatment data . revenues the following table presents revenues from our two segments for the periods indicated below : replace_table_token_1_th dermatology recurring procedures revenues from dermatology recurring procedures for the year ended december 31 , 2019 was $ 23,713 which approximates 337,000 treatments , with prices ranging from $ 65 to $ 95 per treatment . revenues from dermatology recurring procedures for the year ended december 31 , 2018 was $ 21,053 which approximates 300,000 treatments , with prices ranging from $ 65 to $ 95 per treatment . increases in procedures are dependent upon building market acceptance through marketing programs with our physician partners and their patients to show that the xtrac procedures will be of clinical benefit and will be generally reimbursed by insurers . we believe that several factors had an impact on the prescribed use of xtrac treatments for psoriasis and vitiligo patients . specifically , we believe that there is a lack of awareness of the positive effects of xtrac treatments among both sufferers and providers ; and the treatment regimen which can sometimes require up to 12 or more treatments has limited xtrac use to certain patient populations . therefore , we use a direct to patient awareness program for xtrac advertising in the united states , targeting psoriasis and vitiligo patients through a variety of media including television and radio ; and through our use of social media such as facebook and twitter . we monitor the results of our advertising expenditures in this area to reach the more than 10 million 39 patients in the united states afflicted with these diseases . with the financing completed in may 2018 , we have and expect to continue to increase spending in the direct to patient programs to drive patients to our partner clinics to increase recurring revenue .
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this md & a contains discussion in thousands of u.s. dollars unless specifically stated otherwise . overview smtc is a provider of end-to-end electronics manufacturing services ( โ ems โ ) , including product design and engineering services , printed circuit board assembly ( โ pcba โ ) , production , enclosure , cable assembly , precision metal fabrication , systems integration and comprehensive testing services , configuration to order ( โ cto โ ) , build to order ( โ bto โ ) and direct order fulfillment ( โ dof โ ) . smtc has manufacturing and other facilities in the united states , canada , mexico , and china , with approximately 1,171 employees as of december 31 , 2017 of which 1,110 are full-time employees . smtc 's services extend over the entire electronic product life cycle from new product development and new product introduction ( โ npi โ ) through to growth , maturity and end of life phases . smtc offers fully integrated contract manufacturing services to global original equipment manufacturers ( โ oems โ ) , and technology companies primarily within the industrial , networking and communications , power and energy and medical market sectors . developments in the y ear e nded december 3 1 , 2017 total revenue decreased by $ 28.7 million or 17.1 % in 2017 compared to 2016. the reduction was primarily related to one network and communications customer serviced out of china that transferred a portion of its business to other contract manufacturers representing a reduction of $ 18.6 million when compared to 2016. revenues further decreased as a result of one network and communications customer 's product reaching end of life previously serviced out of mexico representing an additional reduction in revenue of $ 5.6 million . one long standing industrial customer serviced out of mexico had a decrease in volume resulting in a revenue reduction of $ 10.4 million . this was partially offset by volume increases with two long standing customers in the industrial sector serviced out of mexico which represented an increase of $ 7.5 million . there was new customer revenue comprised primarily by one customer serviced in mexico in the power and energy sector representing additional revenue of $ 4.5 million and another customer in the medical sector representing additional revenue of $ 2.2 million . o perating earnings declined by $ 7.3 million from $ 0.9 million operating earnings in 2016 to a $ 6.4 million operating loss in 2017 due to reduced revenues in 2017 , in addition to certain other 2017 charges not incurred in the prior year including an impairment loss and restructuring charges . the company recorded a $ 1.6 million impairment loss related to property , plant and equipment . during 2017 the company announced a global restructuring plan which included the closure of its suzhou , china facility . this restructuring plan resulted in the company recording a $ 1.7 million restructuring expense . in 2016 , the restructuring expense was $ 0.2 million . during 2017 , the company also recorded provisions on both excess and obsolete inventory and aged receivables of $ 0.2 million and $ 0.7 million , respectively . during 2016 , a reversal of the provisions on aged receivables and excess and obsolete inventory was $ 0.1 million and $ 0.2 million , respectively . adjusted ebitda decreased to $ ( 1.5 ) million in 2017 from $ 4.7 million in 2016. adjusted ebitda as a percentage of revenue decreased to ( 1.1 % ) in 2017 compared to 2.8 % in 2016. the reduction in adjusted ebitda , was primarily driven by the reduced revenue , ability to cover our fixed costs prior to the global restructuring plan and the additional provisions and impairment charges noted above that were not incurred in the prior year . for additional information and a reconciliation of adjusted ebitda , see โ ebitda and adjusted ebitda reconciliation โ below . 29 story_separator_special_tag background-color : rgb ( 0 , 0 , 0 ) ; '' / > ebitda and adjusted ebitda reconciliation ebitda and adjusted ebitda , non-gaap financial measures , are defined as earnings before interest , taxes , depreciation and amortization , with adjusted ebitda also excluding restructuring charges , stock based compensation and unrealized foreign exchange gains and losses on unsettled forward foreign exchange contracts . management presents ebitda and adjusted ebitda , as it is utilized by management to monitor performance against budget as well as compliance with bank covenants . we also believe ebitda and adjusted ebitda provide useful information to investors in understanding and evaluating our operating results in the same manner as management . below is the reconciliation of net loss , the closest gaap measure , to ebitda and adjusted ebitda . replace_table_token_7_th the reduction in adjusted ebitda was due primarily to the decrease in revenue in 2017 by $ 28.7 million , or 17.1 % , from 2016. the reduction in revenue impacted the company 's ability to cover its fixed costs prior to the global restructuring plan , effectively resulting in negative adjusted ebitda of ( $ 0.3m ) in the first quarter of 2017 and ( $ 3.6m ) in the second quarter of 2017. subsequent to the global restructuring plan , positive adjusted ebitda of $ 1.1m was earned in the third quarter of 2017 and $ 1.2m in the fourth quarter of 2017. adjusted ebitda was also reduced when compared to the prior year as a result of provisions of $ 0.9 million related to excess and obsolete inventory as well as aged receivables , and impairment charges of $ 1.6 million expensed in 2017 on property , plant and equipment that were not incurred in the prior year . story_separator_special_tag included in fixed costs for 2016 was additional rent of $ 0.2 million related to the new fremont location in california during the fourth quarter of 2016 while the company was still incurring rent at the prior location for the duration of that quarter . 34 the company calculates an adjusted gross profit amount as we consider gross margins exclusive of such unrealized foreign exchange gains or losses on unsettled forward foreign exchange contracts to be a meaningful measure as it is non-cash and management does not consider the mark to market valuation reflective of operating performance in the current period . below is the reconciliation from the financial statement presentation of gross profit to the non-gaap measure of adjusted gross profit : replace_table_token_9_th the company entered into forward foreign exchange contracts to reduce its exposure to foreign exchange currency rate fluctuations relat ed to forecasted canadian dollar and mexican peso expenditures . these contracts are effective as hedges from an economic perspective , but do not meet the requirements for hedge accounting under asc topic 815 โ derivatives and hedging โ . accordingly , changes in the fair value of these contracts are recognized in earnings in the consolidated statement of operations and comprehensive loss . included in cost of sales in 2016 was a realized loss of $ 2.8 million compared to a realized loss of $ 4.4 million in 2015. in 2016 , as a result of revaluing the outstanding forward contracts to fair value , an unrealized gain of $ 0.8 million was recorded compared to an unrealized gain of $ 0.6 million in 2015 , which was included in cost of sales . replace_table_token_10_th 35 ebitda and adjusted ebitda reconciliation ebitda and adjusted ebitda , non-gaap financial measures , are defined as earnings before interest , taxes , depreciation and amortization , with adjusted ebitda also excluding restructuring charges , stock based compensation and unrealized foreign exchange gains and losses on unsettled forward foreign exchange contracts . management presents ebitda and adjusted ebitda , as it is utilized by management to monitor performance against budget as well as compliance with bank covenants . we also believe ebitda and adjusted ebitda provide useful information to investors in understanding and evaluating our operating results in the same manner as management . below is the reconciliation of net loss , the closest gaap measure , to ebitda and adjusted ebitda . replace_table_token_11_th revenue decreased in 2016 by $ 52.7 million , or 23.9 % from 2015 , resulting in a corresponding ebitda decrease to $ 5.0 million in 2016 from $ 5.8 million in 2015. adjusted ebitda decreased to $ 4.7 million in 2016 from $ 5.7 million in 2015. however , adjusted ebitda as a percentage of revenue increased to 2.8 % in 2016 compared to 2.6 % in 2015. the reduction in ebitda , was primarily driven by the reduced revenue which was offset by improved gross margins in 2016 as compared to 2015 and reduced selling , general and administrative expenses compared to 2015. the company entered into forward foreign exchange contracts to reduce its exposure to foreign exchange currency rate fluctuations related to the mexican peso and canadian dollar expenditures . the company incurred foreign exchange losses from the settlement of these contracts of $ 2.8 million in 2016 and $ 4.4 million in 2015. selling , general & administrative expenses selling , general and administrative expenses decreased to $ 14.0 million , or 8.3 % of revenue , in 2016 down from $ 15.9 million , or 7.2 % of revenue , in 2015. the decrease in selling , general and administrative expenses was due to reduced administrative headcount , variable compensation , business trip expenses and professional services , which included legal audit related services . legal and audit related services of $ 0.6 million were incurred in 2015 due to the due diligence costs related to the previously disclosed mergers and acquisitions strategy . no such costs were incurred in 2016. sales and marketing expenses were also reduced , which included commission expenses . the reduced selling , general and administrative expenses were partially offset in 2016 by expenses of $ 0.4 million pertaining to office move costs . restructuring charges restructuring charges of $ 0.2 million were incurred in 2016 related to a termination of one executive in the markham , canada office location . no restructuring charges were incurred in 2015 . 36 interest expense interest expense decreased to $ 0.8 million in 2016 compared to $ 1.2 million in 2015. the decrease was primarily the result of a lower average debt balance in 2016 compared to 2015 in addition to a reduction in interest rates on our pnc facilities . the weighted average interest rates with respect to the debt on our pnc facilities were 4.2 % for 2016 and 4.3 % for 2015. income tax expense the net tax expense for 2016 of $ 0.3 million related to $ 0.5 million of taxes incurred in mexico due to profits in that jurisdiction in addition to minimum and state taxes in the u.s. the current income tax expense was partially offset by the recognition of tax benefits of $ 0.3 million associated with uncertain tax positions . in addition , a $ 0.1 million deferred tax expense was recorded related to temporary differences on assets and liabilities in mexico , which have resulted in a reduction to the corresponding deferred tax asset . in 2015 , $ 0.7 million related to $ 0.6 million of taxes in mexico and china due to profits in these jurisdictions in addition to minimum and state taxes in the u.s. 37 off-balance sheet arrangements as of december 31 , 2017 and january 1 , 2017 , we did not have any material off-balance sheet arrangements ( as defined in item 303 ( a ) ( 4 ) ( ii ) of regulation s-k ) . liquidity and capital resources our principal sources of liquidity are cash provided from operations and borrowings under the pnc facilities , which matures on january 2 , 2021.
| results of operations the following table sets forth certain operating data expressed as a percentage of revenue for the years presented : replace_table_token_3_th year e nded december 3 1 , 2017 compared to the year ended january 1 , 201 7 revenue ( in millions ) replace_table_token_4_th during 201 7 , the company recorded approximately $ 2.8 million of sales of raw materials inventory to customers , which carried limited margin , compared to $ 7.0 million in 2016. the company 's contract terms are structured such that it purchases raw materials based on a customer 's purchase orders . to the extent a customer subsequently requests that an order be changed , the customer is generally contractually obligated to purchase the original on-order raw material at cost . due to changes in market conditions , the life cycle of products , the nature of specific programs and other factors , revenues from a ny particular customer typically vary from year to year . the company 's ten largest customers represented 72.5 % of revenue in 2017 , compared to 76.2 % in 2016. revenue from our two largest customers during 2017 was $ 16.6 million and $ 16.5 million , both representing 11.9 % of revenue . this compared to revenue from our two largest customers during 2016 of $ 26.9 million and $ 20.7 million , representing 16.0 % and 12.3 % of revenue , respectively . no other customer represented more than 10 % of revenue in either year . in addition to tracking our revenues based on industry sector , the company also monitors revenue ( as well as associated site contribution margin ) based on the geographic location of our operations , which are mexico , china and the u.s. this is consistent with how we report our segmented information , as set out in note 10 to our consolidated financial statements .
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our direct costs associated with our revenue generating activities are primarily comprised of all other costs related to our wsees , such as the employer portion of payroll-related taxes , employee benefit plan premiums and workers ' compensation insurance costs . segment reporting we operate one reportable segment under asc 280 , segment reporting . insperity f-12 2018 form 10-k notes to consolidated financial statements principles of consolidation the consolidated financial statements include the accounts of insperity , inc. and its wholly owned subsidiaries . intercompany accounts and transactions have been eliminated in consolidation . use of estimates the preparation of financial statements in conformity with united states generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes . actual results could differ from those estimates . concentrations of credit risk financial instruments that could potentially subject us to concentration of credit risk include accounts receivable and marketable securities . cash , cash equivalents and marketable securities we invest our excess cash in federal government and municipal-based money market funds and debt instruments of u.s. municipalities . all highly liquid investments with stated maturities of three months or less from date of purchase are classified as cash equivalents . liquid investments with stated maturities of greater than three months are classified as marketable securities in current assets . we account for marketable securities in accordance with asc 320 , investments โ debt and equity securities . we determine the appropriate classification of all marketable securities as held-to-maturity , available-for-sale or trading at the time of purchase , and re-evaluate such classification as of each balance sheet date . at december 31 , 2018 and 2017 , all of our investments in marketable securities were classified as available-for-sale , and as a result , were reported at fair value . unrealized gains and losses are reported as a component of accumulated other comprehensive income ( loss ) in stockholders ' equity . the amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts from the date of purchase to maturity . such amortization is included in interest income as an addition to or deduction from the coupon interest earned on the investments . we use the specific identification method of determining the cost basis in computing realized gains and losses on the sale of our available-for-sale securities . realized gains and losses are included in other income . insperity f-13 2018 form 10-k notes to consolidated financial statements property and equipment property and equipment are recorded at cost and are depreciated over the estimated useful lives of the related assets using the straight-line method . property and equipment , net consisted of the following : replace_table_token_30_th the estimated useful lives of property and equipment for purposes of computing depreciation are as follows : useful life buildings and improvements 5-30 years computer hardware and software 2-5 years software development costs 3-5 years furniture , fixtures and other 5-7 years software development costs relate primarily to software code development , systems integration and testing of our proprietary professional employer information systems and are accounted for in accordance with asc 350-40 , internal use software . capitalized software development costs are amortized using the straight-line method over the estimated useful lives of the software , generally three years . we recognized $ 6.0 million , $ 4.1 million and $ 3.0 million in amortization of capitalized computer software costs in 2018 , 2017 and 2016 , respectively . unamortized software development costs were $ 19.6 million and $ 14.9 million in 2018 and 2017 , respectively . we account for our software products in accordance with asc 985-20 , costs of software to be sold . this topic establishes standards of financial accounting and reporting for the costs of computer software to be sold , leased , or otherwise marketed as a separate product or as part of a product or process , whether internally developed and produced or purchased . we periodically evaluate our long-lived assets for impairment in accordance with asc 360-10 , property , plant , and equipment . asc 360-10 requires that an impairment loss be recognized for assets to be disposed of or held-for-use when the carrying amount of an asset is deemed to not be recoverable . if events or circumstances were to indicate that any of our long-lived assets might be impaired , we would assess recoverability based on the estimated undiscounted future cash flows to be generated from the applicable asset . in addition , we may record an impairment loss to the extent that the carrying value of the asset exceeded the fair value of the asset . fair value is generally determined using an estimate of discounted future net cash flows from operating activities or upon disposal of the asset . goodwill and other intangible assets our goodwill is not amortized , but is tested for impairment on an annual basis or when there is an indication that there has been a potential decline in the fair value of a reporting unit . annually , we perform a qualitative analysis to determine if it is more likely than not that the fair value has declined below its carrying value . this analysis considers various qualitative factors . due to the nature of our business , all of our goodwill is associated with one reporting unit . we perform our annual impairment testing during the fourth quarter . based on the results of our analysis , no impairment loss was recognized in 2018 , 2017 or 2016 . insperity f-14 2018 form 10-k notes to consolidated financial statements at december 31 , 2018 and 2017 , we had an aggregate carrying amount of goodwill acquired of $ 21.2 million , which has been reduced by cumulative impairment charges of $ 8.5 million . accordingly our goodwill balance at december 31 , 2018 and 2017 was $ 12.7 story_separator_special_tag our direct costs associated with our revenue generating activities are primarily comprised of all other costs related to our wsees , such as the employer portion of payroll-related taxes , employee benefit plan premiums and workers ' compensation insurance costs . segment reporting we operate one reportable segment under asc 280 , segment reporting . insperity f-12 2018 form 10-k notes to consolidated financial statements principles of consolidation the consolidated financial statements include the accounts of insperity , inc. and its wholly owned subsidiaries . intercompany accounts and transactions have been eliminated in consolidation . use of estimates the preparation of financial statements in conformity with united states generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes . actual results could differ from those estimates . concentrations of credit risk financial instruments that could potentially subject us to concentration of credit risk include accounts receivable and marketable securities . cash , cash equivalents and marketable securities we invest our excess cash in federal government and municipal-based money market funds and debt instruments of u.s. municipalities . all highly liquid investments with stated maturities of three months or less from date of purchase are classified as cash equivalents . liquid investments with stated maturities of greater than three months are classified as marketable securities in current assets . we account for marketable securities in accordance with asc 320 , investments โ debt and equity securities . we determine the appropriate classification of all marketable securities as held-to-maturity , available-for-sale or trading at the time of purchase , and re-evaluate such classification as of each balance sheet date . at december 31 , 2018 and 2017 , all of our investments in marketable securities were classified as available-for-sale , and as a result , were reported at fair value . unrealized gains and losses are reported as a component of accumulated other comprehensive income ( loss ) in stockholders ' equity . the amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts from the date of purchase to maturity . such amortization is included in interest income as an addition to or deduction from the coupon interest earned on the investments . we use the specific identification method of determining the cost basis in computing realized gains and losses on the sale of our available-for-sale securities . realized gains and losses are included in other income . insperity f-13 2018 form 10-k notes to consolidated financial statements property and equipment property and equipment are recorded at cost and are depreciated over the estimated useful lives of the related assets using the straight-line method . property and equipment , net consisted of the following : replace_table_token_30_th the estimated useful lives of property and equipment for purposes of computing depreciation are as follows : useful life buildings and improvements 5-30 years computer hardware and software 2-5 years software development costs 3-5 years furniture , fixtures and other 5-7 years software development costs relate primarily to software code development , systems integration and testing of our proprietary professional employer information systems and are accounted for in accordance with asc 350-40 , internal use software . capitalized software development costs are amortized using the straight-line method over the estimated useful lives of the software , generally three years . we recognized $ 6.0 million , $ 4.1 million and $ 3.0 million in amortization of capitalized computer software costs in 2018 , 2017 and 2016 , respectively . unamortized software development costs were $ 19.6 million and $ 14.9 million in 2018 and 2017 , respectively . we account for our software products in accordance with asc 985-20 , costs of software to be sold . this topic establishes standards of financial accounting and reporting for the costs of computer software to be sold , leased , or otherwise marketed as a separate product or as part of a product or process , whether internally developed and produced or purchased . we periodically evaluate our long-lived assets for impairment in accordance with asc 360-10 , property , plant , and equipment . asc 360-10 requires that an impairment loss be recognized for assets to be disposed of or held-for-use when the carrying amount of an asset is deemed to not be recoverable . if events or circumstances were to indicate that any of our long-lived assets might be impaired , we would assess recoverability based on the estimated undiscounted future cash flows to be generated from the applicable asset . in addition , we may record an impairment loss to the extent that the carrying value of the asset exceeded the fair value of the asset . fair value is generally determined using an estimate of discounted future net cash flows from operating activities or upon disposal of the asset . goodwill and other intangible assets our goodwill is not amortized , but is tested for impairment on an annual basis or when there is an indication that there has been a potential decline in the fair value of a reporting unit . annually , we perform a qualitative analysis to determine if it is more likely than not that the fair value has declined below its carrying value . this analysis considers various qualitative factors . due to the nature of our business , all of our goodwill is associated with one reporting unit . we perform our annual impairment testing during the fourth quarter . based on the results of our analysis , no impairment loss was recognized in 2018 , 2017 or 2016 . insperity f-14 2018 form 10-k notes to consolidated financial statements at december 31 , 2018 and 2017 , we had an aggregate carrying amount of goodwill acquired of $ 21.2 million , which has been reduced by cumulative impairment charges of $ 8.5 million . accordingly our goodwill balance at december 31 , 2018 and 2017 was $ 12.7
| financial condition and results of operations contractual obligations and commercial commitments the following table summarizes our contractual obligations and commercial commitments as of december 31 , 2018 , and the effect they are expected to have on our liquidity and capital resources : replace_table_token_20_th ( 1 ) the table includes purchase obligations associated with non-cancelable contracts individually greater than $ 100,000 and one year . ( 2 ) accrued workers ' compensation claim costs include the short and long-term amounts . for more information , please read , โ โcritical accounting policies and estimatesโworkers ' compensation costs. โ seasonality , inflation and quarterly fluctuations our quarterly earnings are impacted by the seasonal nature of our medical claims costs and payroll taxes . typically , medical claims costs tend to increase throughout the year with the fourth quarter being the period with the highest costs , which has a negative impact on our fourth quarter earnings . this trend is primarily the result of many wsees ' medical plan deductibles being fully metby the fourth quarter , which increases our liability with respect to those claims .
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options vest at various periods of up to four years and may be exercised within ten years story_separator_special_tag overview since our inception , we have been principally engaged in the development of novel , antibody-drug conjugates ( 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 targeted antibody payload , or tap , technology consists of a monoclonal antibody that binds specifically to an antigen target found on cancer cells with multiple copies of one of our proprietary cell-killing agents attached to the antibody using one of our engineered linkers . its antibody component enables a tap 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 tap compounds , the antibody component also has anticancer activity of its own . our tap technology is designed to enable the creation of highly effective , well-tolerated anticancer product candidates . all of the tap 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 tap 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 tap 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 at negotiated prices which are generally consistent with what other third parties would charge . currently , our partners include amgen , bayer healthcare , biotest , 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 , 2013 , we had approximately $ 195 million in cash and cash equivalents compared to $ 160.9 million as of june 30 , 2012. 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 45 presented by additional partners or alternative financing arrangements will be entirely available to us , if at all . 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 , 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 . the terms of these agreements contain multiple deliverables which may include ( i ) licenses , or options to obtain licenses , to our tap technology , ( ii ) rights to future technological improvements , ( iii ) research activities to be performed on behalf of the collaborative partner , ( iv ) delivery of cytotoxic agents and ( v ) the manufacture of preclinical or clinical materials for the collaborative partner . payments to us under these agreements may include upfront fees , option fees , exercise fees , payments for research activities , payments for the manufacture of preclinical or clinical materials , payments based upon the achievement of certain milestones and royalties on product sales . story_separator_special_tag 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 , 2013 , 2012 and 2011 , 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 $ 755,000 , $ 85,000 , and $ 1.3 million , 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 clinical trial and the time period such trials last . accordingly , the volume of preclinical and clinical 48 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 . regulatory milestones are typically payable upon submission for marketing approval with the fda or other countries ' regulatory authorities or on receipt of actual marketing approvals for the compound or for additional indications . sales milestones are typically payable when annual sales reach certain levels . at the inception of each agreement that includes milestone payments , we evaluate whether each milestone is substantive and at risk to both parties on the basis of the contingent nature of the milestone . this evaluation includes an assessment of whether ( a ) the consideration is commensurate with either ( 1 ) the entity 's performance to achieve the milestone , or ( 2 ) the enhancement of the value of the delivered item ( s ) as a result of a specific outcome resulting from the entity 's performance to achieve the milestone , ( b ) the consideration relates solely to past performance and ( c ) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement .
| results of operations revenues our total revenues for the year ended june 30 , 2013 were $ 35.5 million compared with $ 16.4 million and $ 19.3 million for the years ended june 30 , 2012 and 2011 , respectively . the $ 19.1 million increase in revenues in fiscal year 2013 from fiscal year 2012 is attributable to all revenue categories , as discussed below . the $ 2.9 million decrease in revenues in fiscal year 2012 from fiscal year 2011 is attributable to lower revenues from research and development support and clinical materials revenue , partially offset by higher revenues from license and milestone fees . 51 revenue from license and milestone fees for the year ended june 30 , 2013 increased approximately $ 15 million to $ 24.2 million from $ 9.2 million in the year ended june 30 , 2012. revenue from license and milestone fees for the year ended june 30 , 2011 was $ 6.4 million . included in license and milestone fees for the year ended june 30 , 2013 was a $ 10.5 million regulatory milestone achieved under our collaboration agreement with roche , a $ 500,000 development milestone achieved under our collaboration agreement with sanofi and $ 11.1 million of license revenue earned upon the execution of a development and commercialization license by novartis . included in license and milestone fees for the year ended june 30 , 2012 was a $ 3 million milestone payment related to the initiation of phase ii clinical testing of sar3419 achieved under our collaboration agreement with sanofi and two $ 1 million milestone payments related to regulatory milestones achieved under our license agreements with amgen .
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impact of new and not yet adopted accounting pronouncements the new accounting pronouncements are not applicable to the company and or do not materially impact the company . critical accounting policies the company has prepared the consolidated financial statements in this report in accordance with the fasb accounting standards codification ( ยascย ) . in preparing the consolidated financial statements , management makes estimates and assumptions that affect the reported amount of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenue and expenses during the reporting period . these estimates have been generally accurate in the past , have been consistent and have not required any material changes . there can be no assurances that actual results will not differ from those estimates . certain accounting policies that require significant management estimates and are deemed critical to the company 's results of operations or financial position have been discussed with the audit committee of the board of directors and are described below . investment in debt securities . the company classifies its debt marketable securities as available-for-sale . securities classified as available-for-sale are carried at fair value . unrealized gains and losses , net of the related tax effect , are excluded from earnings and reported in accumulated other comprehensive income , a component of shareholders ' equity . a decline in the fair value of any available-for-sale security below cost that is deemed other than temporary results in a charge to earnings and the establishment of a new cost basis for the security . to determine whether impairment is other than temporary , the company considers guidance provided in fasb asc topic 320 , investments ยdebt and equity securities . when determining whether a debt security is other-than-temporarily impaired , the company assesses whether it has the intent to sell the security and whether it is more likely than not that the company will be required to sell prior to recovery of the amortized cost basis . evidence considered in this assessment includes the reasons for impairment , the severity and duration of the impairment , changes in value subsequent to year-end and forecasted performance of the investee . allowance for loan losses . the company performs periodic and systematic detailed reviews of its loan portfolio to assess overall collectability . the level of the allowance for loan losses reflects management 's estimate of the collectability of the loan portfolio . although these estimates are based on established methodologies for determining allowance requirements , actual results can differ significantly from estimated results . these policies affect both segments of the company . the impact and associated risks related to these policies on the company 's business operations are discussed in the ยprovision and allowance for loan lossesย section of this report . the company 's estimates have been materially accurate in the past , and accordingly , the company expects to continue to utilize the present processes . income taxes . the objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity 's financial statements or tax returns . judgment is required in addressing the future tax consequences of events that have been recognized in the company 's financial statements or tax returns such as the realization of deferred tax assets or changes in tax laws or interpretations thereof . in addition , the company is subject to the continuous examination of its income tax returns by the internal revenue service and other taxing authorities . in accordance with fasb asc 740 , ยincome taxes , ย the company has unrecognized tax benefits related to tax positions taken or expected to be taken . see item 8 , note 13 to the consolidated financial statements contained herein . 16 pension plans . the amounts recognized in the consolidated financial statements related to pension plans are determined from actuarial valuations . inherent in these valuations are assumptions , including expected return on plan assets , discount rates at which the liabilities could be settled at december 31 , 2015 , rate of increase in future compensation levels and mortality rates . these assumptions are updated annually and are disclosed in item 8 , note 10 to the consolidated financial statements . pursuant to fasb asc 715 , ยcompensation ย retirement benefitsย ( ยasc 715ย ) , the company has recognized the funded status of its defined benefit postretirement plan in its balance sheet and has recognized changes in that funded status through comprehensive income . the funded status is measured as the difference between the fair value of the plan assets and the projected benefit obligation as of the date of its fiscal year-end . summary of results replace_table_token_5_th * presented on a tax-equivalent basis the results of 2015 compared to 2014 include the following significant items : overall , the company 's performance was impacted by lingering adverse economic factors including low interest rates , plummeting energy prices and a contraction in u.s. manufacturing output . total processing dollars fell 6 % . the decrease in processing dollars generated smaller investable balances that lowered investment income . the company received a one-time litigation settlement of $ 1.4 million ( $ 800,000 reduction in other operating expenses and $ 600,000 loan loss recovery ) . net interest income after provision for loan losses and average earning assets increased very slightly year over year , primarily due to a negative provision for loan losses of $ 850,000 in the fourth quarter of 2015. gains from the sale of securities were $ 2,910,000 in 2015 and $ 23,000 in 2014. bank service fees increased $ 91,000 , or 8 % and other income was down $ 712,000. story_separator_special_tag total average loans increased $ 4,402,000 , or less than 1 % , to $ 663,824,000. loans have a positive effect on interest income and the net interest margin due to the fact that loans are one of the company 's highest yielding earning assets for any given maturity . total average investment in securities increased $ 26,990,000 , or 9 % . the investment portfolio will expand and contract over time as the company manages its liquidity and interest rate position . all purchases were made in accordance with the company 's investment policy . interest bearing deposits in other financial institutions increased $ 14,591,000 , or 12 % . total average federal funds sold and other short-term investments decreased $ 2,144,000 , or 2 % . the bank 's total average interest-bearing deposits increased $ 11,019,000 , or 3 % , compared to the prior year . average rates paid on interest-bearing liabilities decreased from .69 % to .58 % as a result of the continued low interest rate environment . distribution of assets , liabilities and shareholders ' equity ; interest rate and interest differential the following table contains condensed average balance sheets for each of the periods reported , the tax-equivalent interest income and expense on each category of interest-earning assets and interest-bearing liabilities , and the average yield on such categories of interest-earning assets and the average rates paid on such categories of interest-bearing liabilities for each of the periods reported : replace_table_token_8_th 1 balances shown are daily averages . 2 for purposes of these computations , nonaccrual loans are included in the average loan amounts outstanding . interest on nonaccrual loans is recorded when received as discussed further in item 8 , note 1 of this report . 3 interest income on loans includes net loan fees of $ 469,000 , $ 325,000 , and $ 339,000 for 2015 , 2014 and 2013 , respectively . 4 interest income is presented on a tax-equivalent basis assuming a tax rate 35 % in all years . the tax-equivalent adjustment was approximately $ 5,427,000 , $ 5,288,000 and $ 4,723,000 for 2015 , 2014 and 2013 , respectively . 5 for purposes of these computations , yields on investment securities are computed as interest income divided by the average amortized cost of the investments . 19 analysis of net interest income changes the following table presents the changes in interest income and expense between years due to changes in volume and interest rates . replace_table_token_9_th 1 the change in interest due to the combined rate/volume variance has been allocated in proportion to the absolute dollar amounts of the change in each . 2 average balances include nonaccrual loans . 3 interest income includes net loan fees . 4 interest income is presented on a tax-equivalent basis assuming a tax rate 35 % in all years . 20 loan portfolio interest earned on the loan portfolio is a primary source of income for the company . the loan portfolio was $ 659,055,000 and represented 45 % of the company 's total assets as of december 31 , 2015 and generated $ 28,669,000 in revenue during the year then ended . the company had no sub-prime mortgage loans or residential development loans in its portfolio for any of the years presented . the following tables show the composition of the loan portfolio at the end of the periods indicated and remaining maturities for loans as of december 31 , 2015. replace_table_token_10_th replace_table_token_11_th 1 loans have been classified as having `` floating '' interest rates if the rate specified in the loan varies with the prime commercial rate of interest . note : due to the historically low interest rates , the company instituted a 4 % floor for its prime lending rate . the company has no concentrations of loans exceeding 10 % of total loans , which are not otherwise disclosed in the loan portfolio composition table and as are discussed in item 8 , note 4 , of this report . as can be seen in the loan composition table above and as discussed in item 8 , note 4 , the company 's primary market niche for banking services is privately held businesses and churches and church-related ministries . loans to commercial entities are generally secured by the business assets of the borrower , including accounts receivable , inventory , machinery and equipment , and the real estate from which the borrower operates . operating lines of credit to these companies generally are secured by accounts receivable and inventory , with specific percentages of each determined on a customer-by-customer basis based on various factors including the type of business . intermediate term credit for machinery and equipment is generally provided at some percentage of the value of the equipment purchased , depending on the type of machinery or equipment purchased by the entity . loans secured exclusively by real estate to businesses and churches are generally made with a maximum 80 % loan to value ratio , depending upon the company 's estimate of the resale value and ability of the property to generate cash . the company 's loan policy requires an independent appraisal for all loans over $ 250,000 secured by real estate . company management monitors the local economy in an attempt to determine whether it has had a significant deteriorating effect on such real estate loans . when problems are identified , appraised values are updated on a continual basis , either internally or through an updated external appraisal . loan portfolio changes from december 31 , 2014 to december 31 , 2015 : total loans decreased $ 10,291,000 , or 2 % , to $ 659,055,000. additional details regarding the types and maturities of loans in the loan portfolio are contained in the tables above and in item 8 , note 4. loan portfolio changes from december 31 , 2013 to december 31 , 2014 : total loans increased $
| summary of nonperforming assets replace_table_token_13_th * in february 2013 , a payment of $ 4,115,000 was received for one nonaccrual loan with a balance of $ 4,198,000 . $ 83,000 was charged off . 23 operating expenses operating expenses in 2015 compared to 2014 include the following significant pre-tax components : salaries and employee benefits expense increased $ 4,214,000 , or 6 % , to $ 70,314,000 as the company invested in staff and technology to win and support new business . occupancy expense increased $ 228,000 , or 7 % , due to the expansion of the company 's operating facilities for its transportation and waste management operations . equipment expense increased $ 161,000 to $ 4,291,000 primarily due to depreciation on new furniture and additional systems hardware and software . amortization of intangibles decreased $ 75,000 to $ 408,000. other operating expense decreased $ 159,000 , or 1 % , to $ 11,370,000 primarily due to a one-time litigation settlement ( $ 800,000 reduction in other operating expenses ) . operating expenses in 2014 compared to 2013 include the following significant pre-tax components : salaries and employee benefits expense increased $ 378,000 , or less than 1 % , to $ 66,100,000. occupancy expense increased $ 298,000 , or 10 % , due to the rent escalation on two properties and additional depreciation on building improvements . equipment expense increased $ 320,000 to $ 4,130,000 primarily due to depreciation on new furniture and additional systems software . amortization of intangibles decreased $ 52,000 to $ 483,000. other operating expense increased $ 384,000 , or 3 % , to $ 11,529,000 primarily due to an increase in outside service fees . income tax expense income tax expense in 2015 totaled $ 7,978,000 compared to $ 7,759,000 and $ 7,234,000 in 2014 and 2013 , respectively .
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you should review the item 1a โ risk factors โ 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 . cautionary statements this annual report on form 10-k and the documents incorporated by reference in this annual report on form 10-k contain โ forward-looking statements โ within the meaning of the private securities litigation reform act of 1995. the words โ believe , โ โ expect , โ โ anticipate , โ โ intends , โ โ estimate , โ โ forecast , โ โ project , โ โ should , โ โ may , โ โ will , โ โ would โ or the negative thereof and similar expressions are intended to identify such forward-looking statements . these forward-looking statements include those about future period guidance ; projected sales , net income , net income per diluted share , non-gaap eps , non-gaap net income and other financial metrics ; our performance relative to our markets ; market and technology trends , including the duration and drivers of any growth trends ; the development of new products and the success of their introductions ; the focus of our engineering , research and development projects ; our ability to execute on our business strategies ; our capital allocation strategy , which may be modified at any time for any reason , including share repurchases , dividends , debt repayments and potential acquisitions ; the effect of the tax cuts and jobs act ; future capital and other expenditures ; the company 's expected tax rate ; the impact of accounting pronouncements ; and other matters . these forward-looking statements are based on current management expectations and assumptions only as of the date of this annual report on form 10-k , are not guarantees of future performance and involve substantial risks and uncertainties that are difficult to predict and that could cause actual results to differ materially from the results expressed in , or implied by , these forward-looking statements . these risks and uncertainties include , but are not limited to , the risk factors and additional information described in this annual report on form 10-k under the caption โ risk factors , โ elsewhere in this annual report on form 10-k and in our other periodic filings . except as required under the federal securities laws and the rules and regulations of the sec , we undertake no obligation to update publicly any forward-looking statements contained herein . overview this overview is not a complete discussion of the company 's financial condition , changes in financial condition and results of operations ; it is intended merely to facilitate an understanding of the most salient aspects of its financial condition and operating performance and to provide a context for the detailed discussion and analysis that follows , and must be read in its entirety in order to fully understand the company 's financial condition and results of operations . the company is a leading global developer , manufacturer and supplier of microcontamination control products , specialty chemicals and advanced materials handling solutions for manufacturing processes in the semiconductor and other high-technology industries . our mission is to leverage our unique breadth of capabilities to create value for our customers by developing mission-critical solutions to maximize manufacturing yields , reduce manufacturing costs and enable higher device performance . our technology portfolio includes approximately 21,000 standard and customized products and solutions to achieve the highest levels of purity and performance that are essential to the manufacture of semiconductors , flat panel displays , light emitting diodes , or leds , high-purity chemicals , solar cells , gas lasers , optical and magnetic storage devices , and critical components for aerospace , glass manufacturing and biomedical applications . the majority of our products are consumed at various times throughout the manufacturing process , with demand driven in part by the level of semiconductor and other manufacturing activity . the company 's customers consist primarily of semiconductor manufacturers , semiconductor equipment and materials suppliers as well as thin film transistor-liquid crystal display ( tft-lcd ) and hard disk manufacturers , which are served through direct sales efforts , as well as sales and distribution relationships , in the united states , asia , europe and the middle east . our business is organized and operated in three operating segments which align with the key elements of the advanced semiconductor manufacturing ecosystem . the specialty chemicals and engineered materials , or scem , segment provides high-performance and high-purity process chemistries , gases , and materials , and safe and efficient delivery systems to support semiconductor and other advanced manufacturing processes . the microcontamination control , or mc , segment offers solutions to filter and purify critical liquid chemistries and gases used in semiconductor manufacturing processes and other high-technology industries . the advanced materials handling , or amh , segment develops solutions to monitor , protect , transport , and deliver critical liquid chemistries , wafers and other substrates for a broad set of applications in the semiconductor 29 industry and other high-technology industries . while these segments have separate products and technical know-how , they share a global generalist sales force , common business systems and processes , technology centers , and strategic and technology roadmaps . we leverage our expertise from these three segments to create new and increasingly integrated solutions for our customers . see note 16 to the consolidated financial statements for additional information on the company 's three segments . key operating factors key factors , which management believes have the largest impact on the overall results of operations of the company , include : level of sales since a significant portion of the company 's product costs ( except for raw materials , purchased components and direct labor ) are largely fixed in the short-to-medium term , an increase or decrease in sales affects gross profits and overall profitability significantly . story_separator_special_tag the company used approximately $ 109 million of the proceeds of the new term loans to repay and terminate its previous senior secured revolving and term loan credit facilities . subsequent event on january 28 , 2019 , the company and versum materials , inc. , a leading specialty materials supplier to the semiconductor industry , announced that they had entered into an agreement and plan of merger , dated as of january 27 , 2019 , pursuant to which they agreed to combine in a merger of equals . under the terms of the agreement , versum will merge with and into entegris , with entegris surviving and continuing as the surviving corporation , and versum stockholders will receive 1.120 shares of company common stock for each existing versum share . the transaction is subject to certain conditions , including a majority of the outstanding shares of common stock of both entegris and versum approving the merger agreement and the receipt of approvals under u.s. and certain foreign antitrust and competition laws . we have agreed to operate our business in the ordinary course during the period between the execution of the merger agreement and the effective time of the proposed merger , subject to specific exceptions set forth in the merger agreement , and have agreed to certain other customary restrictions on operations , as set forth in the merger agreement . critical accounting policies management 's discussion and analysis of financial condition and results of operations are based upon the company 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these consolidated financial statements requires the company to make estimates , assumptions and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . at each balance sheet date , management evaluates its estimates , including , but not limited to , those related to long-lived assets ( property , plant and equipment , and identified intangibles ) , goodwill , income taxes and business combinations . the company bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances . if management made different judgments or utilized different estimates , this could result in material differences in the amount and timing of the company 's results of operations for any period . in addition , actual results could be different from the company 's current estimates , possibly resulting in increased future charges to earnings . the critical accounting policies affected most significantly by estimates , assumptions and judgments used in the preparation of the company 's consolidated financial statements are discussed below . impairment of long-lived assets as of december 31 , 2018 , the company had $ 419.5 million of net property , plant and equipment and $ 295.7 million of net intangible assets . the company routinely considers whether indicators of impairment of the value of its long-lived assets , particularly its manufacturing equipment , and its intangible assets , are present . a long-lived asset ( asset group ) shall be tested for recoverability whenever events or changes in circumstances ( triggering events ) indicate that its carrying amount may not be recoverable . the following are examples of such events or changes in circumstances : a. a significant decrease in the market price of a long-lived asset ( asset group ) ; b. a significant adverse change in the extent or manner in which a long-lived asset ( asset group ) is being used or in its physical condition ; c. a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset ( asset group ) , including an adverse action or assessment by a regulator ; d. an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset ( asset group ) ; e. a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset ( asset group ) ; and f. a current expectation that , more likely than not , a long-lived asset ( asset group ) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life . 31 if such indicators are present , it is determined whether the sum of the estimated undiscounted cash flows attributable to the asset group in question is less than its carrying value . if less , an impairment loss is recognized based on the excess of the carrying amount of the assets in the group over its respective fair value . fair value is determined by discounting estimated future cash flows , appraisals or other methods deemed appropriate . if the asset groups determined to be impaired are to be held and used , the company recognizes an impairment charge to the extent the fair value attributable to the asset group is less than the assets ' carrying value . the fair value of the assets then becomes the assets ' new carrying value , which is depreciated or amortized over the remaining estimated useful life of the assets . the company 's long-lived assets are grouped with other assets and liabilities at the lowest level ( asset groups ) for which the identifiable cash flows are largely independent of the cash flows of other assets and liabilities . as described above , the evaluation of the recoverability of long-lived assets requires the company to make significant estimates and assumptions .
| results of operations year ended december 31 , 2017 compared to year ended december 31 , 2016 the following table sets forth the results of operations and the relationship between various components of operations , stated as a percent of net sales , for the years ended december 31 , 2017 and 2016. the company 's historical financial data was derived from its consolidated financial statements and related notes included elsewhere in this annual report . replace_table_token_7_th net sales for the year ended december 31 , 2017 , net sales were $ 1,342.5 million , up $ 167.3 million , or 14 % , from sales for the year ended december 31 , 2016. an analysis of the factors underlying the increase in net sales is presented in the following table : ( in thousands ) net sales in 2016 $ 1,175,270 organic growth associated with volume and pricing 164,505 increase associated with liquid filtration product line acquisition 3,643 decrease associated with effect of foreign currency translation ( 886 ) net sales in 2017 $ 1,342,532 the company 's sales increase was due to strong across-the-board demand for the company 's products from semiconductor industry customers , reflecting both higher industry fab utilization and semiconductor industry capital spending compared to the year-ago period . this sales increase reflected improved sales of gas microcontamination filters , liquid chemistry filtration solutions and certain specialty materials products . exclusive of the sales of the acquired liquid filtration product line of $ 3.6 million of revenue for 2017 and the unfavorable currency translation effects of $ 0.9 million for the year , mainly due to the weakening of the japanese yen relative to the u.s. dollar , the company 's sales grew 14 % in 2017 when compared to 2016. on a geographic basis , in 2017 , total sales to taiwan were 22 % , to north america were 21 % , to south korea were 16 % , to japan were 13 % , to china were 11 % , to europe were 9 % and to southeast asia were 8 % .
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the evaluation of multiple-element arrangements requires management to make judgments about ( i ) the identification of deliverables , ( ii ) whether such deliverables are separable from the other aspects of the contractual relationship , ( iii ) the estimated selling price of each deliverable , and ( iv ) the expected period of performance for each deliverable . to determine the units of accounting under a multiple-element arrangement , management evaluates certain separation criteria , including whether the deliverables have stand-alone value , based on the relevant facts and circumstances for each arrangement . management then estimates the selling price for each unit of accounting and allocates the arrangement consideration to each unit utilizing the relative selling price method . the allocated consideration for each unit of accounting is recognized over the related obligation period in accordance with the applicable revenue recognition criteria . if there are deliverables in an arrangement that are not separable from other aspects of the contractual relationship , they are treated as a combined unit of accounting , with the allocated revenue for the combined unit recognized in a manner consistent with the revenue recognition applicable to the final deliverable in the combined unit . payments received prior to satisfying the relevant revenue recognition criteria are recorded as deferred revenue in the balance sheet and recognized as revenue in the statements of operations when the related revenue recognition criteria are met . see note 3 for a description of the collaborative arrangement . f- 9 revenue recognition - milestone method the company follows asc 605-28 , revenue recognition-milestone method to evaluate whether each milestone under a license agreement is substantive . this evaluation includes an assessment of whether ( i ) the consideration is commensurate with either ( a ) the entity 's performance to achieve the milestone , or ( b ) the enhancement of the value of the delivered item as a result of a specific outcome resulting from the entity 's performance to achieve the milestone , ( ii ) the consideration relates solely to past performance and ( iii ) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement . the company evaluates factors such as the preclinical , clinical , regulatory , commercial and other risks that must be overcome to achieve the respective milestone , the level of effort and investment required and whether the milestone consideration is reasonable relative to all deliverables and payment terms in the arrangement in making this assessment . if a substantive milestone is achieved , the company would recognize revenue related to the milestone in its entirety in the period in which the milestone was achieved , assuming all other revenue recognition criteria were met . commercial milestones would be accounted for as royalties and recorded as revenue upon achievement of the milestone , assuming all other revenue recognition criteria were met . income taxes the company records income taxes using the asset and liability method . deferred income tax assets and liabilities are recognized for the future tax effects attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases , and operating loss and tax credit carryforwards . the company establishes a valuation allowance if management believes it is more likely than not that the deferred tax assets will not be recovered based on an evaluation of objective verifiable evidence . for tax positions that are more likely than not of being sustained upon audit , the company recognizes the largest amount of the benefit that is greater than 50 % likely of being realized . for tax positions that are not more likely than not of being sustained upon audit , the company does not recognize any portion of the benefit . the company files a separate tax return under subchapter c of the internal revenue code . prior to october 1 , 2015 , the company was a subsidiary included in the consolidated tax return of fortress . as a result of issuances of its common stock , the company exited the consolidated tax group for federal and state income tax purposes . for financial reporting purposes , the company calculated income tax provision and deferred income tax balances for the year ended december 31 , 2015 as if it was a separate entity and had filed its own separate tax return under subchapter c of the internal revenue code . net loss per share net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period . since dividends are declared , paid and set aside among the holders of shares of common stock and class a common stock pro-rata on an as-if-converted basis , the two-class method of computing net loss per share is not required . diluted net loss per share does not reflect the effect of shares of common stock to be issued upon the exercise of stock options and warrants , as their inclusion would be anti-dilutive . the following table summarizes potentially dilutive securities outstanding at december 31 , 2017 , 2016 , and 2015 that were excluded from the computation of diluted net loss per share , as they would be anti-dilutive : replace_table_token_11_th recently adopted accounting pronouncements in august 2014 , the fasb issued asu no . 2014-15 , disclosure of uncertainties about an entity 's ability to continue as a going concern ( โ asu no . story_separator_special_tag we base our estimates on historical experience , known trends and events and various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . our significant accounting policies are described in the notes to our financial statements appearing elsewhere in this form 10-k. story_separator_special_tag style= '' font : 10pt times new roman , times , serif ; margin : 0 ; text-align : justify '' > we anticipate general and administrative expenses will increase in future periods , reflecting continued and increasing costs associated with : ยท support of our expanded research and development activities ; ยท stock compensation granted to employees and non-employees ; ยท support of business development activities ; and ยท increased professional fees and other costs associated with the regulatory requirements and increased compliance associated with being a public reporting company . 45 comparison of the years ended december 31 , 2016 and 2015 revenue for the year ended december 31 , 2016 , revenue was approximately $ 2.6 million compared to approximately $ 0.6 million for the year ended december 31 , 2015 , an increase of approximately $ 2.0 million . revenue for the current period primarily consisted of $ 1.5 million from tgtx related to the sublicense agreement for ck-103 and approximately $ 1.0 million from tgtx in connection with the sponsored research agreement with neupharma . a small portion of revenue was also generated in connection with the collaboration agreement with tgtx related to patent costs . revenue for the year ended december 31 , 2015 consisted of $ 0.5 million representing tgtx 's upfront licensing fee for the collaboration agreement and $ 0.1 million related to patent costs . research and development expenses for the year ended december 31 , 2016 , research and development expenses were approximately $ 20.3 million , compared to approximately $ 11.3 million for the year ended december 31 , 2015 , an increase of $ 9.0 million . the current period research and development expenses primarily consisted of $ 8.7 million related to preclinical and product development activities for our product candidates , $ 3.9 million related to the non-cash annual equity fee in connection with the founders ' agreement , $ 2.6 million related to stock compensation expense , $ 2.0 million paid to jubilant upon the signing of the license agreement for ck-103 , $ 1.0 million paid to neupharma upon first dosing of a patient in our phase 1 trial for ck-101 , and $ 0.8 million related to clinical costs for ck-101 . the prior year research and development expenses primarily consisted of $ 3.2 million related to the acquisition of the licenses and rights to the antibodies from dana-farber , ck-101 , and ck-102 , $ 2.1 million related to preclinical development activities for our product candidates , $ 3.0 million related to the non-cash annual equity fee in connection with the founders ' agreement and $ 3.0 million related to stock compensation expense . general and administrative expenses for the year ended december 31 , 2016 , general and administrative expenses were $ 4.5 million , compared to approximately $ 2.5 million for the year ended december 31 , 2015 , an increase of $ 2.0 million . the current period general and administrative expenses primarily consisted of stock compensation expense of $ 1.3 million , $ 1.3 million related to legal and accounting fees and $ 0.9 million related to salary expenses . the prior period general and administrative expenses primarily consisted of $ 1.3 million related to non-cash equity fees paid to fortress in connection with the founders ' agreement , stock compensation expense of $ 0.3 million and $ 0.5 million related to legal fees , primarily in connection with the acquisition and maintenance of our licenses . liquidity and capital resources we have incurred substantial operating losses since our inception , and expect to continue to incur significant operating losses for the foreseeable future and may never become profitable . as of december 31 , 2017 , we had an accumulated deficit of $ 59.0 million . our major sources of cash have been proceeds from the private placement and public offering of equity securities . we expect to use these proceeds primarily for general corporate purposes , which may include financing our growth , developing new or existing product candidates , and funding capital expenditures , acquisitions and investments . we currently anticipate that our cash and cash equivalent balances at december 31 , 2017 combined with the additional capital raised in the first quarter of 2018 ( see below ) , are sufficient to fund our anticipated operating cash requirements for approximately the next 18 to 21 months . on march 8 , 2018 , we announced the pricing of an underwritten public offering , whereby we sold 4,600,000 shares of our common stock ( plus a 45-day option to purchase up to an additional 690,000 shares of common stock , which has been exercised ) at a price of $ 4.35 per share for gross proceeds of approximately $ 23.0 million . total net proceeds from this offering , including the overallotment , are expected to be approximately $ 20.9 million , net of underwriting discounts and estimated offering expenses of approximately $ 2.1 million . the shares were sold under a registration statement ( no . 333-221493 ) on form s-3 , filed by us with the securities and exchange commission . the offering closed on march 12 , 2018. cash flows for the years ended december 31 , 2017 and 2016 operating activities net cash used in operating activities was $ 15.5 million for the year ended december 31 , 2017 , compared to $ 10.0 million for
| results of operations comparison of the years ended december 31 , 2017 and 2016 revenue for the year ended december 31 , 2017 , revenue was approximately $ 1.7 million compared to approximately $ 2.6 million for the year ended december 31 , 2016 , a decrease of approximately $ 0.9 million . revenue for current period primarily consisted of $ 1.0 million from tgtx related to the sublicense agreement for ck-103 , including $ 0.2 million due upon the successful completion of toxicology studies , and approximately $ 0.6 million from tgtx in connection with the sponsored research agreement with neupharma . a small portion of revenue was also generated in connection with the collaboration agreement with tgtx . revenue for the year ended december 31 , 2016 primarily consisted of $ 1.5 million from tgtx related to the sublicense agreement for ck-103 and approximately $ 1.0 million from tgtx in connection with the sponsored research agreement with neupharma . a small portion of revenue was also generated in connection with the collaboration agreement with tgtx related to patent costs . 44 research and development expenses research and development expenses primarily consist of personnel related expenses , including salaries , benefits , travel , and other related expenses , stock-based compensation , payments made to third parties for license and milestone costs related to in-licensed products and technology , payments made to third party contract research organizations for preclinical and clinical studies , investigative sites for clinical trials , consultants , the cost of acquiring and manufacturing clinical trial materials , costs associated with regulatory filings and patents , laboratory costs and other supplies . for the year ended december 31 , 2017 , research and development expenses were approximately $ 19.1 million , compared to approximately $ 20.3 million for the year ended december 31 , 2016 , a decrease of $ 1.2 million .
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we pay this fee monthly in arrears . australian seasonal credit facility psl utilizes the australian seasonal credit facility to supplement working capital needs during story_separator_special_tag for a discussion of our base business calculations , see the results of operations section below . 2016 financial overview story_separator_special_tag activities will likely continue to gradually improve , we believe that we are well positioned to take advantage of both the eventual market recovery and the inherent long-term growth opportunities in our industry . we established our initial outlook for 2017 based on reasonable expectations of organic market share growth , ongoing leverage of infrastructure and continuous process improvements . for 2017 , we expect the macroeconomic environment in the united states will be quite similar to 2016 . we expect to continue to gain market share through our comprehensive service and product offerings , which we continually diversify through internal sourcing initiatives and expansion into new markets . we also plan to broaden our geographic presence by opening 6 to 8 new sales centers in 2017 and by making selective acquisitions when appropriate opportunities arise . the following section summarizes our outlook for 2017 : we project base business sales growth of 5 % to 7 % , impacted by the following factors and assumptions : โฆ assumed normal weather patterns for 2017 , which contrasts with the favorable weather experienced in 2016 , particularly in the first and fourth quarters ; โฆ anticipated continued growth from replacement , remodeling and construction activity ; โฆ an overall decrease in customer early buy shipments for the full year , mostly impacting the first quarter of 2017 ( projected to bring down sales by 2 % to 4 % compared to the first quarter of 2016 and shift those sales into the remainder of the year ) ; โฆ one less selling day for the full year for 2017 compared to 2016 due to one less selling day in the third quarter of 2017 ( neutral selling days for all other quarters ) ; and โฆ inflationary product cost increases of approximately 1 % to 2 % . we expect relatively neutral gross margin trends for the full year , as we believe our sales growth will continue to be weighted toward sales of lower margin discretionary products . adverse margin impacts should be offset by benefits from our efforts in supply chain management and internal pricing initiatives . we project operating expenses will grow at approximately half the rate of our gross profit growth , reflecting inflationary increases and incremental costs to support our sales growth expectations . excluding the impact from the adoption of new accounting standards , we expect our effective tax rate will be consistent with 2016 . our effective tax rate is dependent upon our results of operations and may change if actual results are different from our current expectations , particularly any significant changes in our geographic mix . upon adoption of accounting standards update ( asu ) 2016-09 , improvements to employee share-based payment accounting , we expect our effective tax rate will fluctuate from quarter to quarter , particularly in periods when employees elect to exercise their vested stock options or when restrictions on share-based awards lapse . based on our comparison of our deferred tax assets for shareโbased compensation to the current intrinsic value of the underlying awards , we expect to recognize material income tax benefits in periods when these transactions occur . we recorded excess tax benefits of $ 7.4 million in stockholders ' equity in 2016 . however we expect the income tax benefit in 2017 will be higher based on the closing price of our common stock at december 31 , 2016. the adoption of this guidance will also increase our diluted weighted average shares outstanding . we project that 2017 earnings will range from $ 3.80 to $ 4.00 per diluted share , which does not include the expected favorable impact from the adoption of asu 2016-09. we expect cash provided by operations will approximate net income for fiscal 2017 , and subject to additional authorization by our board of directors , we anticipate that we will use $ 100.0 million to $ 150.0 million in cash for share repurchases . 20 the forward-looking statements in this current trends and outlook section are subject to significant risks and uncertainties , including changes in the economy and the housing market , the sensitivity of our business to weather conditions , our ability to maintain favorable relationships with suppliers and manufacturers , competition from other leisure product alternatives and mass merchants , and other risks detailed in item 1a of this form 10-k. critical accounting estimates we prepare our consolidated financial statements in accordance with u.s. generally accepted accounting principles ( gaap ) , which requires management to make estimates and assumptions that affect reported amounts and related disclosures . management identifies critical accounting estimates as : those that require the use of assumptions about matters that are inherently and highly uncertain at the time the estimates are made ; and those for which changes in the estimate or assumptions , or the use of different estimates and assumptions , could have a material impact on our consolidated results of operations or financial condition . management has discussed the development , selection and disclosure of our critical accounting estimates with the audit committee of our board . we believe the following critical accounting estimates require us to make the most difficult , subjective or complex judgments . allowance for doubtful accounts we maintain an allowance for doubtful accounts based on an estimate of the losses we will incur if our customers do not make required payments . we perform periodic credit evaluations of our customers and typically do not require collateral . consistent with industry practices , we generally require payment from our north american customers within 30 days , except for sales under early buy programs for which we provide extended payment terms to qualified customers . story_separator_special_tag at the end of each fiscal year , we prepare a hindsight analysis by comparing the prior year-end obsolescence reserve balance to ( i ) current year inventory write-offs and ( ii ) the value of products with no sales for the past 12 months that remain in inventory . based on our hindsight analysis , we concluded that our prior year reserve was within a range of acceptable estimates and that our reserve methodology is appropriate . if the balance of our inventory reserve increased or decreased by 20 % at december 31 , 2016 , pretax income would change by approximately $ 1.3 million and earnings per share would change by approximately $ 0.02 per diluted share ( based on the number of weighted average diluted shares outstanding for the year ended december 31 , 2016 ) . 22 vendor programs many of our vendor arrangements provide for us to receive specified amounts of consideration when we achieve any of a number of measures . these measures generally relate to the volume level of purchases from our vendors and may include negotiated pricing arrangements . we account for vendor programs as vendor incentives , and accordingly as a reduction of the prices of the vendor 's products and therefore a reduction of inventory until we sell the product , at which time we recognize such incentives as a reduction of cost of sales in our income statement . throughout the year , we estimate the amount earned based on our estimate of total purchases for the fiscal year relative to the purchase levels that mark our progress toward the attainment of various levels within certain vendor programs . we accrue vendor incentives on a monthly basis using these estimates provided that we determine they are probable and reasonably estimable . our estimates for annual purchases , future inventory levels and sales of qualifying products are driven by our sales projections , which can be significantly impacted by a number of external factors including weather and changes in economic conditions . changes in our purchasing mix also impact our estimates , as program rates can vary depending on our volume of purchases from specific vendors . we continually revise these estimates throughout the year to reflect actual purchase levels and identifiable trends . as a result , our estimated quarterly vendor incentive accruals may include cumulative catch-up adjustments to reflect any changes in our estimates between reporting periods . these adjustments tend to have a greater impact on gross margin in the fourth quarter since it is our seasonally slowest quarter and because the majority of our vendor arrangements are based on calendar year periods . we update our estimates for these arrangements at year end to reflect actual annual purchase levels . in the first quarter of the subsequent year , we prepare a hindsight analysis by comparing actual vendor credits received to the prior year vendor receivable balances . based on our hindsight analysis , we concluded that our vendor program estimates were within a range of acceptable estimates and that our estimation methodology is appropriate . if market conditions were to change , vendors may change the terms of some or all of these programs . although such changes would not affect the amounts we have recorded related to products already purchased , they may lower or raise our cost for products purchased and sold in future periods . income taxes we record deferred tax assets and liabilities based on differences between the financial reporting and tax basis of assets and liabilities using currently enacted rates and laws that will be in effect when we expect the differences to reverse . due to changing tax laws and state income tax rates , significant judgment is required to estimate the effective tax rate expected to apply to tax differences that are expected to reverse in the future . as of december 31 , 2016 , we have not provided for united states income taxes on undistributed earnings of our foreign subsidiaries , as we have invested or expect to invest the undistributed earnings indefinitely . if these earnings are repatriated to the united states in the future , or if we determine that the earnings will be remitted in the foreseeable future , additional tax provisions may be required . determining the amount of unrecognized deferred tax liability on these undistributed earnings is not practicable due to the complexity of tax laws and regulations and the varying circumstances , tax treatments and timing of any future repatriation . we hold , through our wholly owned affiliates , cash balances in the countries in which we operate , including amounts held outside the united states . most of the amounts held outside the united states could be repatriated to the united states , but under current law , may be subject to united states federal income taxes , less applicable foreign tax credits . repatriation of some foreign balances is restricted by local laws including the imposition of withholding taxes in some jurisdictions . historically our foreign locations have not generated adequate earnings to both repatriate to the united states and fund foreign operations . those historical and future foreign earnings will remain permanently reinvested and be used to support our foreign operations and pay non-u.s. obligations . we have operations in 39 states , 1 united states territory and 11 foreign countries . the amount of income taxes we pay is subject to adjustment by the applicable tax authorities . we are subject to regular audits by federal , state and foreign tax authorities . we recognize a benefit from an uncertain tax position only after determining it is more likely than not that the tax position will withstand examination by the applicable taxing authority . our estimate for the potential outcome of any uncertain tax issue is highly judgmental . we regularly evaluate our tax positions and incorporate these expectations into our reserve estimates . we believe we have adequately provided for any reasonably foreseeable outcome related to these matters .
| financial results 2016 proved to be a year of excellent results . we attribute solid sales growth and even stronger profit growth to a combination of favorable weather and strong execution . net sales for the year ended december 31 , 2016 in creased 9 % compared to 2015 . base business sales of 7 % accounted for much of this increase . warmer than average temperatures , especially in the beginning and end of the year , lengthened the 2016 season and benefited sales . sales were also bolstered by growth in pool remodeling , equipment replacement , commercial products and swimming pool construction . gross profit for the year ended december 31 , 2016 in creased 10 % over 2015 . gross profit as a percentage of net sales ( gross margin ) grew 20 basis points to 28.8 % for 2016 compared to 28.6 % in 2015. gross margin for the year benefited from continued improvements in supply chain management and disciplined execution . selling and administrative expenses ( operating expenses ) for 2016 in creased 6 % from 2015 , with base business operating expenses up approximately 4 % over last year . the increase in base business operating expenses was primarily due to higher growth-driven labor costs , building rent and freight . operating income for the year improved 18 % over 2015 . operating income as a percentage of net sales ( operating margin ) increased to 10.0 % in 2016 compared to 9.1 % in 2015 . net income attributable to pool corporation increased 16 % compared to 2015 , while earnings per share was up 20 % to $ 3.47 per diluted share . financial position and liquidity cash provided by operations was $ 165.4 million in 2016 and exceeded net income by $ 16.8 million . combined with $ 109.4 million in net proceeds from borrowings , cash from operating activities helped fund the following initiatives : share repurchases in the open market of $ 175.6
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a reconciliation of the beginning and ending amounts of gross unrecognized tax benefits is presented below . replace_table_token_36_th all unrecognized tax benefits would , if recognized , impact the effective tax rate . we expect to settle certain state and foreign tax audits within the next 12 months and believe it is reasonably possible that these audit settlements will reduce the gross unrecognized tax benefits by $ 1.9 million within the next 12 months . we recognize interest related to uncertain tax positions as interest expense and would recognize any penalties that may be incurred as a component of selling , general and administrative expenses . at september 30 , 2011 and 2010 , we had $ 1.8 million and $ 2.0 million , respectively of accrued interest related to unrecognized tax benefits . the federal income tax returns story_separator_special_tag the following discussion should be read in conjunction with the audited consolidated financial statements and notes thereto that appear elsewhere in this annual report . this report contains certain statements that may be deemed โ forward-looking statements โ within the meaning the private securities litigation reform act of 1995. all statements , that address activities , events or developments that the company 's management intends , expects , plans , projects , believes or anticipates will or may occur in the future are forward-looking statements . examples of forward-looking statements include , but are not limited to , statements we make regarding general economic conditions , spending by municipalities , the outlook for the residential and non-residential construction markets , the market reception of mueller systems ' and echologics ' products and services , the remediation of the material weakness in our internal control over financial reporting and the outcome of our evaluation of strategic alternatives for us pipe and the impact of these factors on our businesses . forward-looking statements are based on certain assumptions and assessments made by management in light of their experience and their perception of historical trends , current conditions and expected future developments . actual results and the timing of events may differ materially from those contemplated by the forward-looking statements due to a number of factors , including regional , national or global political , economic , business , competitive , market and regulatory conditions and the following : the spending level for water and wastewater infrastructure ; the level of manufacturing and construction activity ; our ability to service our debt obligations ; and the other factors that are described in the section entitled โ risk factors โ in item 1a . of this annual report . undue reliance should not be placed on any forward-looking statements . the company does not have any intention or obligation to update forward-looking statements , except as required by law . 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 28,750,000 shares of series a common stock and in december 2006 , walter energy distributed to its shareholders all of its equity interests in the company , consisting of all of the company 's outstanding shares of series b common stock . on january 28 , 2009 , each share of series b common stock was converted into one share of series a common stock . unless the context indicates otherwise , whenever we refer to a particular year , we mean the fiscal year ended or ending september 30 in that particular calendar year . we manage our businesses and report operations through three business segments : mueller co. , us pipe and anvil , based largely on the products sold and the customers served . business most of the net sales of mueller co. and us pipe are for water infrastructure related directly to municipal spending and residential construction activity in the united states . anvil sells primarily to non-residential construction businesses in the united states . spending on water infrastructure by municipalities is based on the condition of their infrastructure systems and their access to funding . funding generally comes from their overall fiscal condition , the availability of additional capital from the issuance of debt , higher tax rates or increased water rates . municipalities may find it challenging to increase tax or water rates . within our end markets , we have seen little change with residential construction activity since september 30 , 2010. annualized housing starts in calendar 2012 are independently forecast to be about 0.7 million units , which is less than half of the 50-year average of about 1.5 million units per year . based on these forecasts of housing starts , we do not expect substantial near-term recovery in residential construction , and we expect our related sales growth within our water infrastructure businesses to lag any recovery in the residential construction market . independent forecasts of non-residential construction activity indicate calendar 2012 will be similar to calendar 2011. most of our manufacturing facilities are operating significantly below their optimal capacities . since the end of 2008 , we have reduced headcount , consolidated facilities , reduced operating days and reduced overall spending activities in response to lower demand for our products . we adjust our production activities in response to evolving business conditions and we expect to take additional steps to improve financial results . story_separator_special_tag excluding these gains , income from operations increased $ 14.8 million due to $ 12.3 million of higher gross profit and $ 2.5 million of lower selling , general and administrative expenses , primarily as a result of expenses related to the divested businesses . corporate selling , general and administrative expenses decreased to $ 31.9 million in 2011 from $ 33.4 million in 2010 primarily due to lower employee-related costs . 29 index to financial statements year ended september 30 , 2010 compared to year ended september 30 , 2009 replace_table_token_9_th replace_table_token_10_th consolidated analysis net sales for 2010 decreased to $ 1,337.5 million from $ 1,427.9 million in 2009. net sales decreased $ 90.0 primarily due to the divestiture of two anvil businesses and $ 35.8 million due to lower pricing at us pipe . these decreases were partially offset by $ 20.5 million due to higher shipment volumes and $ 14.9 million due to favorable changes in canadian currency exchange rates . gross profit for 2010 decreased to $ 236.4 million from $ 256.9 million in 2009. gross profit decreased $ 35.8 million due to lower sales prices and $ 15.7 million due to the divestiture of two anvil businesses . these decreases were partially offset by $ 17.2 million of manufacturing and other cost savings . gross margin decreased to 17.7 % for 2010 from 18.0 % for 2009. selling , general and administrative expenses for 2010 decreased to $ 219.3 million from $ 239.1 million in 2009 primarily due to the divestiture of two anvil businesses . 30 index to financial statements during 2009 , we suspended production throughout the company for varying time periods in response to reduced demand for our products , implemented temporary compensation reductions , furloughs and reduced work weeks for certain employees and directors and reduced headcount by approximately 17 % . restructuring activities at north birmingham resulted in lower fixed costs , reduced capacity and a $ 38.5 million non-cash restructuring charge , primarily for impairment of property , plant and equipment . 2009 restructuring charges also included $ 9.3 million of mostly severance and other charges . we closed us pipe 's north birmingham facility and recorded a restructuring charge of $ 12.0 million during 2010 , consisting of $ 4.4 million of asset impairment charges and $ 7.6 million of employee-related and other charges . during 2009 , we recorded impairment charges of $ 970.9 million relating to goodwill and other intangible assets . interest expense , net was $ 68.0 million for 2010 compared to $ 78.3 million in 2009. the components of interest expense , net are detailed below . replace_table_token_11_th net interest expense for 2010 declined from 2009 primarily due to lower borrowing levels under the 2007 credit agreement resulting from principal prepayments in june 2009 , august 2009 , september 2009 , january 2010 and the termination of this agreement in august 2010. some of these prepayments led to the cancellation of interest rate swap contracts . all deferred interest expense under interest rate swap contracts at such times was either immediately charged to expense or scheduled to be expensed over the remainder of the original term of the contracts . loss on early extinguishment of debt represents writing off deferred financing fees pursuant to debt prepayments . a net gain of $ 1.5 million from repurchasing $ 5.0 million of our 7.375 % senior subordinated notes on the open market is also included in 2009. the income tax benefit for 2010 included a $ 2.2 million expense related to the repatriation of earnings from canada . after the divestiture of a canadian business early in 2010 , we determined the canadian operations no longer needed approximately $ 21 million of cash , which we repatriated . excluding this item , income tax benefit in 2010 would have resulted in an effective tax rate of 37 % . there was very limited income tax benefit associated with the goodwill impairment recorded in 2009. excluding goodwill impairment , the effective tax rate for 2009 was 38 % . in 2010 and 2009 , the other differences between income taxes and that expected using the u.s. federal statutory rate of 35 % related primarily to state income taxes and non-deductible compensation . segment analysis mueller co. net sales for 2010 increased to $ 612.8 million from $ 547.1 million in 2009. net sales increased primarily due to $ 55.7 million in higher shipment volumes . gross profit for 2010 increased to $ 170.3 million from $ 134.3 million in 2009. gross profit increased $ 20.3 million due to higher shipment volumes and $ 16.8 million due to manufacturing and other cost savings . gross margin was 27.8 % in 2010 compared to 24.5 % in 2009. gross margin increased primarily due to manufacturing and other cost savings . selling , general and administrative expenses in 2010 increased to $ 89.2 million from $ 84.2 million in 2009. these expenses increased primarily due to additional development of our mueller systems meter and metering technology business . 31 index to financial statements we recorded in 2009 impairment and restructuring charges of $ 820.7 million . the impairment charges were $ 717.3 million against goodwill and $ 101.4 against other intangible assets . us pipe net sales for 2010 decreased to $ 377.8 million from to $ 410.9 million in 2009. net sales decreased $ 36.3 million due to lower prices . gross loss for 2010 increased to $ 22.7 million from $ 5.7 million in 2009. gross loss increased primarily due to $ 36.3 million of lower sales prices . this increase was partially offset by $ 9.6 million of lower raw material costs and $ 10.9 million of manufacturing and other cost savings . selling , general and administrative expenses for 2010 decreased to $ 30.5 million from $ 35.6 million in 2009. the amount in 2009 included $ 3.2 million of bad debt expense for a specific customer . the decrease in these expenses is otherwise attributed primarily to lower headcount .
| results of operations year ended september 30 , 2011 compared to year ended september 30 , 2010 replace_table_token_7_th consolidated analysis net sales for 2011 increased to $ 1,339.2 million from $ 1,337.5 million in 2010. net sales increased $ 26.8 million after excluding the net sales of two businesses anvil divested in 2010 of $ 25.1 million . net sales increased $ 56.8 million due to higher pricing across all three business segments and $ 5.2 million of favorable canadian currency exchange rates offset by $ 35.2 million of lower shipment volumes . gross profit for 2011 decreased to $ 234.1 million from $ 236.4 million in 2010. gross profit decreased $ 43.0 million due to higher raw material costs , $ 13.4 million due to lower shipment volumes and $ 5.5 million due to the loss of gross profit from the divested anvil businesses . these factors were substantially offset by $ 56.8 million of higher sales pricing and $ 1.2 million of manufacturing and other cost savings . gross margin was 17.5 % in 2011 and 17.7 % in 2010 . 27 index to financial statements selling , general and administrative expenses in 2011 increased to $ 219.9 million from $ 219.3 million in 2010. selling , general and administrative expenses in 2010 included $ 4.4 million of gains from the sale of two anvil businesses . excluding these gains , selling , general and administrative expenses declined primarily due to expenses related to anvil 's divested businesses . in 2011 and 2010 , we recorded restructuring charges of $ 7.5 million and $ 13.1 million , respectively , related primarily to closing us pipe 's north birmingham facility . interest expense , net was $ 65.6 million in 2011 compared to $ 68.0 million in the prior year period . the components of interest expense , net are detailed below .
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the following table summarizes the cost of amortizable intangible assets related to the acquisition of acquisition sub : replace_table_token_27_th f-20 vertex energy , inc. notes to consolidated financial statements december 31 , 2012 the following unaudited pro-forma consolidated results of operations for the years ended december 31 , 2012 and 2011 assume the acquisition occurred as of january 1 , 2011. the pro forma results of operations are presented for informational purposes only and are not indicative of the results of operations that would have been achieved if the acquisition had taken place on january 1 , 2011 or of results that may occur in the future ( amounts in thousands other than earnings per share ) : replace_table_token_28_th note 16. contingent consideration as part of the consideration paid in connection with the acquisition discussed in note 15 , if certain earning targets are met , the company has to pay the seller approximately $ 2,233,000 story_separator_special_tag strategy and plan of operations the principal elements of our strategy include : ยท expand feedstock supply volume . we intend to expand our feedstock supply volume by growing our collection and aggregation operations . we plan to increase the volume of feedstock we collect directly by developing new relationships with generators and working to displace incumbent collectors ; increasing the number of collection personnel , vehicles , equipment , and geographical areas we serve ; and acquiring collectors in new or existing territories . we intend to increase the volume of feedstock we aggregate from third-party collectors by expanding our existing relationships and developing new vendor relationships . we believe that our ability to acquire large feedstock volumes will help to cultivate new vendor relationships because collectors often prefer to work with a single , reliable customer rather than manage multiple relationships and the uncertainty of excess inventory . ยท broaden existing customer relationships and secure new large accounts . we intend to broaden our existing customer relationships by increasing sales of used motor oil and re-refined products to these accounts . in some cases , we may also seek to serve as our customers ' primary or exclusive supplier . we also believe that as we increase our supply of feedstock and re-refined products that we will secure larger customer accounts that require a partner who can consistently deliver high volumes . ยท re-refine higher value end products . we intend to develop , lease , or acquire technologies to re-refine our feedstock supply into higher-value end products , including assets or technologies which complement tcep . currently , we are using tcep to re-refine used oil feedstock into cutterstock for use in the marine fuel market . we believe that the expansion of our tcep facilities and our technology , and investments in additional technologies , will enable us to upgrade feedstock into end products , such as lubricating base oil , that command higher market prices than the current re-refined products we produce . ยท expand tcep re-refinement capacity . we intend to expand our tcep capacity by building additional tcep facilities to re-refine feedstock . we believe the tcep technology has a distinct competitive advantage over conventional re-refining technology because it produces a high-quality fuel oil product , and the capital expenditures required to build a tcep plant are significantly lower than a comparable conventional re-refining facility . by continuing the transition from our historical role as a value-added logistics provider to operating as a re-refiner , we believe we will be able to leverage our feedstock supply network and aggregation capabilities to upgrade a larger percentage of our feedstock inventory into higher value end products which we believe should lead to increased revenue and gross margins . we intend to build tcep facilities near the geographic location of substantial feedstock sources that we have relationships with through our existing operations or from an acquisition . by establishing tcep facilities near proven feedstock sources , we seek to lower our transportation costs and lower the risk of operating plants at low capacity . ยท pursue selective strategic relationships or acquisitions . we plan to grow market share by consolidating feedstock supply through partnering with or acquiring collection and aggregation assets . such acquisitions and or partnerships could increase our revenue and provide better control over the quality and quantity of feedstock available for resale and or upgrading as well as providing additional locations for the implementation of tcep . in addition , we intend to pursue further vertical integration opportunities by acquiring complementary recycling and processing technologies where we can realize synergies by leveraging our customer and vendor relationships , infrastructure , and personnel , and by eliminating duplicative overhead costs . ยท alternative energy project development . we will continue to evaluate and potentially pursue various alternative energy project development opportunities . these opportunities may be a continuation of the projects sourced originally by world waste technologies , inc. , a development stage municipal solid waste conversion company we merged with in april 2009 , and or may include new projects initiated by us . 31 in connection with the above elements of our business strategy , and in order to further strengthen our foothold in the collection and re-refining business , improve profitability and simplify related party transactions , the company acquired substantially all of the assets and liabilities of holdings on september 11 , 2012 pursuant to the acquisition , as described above under โ business โ โ โ recent acquisition โ . story_separator_special_tag the resulting operating cash flow is crucial to the viability and growth of our existing business lines . we had total assets of $ 49,102,377 as of december 31 , 2012 compared to $ 16,733,971 at december 31 , 2011. this significant increase was mainly due to the acquisition of holdings ' assets which included fixed assets of $ 11,617,368 consisting of five used oil collection branch locations and associated storage facilities and rolling stock ( collection and transport trucks ) , a 19 acre tank terminal storage facility located on the houston ship-channel , and a small trucking operation . in addition it included $ 15,934,724 of intangible assets which represented the value of the purchase of the patents and technology related to the tcep operation . the increase was also due to the $ 3,658,267 of net income which was generated during the twelve month period ended december 31 , 2012 ; a $ 132,752 increase in cash and cash equivalents as of december 31 , 2012 compared to the year ended december 31 , 2011 , as well as a $ 1,724,774 increase in accounts receivable , net , as of december 31 , 2012 , compared to december 31 , 2011. the increase in assets was offset by the $ 1,804,389 of acquisition related adjustments associated with the purchase price allocation of the holdings ' acquisition . total current assets as of december 31 , 2012 of $ 14,331,308 consisted of cash and cash equivalents of $ 807,940 , accounts receivable , net of $ 7,160,780 , inventory of $ 5,870,121 , and prepaid expenses of $ 492,467. long term assets consisted of fixed assets , net of $ 11,617,368 , an intangible asset in the amount of $ 15,934,724 , which represents the value of the company 's tcep patent , and $ 3,515,977 of goodwill ( booked in connection with the acquisition of holdings ) . as of december 31 , 2012 , as a result of the acquisition , the company owns outright and no longer licenses the tcep technology . in addition , mainly as a result of the approximately $ 36 million of net operating losses that may be used to offset taxable income generated by the company in future periods , the company has recorded a deferred federal income tax asset of $ 3,703,000 as of december 31 , 2012 and $ 2,006,000 as of december 31 , 2011. our cash , accounts receivable , inventory and accounts payable fluctuate and are somewhat tied to one another based on the timing of our inventory cycles and sales . we had total current liabilities of $ 10,618,563 as of december 31 , 2012 , compared to $ 7,320,474 at december 31 , 2011. this increase was largely due to the increase in our accounts payable during the twelve months ended december 31 , 2012 of $ 2,405,041 , in addition and in connection with the acquisition , the company obtained a term loan with bank of america of which the current portion outstanding at december 31 , 2012 was $ 1,700,000. we had total liabilities of $ 28,702,020 as of december 31 , 2012 , including current liabilities of $ 10,618,563 and long-term liabilities of $ 18,083,457 , which included $ 6,281,457 of long-term debt representing amounts due on the term note , line of credit of $ 6,750,000 , representing amounts borrowed under the revolving note , $ 4,711,000 of contingent consideration relating to the earn-out payments associated with the acquisition , and $ 341,000 of deferred federal income tax . we had working capital of $ 3,712,745 as of december 31 , 2012 , compared to working capital of $ 5,353,780 as of december 31 , 2011. the reduction in working capital from december 31 , 2011 to december 31 , 2012 is mainly due to liabilities assumed as a result of and incurred in connection with the acquisition . 36 our future operating cash flows will vary based on a number of factors , many of which are beyond our control , including commodity prices , the cost of recovered oil , and the ability to turn our inventory . other factors that have affected and are expected to continue to affect earnings and cash flow are transportation , processing , and storage costs . over the long term , our operating cash flows will also be impacted by our ability to effectively manage our administrative and operating costs . additionally , we may incur future capital expenditures related to new tcep facilities . in september 2010 , we entered into a loan agreement with bank of america merrill lynch . pursuant to the loan agreement , bank of america merrill lynch agreed to loan up to $ 3,500,000 in the form of a revolving line of credit . the line of credit accrued interest at the bank 's libor rate plus 3 % , adjusted daily , and was originally due on september 16 , 2011 ( provided that the parties subsequently entered into various extensions of the line of credit , extending the due date to march 31 , 2014 ) . the loan agreement was terminated pursuant to our entry into the credit agreement described below . we had not borrowed any funds under the loan agreement at the time it was terminated , and as such $ 3,500,000 was available under such loan agreement . on september 11 , 2012 , we entered into a credit agreement with the lender effective as of august 31 , 2012 , pursuant to which we borrowed $ 8,500,000 in the form of a term loan , which is evidenced by a term note , and the lender agreed to provide us with an additional $ 10,000,000 revolving credit facility ( the โ credit facility โ ) , which is evidenced by a revolving note .
| results of operations description of material financial line items : revenues we generate revenues from two existing operating divisions as follows : black oil - revenues for our black oil division are comprised primarily of feedstock sales ( used motor oil ) which are purchased from generators of used motor oil such as oil change shops and garages , as well as a network of local and regional suppliers . volumes are consolidated for efficient delivery and then sold to third-party re-refiners and fuel oil blenders for the export market . in addition , through used oil re-refining , we re-refine used oil through tcep . the finished product is then sold by barge as a fuel oil cutterstock and a feedstock component for major refineries . refining and marketing - the refining and marketing division generates revenues relating to the sales of finished products . the refining and marketing division gathers hydrocarbon streams in the form of petroleum distillates , transmix and other chemical products that have become off-specification during the transportation or refining process . these feedstock streams are purchased from pipeline operators , refineries , chemical processing facilities and third-party providers , and then processed at a third-party facility under our direction . the end products are typically three distillate petroleum streams ( gasoline blendstock , pygas and fuel oil cutterstock ) , which are sold to major oil companies or to large petroleum trading and blending companies . the end products are delivered by barge and truck to customers . our revenues are affected by changes in various commodity prices including crude oil , natural gas and # 6 oil . cost of revenues black oil - cost of revenues for our black oil division are comprised primarily of feedstock purchases from a network of providers . other cost of revenues include processing costs , transportation costs , purchasing and receiving costs , analytical assessments , brokerage fees and commissions , and surveying and storage costs .
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risk factors of this annual report on form 10-k and โ cautionary statement โ contained in item 1. business of this annual report on form 10-k for a discussion of the uncertainties , risks and assumptions associated with these statements . overview we are a leading supplier and manufacturer of structural and related building products for residential new construction in the u.s. we offer an integrated solution to our customers providing manufacturing , supply and installation of a full range of structural and related building products . our manufactured products include our factory-built roof and floor trusses , wall panels and stairs , aluminum and vinyl windows , custom millwork and trim , as well as engineered wood that we design and cut for each home . we also assemble interior and exterior doors into pre-hung units . additionally , we supply our customers with a broad offering of professional grade building products not manufactured by us , such as dimensional lumber and lumber sheet goods , various window , door and millwork lines , as well as cabinets , roofing and hardware . our full range of construction-related services includes professional installation , turn-key framing and shell construction , and spans all our product categories . we group our building products into five product categories : โ prefabricated components . our prefabricated components consist of wood floor and roof trusses , steel roof trusses , wall panels , stairs , and engineered wood . โ windows & doors . our windows & doors category is comprised of the manufacturing , assembly , and distribution of windows and the assembly and distribution of interior and exterior door units . โ lumber & lumber sheet goods . lumber & lumber sheet goods include dimensional lumber , plywood , and osb products used in on-site house framing . โ millwork . millwork includes interior trim , exterior trim , columns and posts that we distribute , as well as custom exterior features that we manufacture under the synboard ยฎ brand name . โ other building products & services . other building products & services are comprised of products such as cabinets , roofing and insulation and services such as turn-key framing , shell construction , design assistance , and professional installation spanning all of our product categories . our operating results are dependent on the following trends , events and uncertainties , some of which are beyond our control : โ homebuilding industry . our business is driven primarily by the residential new construction market , which is in turn dependent upon a number of factors , including demographic trends , interest rates , consumer confidence , employment rates , foreclosure rates , and the health of the economy and mortgage markets . during the housing downturn , which began in 2006 , many homebuilders significantly decreased their starts because of lower demand and an excess of home inventory . the housing market started to strengthen in 2011. according to the u.s. census bureau , annual u.s. single-family housing starts were 647,300 in 2014. however , single-family housing starts remain well below the historical average ( from 1959 through 2013 ) of 1.0 million per year . due to the lower levels in housing starts and increased competition for homebuilder business , we have and will continue to experience pressure on our gross margins . we still believe there are several meaningful trends that indicate u.s. housing demand will likely recover in the long term and that the recent downturn in the housing industry is likely a trough in the cyclical nature of the residential construction industry . these trends include relatively low interest rates , the aging of housing stock , and normal population growth due to immigration and birthrate exceeding death rate . industry forecasters , including the nahb , expect to see continued improvement in housing demand over the next few years . โ targeting large production homebuilders . over the past ten years , the homebuilding industry has undergone consolidation , and the larger homebuilders have increased their market share . we expect that trend to continue as larger homebuilders have better liquidity and land positions relative to the smaller , less capitalized homebuilders . our focus is on maintaining relationships and market share with these customers while balancing the competitive pressures we are facing in servicing large homebuilders with certain profitability expectations . our sales to the โ builder 100 , โ the country 's largest 100 homebuilders , increased 8.1 % during 2014 , compared to a 7.7 % increase in our total sales for the year . we expect that our ability to maintain strong relationships with the largest builders will be vital to our ability to expand into new markets as well as grow our market share . additionally , we have been successful in expanding our custom homebuilder base while maintaining acceptable credit standards . 23 โ use of prefabricated components . prior to the housing downturn , homebuilders were increasingly using prefabricated components in order to realize increased efficiency and improved quality . shortening cycle time from start to completion was a key imperative of the homebuilders during periods of strong consumer demand . during the housing downturn , that trend decelerated as cycle time had less relevance . customers who traditionally used prefabricated components , for the most part , still do . however , the conversion of customers to this product offering slowed during the downturn . we are now seeing the demand for prefabricated components increase as the residential new construction market continues to strengthen and the availability of skilled construction labor remains limited . โ economic conditions . economic changes both nationally and locally in our markets impact our financial performance . the building products supply industry is highly dependent upon new home construction and subject to cyclical market changes . story_separator_special_tag accordingly , the results of operations will be included in the company 's consolidated financial statements from their respective acquisition dates . the purchase price will be allocated to the assets acquired based on estimated fair values at the acquisition date , with the excess of purchase price over the estimated fair value of the net assets acquired recorded as goodwill . 2013 facility borrowing on july 31 , 2014 , we borrowed $ 30.0 million under our $ 175.0 million senior secured revolving credit facility ( โ 2013 facility โ ) at an interest rate of 1.98 % . amounts borrowed under our 2013 facility will be used to fund working capital needs and potential future acquisitions . current operating conditions and outlook though the level of housing starts remains near historic lows , the homebuilding industry has shown improvement since 2011. according to the u.s. census bureau , actual u.s. single-family housing starts for 2014 were 647,300 , an increase of 4.8 % compared to 2013 , but approximately 55.8 % lower than when the downturn began in 2006. actual single-family starts in the south region , as defined by the u.s. census bureau and which encompasses our entire geographic footprint , increased to 345,500 in the current year , up 6.0 % from 2013 , while single-family units under construction in the south region increased 14.0 % compared to 2013. while the housing industry has strengthened over the past few years , the limited availability of credit to smaller homebuilders and potential homebuyers and the slow economic recovery , among other factors , have hampered a stronger recovery . the nahb is forecasting 803,500 u.s. single-family housing starts for 2015 , which is an increase of 24.2 % from 2014. however , our internal forecasts are based on a more conservative 715,000 u.s. single-family housing starts for 2015. we achieved a 7.7 % increase in sales during 2014 as compared to the prior year . excluding the impact of recent acquisitions , we estimate sales increased 7.9 % due to increased volume , which was partially offset by a 2.1 % decrease due to the impact of commodity price deflation on sales , while sales increased an additional 1.9 % due to recent acquisitions during the year ended december 31 , 2014 compared to the prior year . we believe our broad offering of products and services will allow us to continue to gain market share and expand our customer base . our gross margin percentage increased 0.8 % year over year primarily due to improved customer pricing and lower volatility in commodity lumber prices in 2014 compared to 2013. we made significant changes to our business during the downturn that have improved our operating efficiency and allowed us to better leverage our operating costs against changes in sales . however , our selling , general , and administrative expenses , as a percentage of sales , increased 0.9 % in the current year compared to 2013 primarily due to the negative impact of commodity price deflation on our sales in 2014 as well as incremental expense associated with increasing our capacity in anticipation of increasing sales volumes . we still believe the long-term outlook for the housing industry is positive due to growth in the underlying demographics . we feel we are well-positioned to take advantage of the construction activity in our markets and to continue to increase our market share , which may include strategic acquisitions . we will continue to focus on working capital by closely monitoring the credit exposure of our customers and by working with our vendors to improve our payment terms and pricing on our products . we will also continue to work diligently to achieve the appropriate balance of short-term expense control while maintaining the expertise and capacity to grow the business as market conditions improve . we want to create long-term shareholder value and avoid taking steps that will limit our ability to compete . 25 story_separator_special_tag gross margin percentage increased 0.9 % due to improved customer pricing , 0.5 % due to leveraging fixed costs within cost of goods sold and 0.1 % due to improved sales mix . selling , general and administrative expenses . selling , general and administrative expenses increased $ 49.6 million , or 22.3 % . our salaries and benefits expense , excluding stock compensation expense , was $ 171.7 million for 2013 , an increase of $ 34.1 million from 2012. delivery expenses increased $ 6.7 million primarily due to higher fuel costs and increased maintenance costs on vehicles as a result of increased sales volume . occupancy expenses increased $ 1.6 million and our office general and administrative expense increased $ 6.5 million , primarily due to increased sales volumes in 2013. as a percent of sales , selling , general and administrative expenses , excluding asset impairments and stock compensation expense , decreased from 20.4 % in 2012 to 18.0 % in 2013. salaries and benefits expense , excluding stock compensation expense , decreased 1.3 % and delivery costs decreased by 0.7 % . occupancy decreased by 0.4 % due to the fixed nature of the category and our office general and administrative expense decreased 0.1 % . interest expense , net . interest expense was $ 89.6 million in 2013 , an increase of $ 44.5 million primarily related to our 2013 refinancing . the increase includes $ 6.8 million of unamortized debt discount and $ 2.1 million of debt issuance cost write-offs , as well as a $ 39.5 million prepayment premium all related to the early termination of our term loan . these increases were partially offset by a $ 3.5 million decrease in fair value adjustments in 2013 from 2012 on the warrants issued as part of the term loan entered into in 2011. income tax expense . we recorded income tax expense of $ 0.8 million and $ 0.6 million during 2013 and 2012 , respectively .
| results of operations the following table sets forth the percentage relationship to sales of certain costs , expenses and income items for the years ended december 31 : replace_table_token_4_th 2014 compared with 2013 sales . sales for the year ended december 31 , 2014 were $ 1,604.1 million , a 7.7 % increase from sales of $ 1,489.9 million for 2013. excluding the impact of recent acquisitions our sales grew 5.8 % for the year ended december 31 , 2014 compared to the prior year . according to the u.s census bureau , actual u.s. single-family housing starts increased 4.8 % in 2014 as compared to 2013. in the south region , actual single-family starts increased 6.0 % compared to 2013 , and single-family units under construction increased 14.0 % over this same time period . excluding the impact of recent acquisitions , we estimate sales increased 7.9 % due to increased volume , which was partially offset by a 2.1 % decrease due to the impact of commodity price deflation on sales , while sales increased an additional 1.9 % due to recent acquisitions during the year ended december 31 , 2014 compared to the prior year . the following table shows sales classified by major product category ( dollars in millions ) : replace_table_token_5_th increased sales were achieved across all product categories , except lumber and lumber sheet goods , primarily due to increased volume . the decrease in sales for lumber and lumber sheet goods is primarily attributable to the impact of commodity price deflation , which was mostly offset by an increase in volume , for the year ended december 31 , 2014 compared to the prior year . gross margin . gross margin increased $ 37.1 million to $ 357.0 million . our gross margin percentage increased from 21.5 % in 2013 to 22.3 % in 2014 , a 0.8 % increase .
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overview tomi environmental solutions , inc. ( โ tomi โ , โ we โ and โ our โ ) is a global provider of disinfection and decontamination essentials through our premier binary ionization technology ยฎ ( bit ) platform , under which we manufacture , license , service and sell our steramist brand of products , including steramist ยฎ bit , a hydrogen peroxide-based mist/fog . 17 in response to the 2001 anthrax spore attacks , the united states defense advanced research projects agency ( โ darpa โ ) and a leading defense company , titan corporation , developed bit to defend against chemical and biological agents under a darpa grant . in june 2005 , l-3 communications , inc. ( โ l-3 communications โ ) a leading defense company , acquired the technology through the acquisition of titan corporation . in 2011 , tomi recognized the importance of this disruptive and innovative technology and , after two years of negotiations , won the right to purchase the technology from l-3 communications . subsequently , we began the long process of registering bit with the environmental protection agency ( โ epa โ ) , using good laboratory practice testing . tomi introduced steramist to the commercial market in june 2013 , using our inherited and pre-existing epa mold label . in june 2015 , we successfully registered steramist bit as a hospital-healthcare disinfectant and broad-spectrum general use disinfectant for use as a misting/fogging agent , at which time our technology became the first epa-registered hospital-healthcare disinfectant solution and equipment on the market . tomi proudly maintains this registration and we continuously update our label with additional pathogens . tomi 's cold plasma technology produces ionized hydrogen peroxide ( ihp , a mist/fog consisting of reactive oxygen species , mainly hydroxyl radicals ( โ . oh โ ) . this technology converts tomi 's bit solution , which contains only one active ingredient , a low-percentage hydrogen peroxide solution to . oh by passing it through an atmospheric cold plasma arc . markets tomi 's steramist products are designed to address multiple industries with various needs . our operations are organized into four main divisions based on our current target industries : life sciences , hospital-healthcare , tomi service network and food safety . tomi is committed to customer satisfaction and client retention in all of our divisions both domestically and internationally . our core values revolve around our commitment to the reduction of harmful pathogens and combating public health threats worldwide , which are evidence by our motto of innovating for a safer world ยฎ . regulation and registrations under united states federal guidelines , tomi is required to register with the epa and certain state regulatory authorities as a seller of solution and technology . steramist bit holds epa registrations both as a hospital-healthcare and general disinfectant ( epa registration 90150-2 ) and for mold control air and surface remediation ( epa registration 90150-1 ) . in february 2016 , we expanded our label with the epa to include c. diff spores . methicillin-resistant staphylococcus aureus ( mrsa ) , and influenza virus h1n1 . in august 2017 , our epa label was further expanded to include efficacy against salmonella and norovirus . as of january 2017 , our product line is one of fifty-three ( 53 ) published products on the epa 's โ registered antimicrobial products effective against clostridium difficile spores โ , the epa 's k list . in december 2017 , steramist ยฎ earned publications on epa lists g , l and m , which pertain to norovirus , ebola , and avian influenza ( h1n1 ) , respectively . since 2016 , the steramist bit epa-registered label has been accepted in all 50 u.s. states , and over 20 countries worldwide including the eu , canada and taiwan which registrations we continue to maintain . we have expanded our steramist ยฎ bit technology beyond the initial chemical and biological warfare applications to resistant microorganisms ( including spores ) in a wide variety of commercial and residential settings . steramist ยฎ bit is designed to provide fast-acting biological six-log reduction , which is a 99.9999 % kill , and works in hard-to-reach areas , leaving no residue , requiring no manual wiping , and leaves behind no noxious fumes . all of the steramist ยฎ products are fully validated to comply with good manufacturing practice standards , have received ce marks in the european economic area and are approved by ul . our solution is manufactured at an epa-registered solution blender and our products are manufactured in an iso 9001 certified facility . products we continue to offer our customers a wide range of innovative products designed to be easily incorporated into their existing disinfection and decontamination procedures . in addition , we offer equipment installations , qualifications , and performance maintenance needs all of which are structured to address ihp ยฎ service disinfection and decontamination needs globally . 18 divisions life sciences tomi 's steramist ยฎ . environment system , ihp decontamination complete room , steramist ยฎ select surface unit , ihp implementation to decontamination chambers and cage washers , and our ihp ยฎ service division , are designed to provide a complete room solution to address the regulatory inspections of disinfecting/decontaminating and validation processes within the life sciences industry . hospital-healthcare in 2018 , tomi launched the e-z steramist ยฎ disinfection cart , an all-in-one cart that houses our handheld point-and-spray steramist ยฎ surface unit as well as accompanying supplies . this product is designed to make the terminal cleaning process of patient rooms more efficient than traditional manual cleaning methods . we believe that our e-z steramist disinfection cart will allow our customers within the hospital-healthcare industry to address the growing concern regarding the increasing high level of transference of pathogens including multiple drug resistant organisms ( mdro 's ) leading to hai 's from hospital and healthcare related environmental surfaces and equipment to patients and healthcare workers . story_separator_special_tag research studies we continue to participate in a large study , a โ shield study โ , that compares hospital manual cleans to a steramist ยฎ mechanical clean . this study is being conducted at los angeles public health hospitals ; ucla olive view medical center , harbor-ucla medical center . preliminary results have shown that there has been a significant decrease in the transference of pathogens resulting in hais and c. difficile infections in the rooms that used steramist ยฎ for their terminal clean , as compared to the rooms that have been manually cleaned . future results will be released as obtained from the study 's lead investigators . the initial results received from the shield study directly led to the partnership between tomi and maxair formed in 2018. tomi developed a terminal clean protocol that is less than one hour . maxair developed a purifying respiratory protection helmet , this high-tech helmet pushes 6-liters of cool clean air to the face of the hospital environmental service employees and outside service providers during tomi 's hospital terminal clean protocol . tomi and one of our corporate partners have continued agricultural testing with the usda to determine the efficacy of steramist ยฎ against viral threats to honey bees and hives . initial results from such testing suggest that steramist ยฎ may be effective in inactivating such virus threating this particular vertical . 20 in the third quarter of 2018 , a major global agricultural seed distributor began testing the efficacy of steramist ยฎ against common viral , fungal and bacterial threats to corn seeds and various other large and small seeds of size . while testing continues into 2019 , to the extent the results indicate clear efficacy , we intend to pursue all available opportunities within the seed development industry . as for direct crop application , we are targeting those crops grown indoors , in particular , high value crops such as vegetables , mushrooms and cannabis . additionally , with the help of strategic corporate partners , we have conducted tests and obtained positive preliminary results from the application of steramist ยฎ to a particular pathogen that is a current threat to the mushrooms industry . during 2018 , the world health organization ( โ who โ ) published and identified steramist ยฎ as the only โ disinfecting solution and technology โ in its 2016โ2017 โ who compendium of innovative health technologies for low-resource settings โ . as part of the selection process , 562 technologies were evaluated by 35 internal who staffers and 87 external independent reviewers , who presented no conflict of interest . once these evaluations were received and the data compiled , a total of 39 prototypes and 29 commercially available products were selected and presented in the compendium in order to illustrate the innovative technologies that can empower healthcare workers with the goal of supporting people and patients to have a healthier life . steramist was the only disinfecting technology cited . in september 2018 , we partnered with the global biorisk advisory council ( โ gbac โ ) to use steramist ยฎ as one of the training technologies used in their certification classes . this also allows for the decontamination of everyday crises as well as forensic restoration and bio-hazard scenes as needed . tomi also launched the forensic restoration service team ( or โ frst โ ) , a u.s. based tomi-certified forensic restoration and crime clean network . this network is comprised of service providers who specialize in forensic restoration such as mass casualty , crime scene , suicide and unattended death cleanup . also included within this field are hoarding and bio-recovery services . participating frst members will receive specialized training and certifications by gbac . we have four ( 4 ) certified frst members to date . registrations : in 2018 , we received our taiwan registration and added our canadian label to the organic materials review institute ( โ omri โ ) certifying that our product follows canadian organic standards adding to our already robust bit solution registrations . marketing and advertising campaigns : in early 2018 we established a plan to increase our marketing and advertising initiatives in order to further build brand awareness . as a result of our digital campaigns that were carried out in 2018 , our website statistics have improved significantly from 2017 to 2018. with our continual efforts in advertising within targeted publications , google search engine optimized campaigns , and organic brand awareness built by our team we further increased our digital footprint . we have increased our 2017 to 2018 digital advertising in publications impressions . our marketing director continues to focus on digital campaigns to drive users to tomi 's website with the goal of creating higher lead conversations . during 2018 we also attended fifty-two ( 52 ) national , state and local tradeshows and conferences to increase our growing base of sales leads and further build brand awareness . our increased tradeshow presence has increased our leads , sales opportunities and has resulted in growth in our sales pipeline for 2019. personnel : in january 2018 , we appointed our new chief operating officer , elissa shane , who had previously served us in other roles for several years , and in january 2018 , we announced the appointment of dr. lim boh soon to our board . in 2018 , we allocated resources into building our sales infrastructure , training on our products and equipment and expanding our internal and sales representative presence . we grew our overall sales force in 2018 compared to 2017 from ( 2 ) to ( 5 ) dedicated internal full-time dedicated sales personnel and from ( 26 ) in 2017 to ( 56 ) independent sales representatives in the u.s. we added consultants to assist with building brand awareness while also providing sales and technical support . internationally , we continuously build our presence by the addition of distributors and representatives throughout asia , australia , europe and south america .
| financial operations overview our financial position as of december 31 , 2018 and 2017 , respectively , was as follows : replace_table_token_1_th during the year ended december 31 , 2018 , our debt and liquidity positions were affected by the following : โ net cash used in operations of approximately $ 1,767,000 ; and โ purchases of property and equipment of approximately $ 628,000 . โ redemption and conversion of convertible notes payable aggregating $ 1,000,000 in principal . results of operations for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 replace_table_token_2_th ( 1 ) includes approximately $ 77,000 and $ 649,000 in non-cash equity compensation expense for the years ended december 31 , 2018 and 2017 , respectively . sales during the years ended december 31 , 2018 and 2017 , we had net revenue of approximately $ 5,585,000 and $ 4,994,000 , respectively , representing an increase in revenue of approximately $ 591,000 or 12 % . the increase in sales in the current year period was attributable to large equipment orders from new customers , and steady repeat solution orders from our existing customer base . 27 net revenue product and service revenue replace_table_token_3_th revenue by geographic region replace_table_token_4_th cost of sales during the years ended december 31 , 2018 and 2017 , our cost of sales was approximately $ 2,467,000 and $ 1,928,000 , respectively , representing an increase of approximately $ 539,000 or 28 % .
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the wholesale segment primarily designs , develops and markets apparel , intimates and activewear . our subscription segment consists of the nuuly brand , which is a monthly women 's apparel subscription rental service that launched on july 30 , 2019. our fiscal year ends on january 31. all references to our fiscal years refer to the fiscal years ended on january 31 in those years . for example , our fiscal year 2021 ended on january 31 , 2021. impact of the coronavirus pandemic on march 11 , 2020 , the world health organization declared the novel strain of coronavirus ( โ covid-19 โ ) a global pandemic and recommended containment and mitigation measures worldwide , causing public health officials to recommend precautions to mitigate the spread of the virus , including warning against congregating in heavily populated areas , such as malls and shopping centers . on march 14 , 2020 , the company announced that it temporarily closed all stores globally ; however , the company continued to fulfill digital orders from its stores where permitted by local authorities . the company 's distribution and fulfillment centers remained open to support the digital business and the wholesale segment operations but have done so with additional safety procedures and enhanced cleaning to protect the health of employees . the company closed its offices and showrooms globally with the exception of location dependent employees . all other corporate and showroom employees are working remotely . the covid-19 pandemic continues to materially impact the company 's operations in the united states and globally , and related government and private sector responsive actions have and will continue to affect its business operations . because it is impossible to predict the effect and ultimate impact of the covid-19 pandemic , current financial information may not be necessarily indicative of future operating results and the company 's plans as described below may change . in response to the covid-19 pandemic , the company has taken many additional measures to protect its financial position and increase financial flexibility during this challenging time period . those included : furloughing a substantial number of store , wholesale and home office associates through july 31 , 2020 , with some furloughs resulting in layoffs as of the same date , limiting all new hiring commensurate with the operational needs of the company , temporarily suspending and since reinstating at a reduced value , all performance bonuses for fiscal 2021 and delaying merit increases for five months until september 2020 , borrowing $ 220.0 million under its amended credit facility ( as defined herein ) to further protect its cash reserves , and subsequently repaying $ 100.0 million on june 17 , 2020 and $ 120.0 million on september 16 , 2020 ( see note 8 , โ debt , โ of the notes to our consolidated financial statements included in this annual report on form 10-k for additional information ) , reducing fiscal 2021 capital budget by over $ 100 million from approximately $ 260 million to approximately $ 160 million by delaying or cancelling projects , adjusting inventory levels by cancelling or delaying many orders , asking for price concessions on those remaining and maintaining tighter management of inventory overall as stores reopened , reducing all discretionary expenses , including creative and travel , among others , extending payment terms for both merchandise and non-merchandise vendor invoices by 30 days , reducing certain occupancy and occupancy related expenses , reducing investments in two company growth initiatives : nuuly and expansion into china , temporarily reducing senior leadership compensation through september 2020 , temporarily suspending board of directors ' cash compensation , which has since been reinstated , and temporarily suspended share repurchases during fiscal 2021 ( see note 12 , โ shareholders ' equity , โ of the notes to our consolidated financial statements included in this annual report on form 10-k for additional information ) . as a result of the covid-19 pandemic , during fiscal 2021 , the company recorded certain additional reserves and non-cash charges . the company assessed the value of its inventory in the retail and wholesale segments and recorded an increase in inventory obsolescence reserves during the first quarter of fiscal 2021 , and as a result of disciplined inventory control and better than planned product performance , during the remainder of fiscal 2021 , the company decreased a portion of its inventory obsolescence reserves . during the first quarter of fiscal 2021 , the company recorded an increase in allowance for doubtful accounts for wholesale segment customer accounts receivables as a result of the significant disruption and uncertainty in the wholesale macro environment , and during the remainder of fiscal 2021 , the company reduced the allowance for doubtful accounts due to the collection of certain outstanding accounts receivables . finally , during fiscal 2021 , the company determined that certain long-lived assets at the company 's retail 20 locations were unable to recover their carrying value primarily due to the impact of the mandated store closures as a result of the covid-19 pandemic and lower store productivity once opened . these assets were written down to their fair value resulting in impairment charges of $ 15.5 million across 42 retail locations . as a result of the covid-19 pandemic , governments in the united states , united kingdom ( โ u.k. โ ) , canada and various other jurisdictions implemented programs to encourage companies to retain and pay employees that are unable to work or are limited in the work that they can perform in light of closures or a significant decline in sales . the company qualified for certain of these programs , which partially offset related expenses . story_separator_special_tag merchandise at the anthropologie brand is tailored to sophisticated and contemporary women aged 28 to 45. the product assortment includes women 's casual apparel , accessories , intimates , shoes , home furnishings , a diverse array of gifts and decorative items and beauty and wellness . the bhldn brand emphasizes every element that contributes to a wedding . the bhldn brand offers a curated collection of heirloom quality wedding gowns , bridesmaid frocks , party dresses , assorted jewelry , headpieces , footwear , lingerie and decorations . the terrain brand is designed to appeal to women and men interested in a creative and sophisticated outdoor living and gardening experience . merchandise includes lifestyle home , garden and outdoor living products , antiques , live plants , flowers , wellness products and accessories . in addition to individual brand stores , the anthropologie group operates expanded format stores that include multiple anthropologie group brands , which allows for the presentation of an expanded assortment of products in certain categories . anthropologie group stores are located in specialty centers , upscale street locations and enclosed malls . the anthropologie group operates websites and mobile applications in north america and europe that capture the spirit of its brands by offering a similar yet broader selection of merchandise as found in its stores , offers a catalog in north america that markets select merchandise , most of which is also available in anthropologie brand stores , and partners with third-party digital businesses to offer a limited selection of merchandise , which is available globally . the anthropologie group 's north american and european retail segment net sales accounted for approximately 36.5 % and 1.7 % of consolidated net sales , respectively , for fiscal 2021 , compared to 39.2 % and 1.7 % , respectively , for fiscal 2020. asian retail segment net sales accounted for less than 1.0 % of consolidated net sales for fiscal 2021 and fiscal 2020. the free people group consists of the free people and fp movement brands . the free people brand focuses its product offering on private label merchandise targeted to young contemporary women aged 25 to 30 and provides a unique merchandise mix of casual women 's apparel , intimates , fp movement activewear , shoes , accessories , home products , gifts and beauty and wellness . the fp movement brand offers performance-ready activewear , beyond-the-gym staples and wellness essentials . free people group stores are located in enclosed malls , upscale street locations and specialty centers . we opened two fp movement stores during fiscal 2021 and expect to open additional stores in fiscal 2022 and thereafter to further capitalize on the growth opportunity and unique position that fp movement has in the fitness and wellness space . the free people group operates websites and mobile applications in north america , europe and asia that capture the spirit of the brand by offering a similar yet broader selection of merchandise as found in its stores , as well as substantially all of the free people and fp movement wholesale offerings . the free people group also offers catalogs that market select merchandise , most of which is also available in our free people and fp movement stores , and partners with third-party digital businesses to offer a limited selection of merchandise , which is available globally . the free people group 's north american retail segment net sales accounted for approximately 14.6 % of consolidated net sales for fiscal 2021 , compared to approximately 12.5 % for fiscal 2020. european and asian retail segment net sales each accounted for less than 1.0 % of consolidated net sales for fiscal 2021 and fiscal 2020. the menus & venues brand focuses on a dining experience that provides excellence in food , beverage and service . the menus & venues brand net sales accounted for less than 1.0 % of consolidated net sales for fiscal 2021 and fiscal 2020. net sales from the retail segment accounted for approximately 93.6 % , 91.6 % and 91.2 % of total consolidated net sales for fiscal 2021 , 2020 and 2019 , respectively . 22 store data for fiscal 2021 was as follows : replace_table_token_3_th ( 1 ) franchisee-owned stores in fiscal 2021 were located in israel and the united arab emirates . the company had agreed with its israeli franchise partner to end franchise store operations in israel . the company closed four urban outfitters franchisee-owned stores , one anthropologie group franchisee-owned store and one free people franchisee-owned store in fiscal 2021. the company does not plan to close the franchisee-owned store in the united arab emirates . selling square footage by brand as of january 31 , 2021 and january 31 , 2020 was as follows : replace_table_token_4_th ( 1 ) menus & venues restaurants and franchisee-owned stores are not included in selling square footage . 23 we plan for future store growth for all three brands to come from expansion domestically and internationally , which may include opening stores ( including standalone fp movement stores ) in new and existing markets or entering into additional franchise or joint venture agreements . we plan for future digital channel growth to come from expansion domestically and internationally . projected openings and closings for fiscal 2022 are as follows : replace_table_token_5_th ( 1 ) includes 16 fp movement stores . wholesale segment our wholesale segment consists of the free people , fp movement and urban outfitters brands that sell through department and specialty stores worldwide , third-party digital businesses and our retail segment . the wholesale segment primarily designs , develops and markets young women 's contemporary casual apparel , intimates , fp movement activewear and shoes under the free people brand and the bdg and other own brand apparel collections under the urban outfitters brand .
| results of operations as a percentage of net sales as a result of the covid-19 pandemic , our stores were closed for a portion of the first half of fiscal 2021 ( see further details under impact of the coronavirus pandemic above ) . in addition to lost revenues , we incurred expenses that were not commensurate with the current level of sales . as a result , comparisons of expense ratios and year-over-year trends were impacted in a meaningful way . the following table sets forth , for the periods indicated , the percentage of our net sales represented by certain income statement data and the change in certain income statement data from period to period . this table should be read in conjunction with the discussion that follows : replace_table_token_6_th ( 1 ) during fiscal 2021 , we recorded store impairment charges for 42 retail locations , totaling $ 15.5 million . during fiscal 2020 , we recorded store impairment charges for eight retail locations , totaling $ 14.6 million . during fiscal 2019 , we recorded store impairment charges for four retail locations , totaling $ 3.5 million . ( 2 ) during fiscal 2020 , we recorded a charge of $ 13.9 million related to goodwill impairment of the menus & venues brand . fiscal 2021 compared to fiscal 2020 net sales in fiscal 2021 decreased by 13.4 % to $ 3.45 billion , from $ 3.98 billion in fiscal 2020. the $ 534.0 million decrease was attributable to a $ 420.7 million , or 11.5 % , decrease in retail segment net sales and a $ 129.6 million , or 39.7 % , decrease in wholesale segment net sales , partially offset by a $ 16.3 million increase in subscription segment net sales .
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forward-looking statements include our expectations regarding product , services , and customer support revenue ; our expectations associated with evolving systems india and evolving systems u.k. , and short- and long-term cash needs . in some cases , words such as ยanticipatesย , ยexpectsย , ยintendsย , ยplansย , ยbelievesย , ยestimatesย , variations of these words , and similar expressions are intended to identify forward-looking statements . the following discussion should be read in conjunction with , and is qualified in its entirety by , the consolidated financial statements and the notes thereto included elsewhere in this annual report on form 10-k. our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors , including those set forth in this section and in ยitem 1a - risk factors.ย overview evolving systems , inc. is a leading provider of software solutions and services to the wireless , wireline and cable markets . we maintain long-standing relationships with many of the largest wireline , wireless and cable companies worldwide . our customers rely on us to develop , deploy , enhance , maintain and integrate complex , reliable software solutions for a range of operations support systems ( ยossย ) . our activation solution is the leading packaged solution for activation in the wireless industry . we recognize revenue in accordance with the prescribed accounting standards for software revenue recognition under generally accepted accounting principles . as a result , our license fees and services revenue fluctuate from period to period as a result of the timing of revenue recognition on existing projects . recent developments we reported net income of $ 5.6 million , $ 3.8 million and $ 5.6 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . our ending backlog at december 31 , 2014 was $ 10.6 million , consisting of $ 5.6 million of license and services and $ 5.0 million of customer support compared to total backlog of $ 12.2 million at december 31 , 2013. on october 24 , 2013 we acquired privately held telespree , now known as evolving systems labs , for an initial payment of approximately $ 1.6 million comprised , of approximately $ 0.8 million in cash and approximately $ 0.8 million in stock we also agreed to make a subsequent payment of $ 0.5 million , subject to reduction for certain claims which has not been made to date . we will potentially make additional payments in cash on the achievement of certain financial targets for the period from october 25 , 2013 through october 24 , 2016. evolving systems labs ' saas services revenue is included as a component of our dsa license fees and services revenue . we declared and paid a $ 0.10 cash dividend per share in the first and second quarters of 2014 and a $ 0.11 cash dividend per share in the third and fourth quarters of 2014. we have operations in foreign countries where the local currency is used to prepare the financial statements which are translated into our reporting currency , u.s. dollars . changes in the exchange rates between these currencies and our reporting currency are partially responsible for some of the changes from period to period in our financial statement amounts . the majority of the changes in 2014 and 2013 are a result of the u.s. dollar weakening on average versus the british pound sterling . the chart below summarizes what the effects on our revenue and expenses would be on a constant currency basis . the constant currency basis assumes that the exchange rate was constant for the periods presented ( in thousands ) . replace_table_token_4_th the net effect of our foreign currency translations for the year ended december 31 , 2014 was a $ 0.4 million increase in revenue and a $ 0.5 million increase in operating expenses versus the year ended december 31 , 2013. the net effect of our foreign currency translations for the year ended december 31 , 2013 was a $ 17,000 decrease in revenue and a $ 0.4 million decrease in operating expenses versus the year ended december 31 , 2012 . 20 story_separator_special_tag excluding depreciation and amortization , decreased to 35 % for the year ended december 31 , 2013 from 38 % for the year ended december 31 , 2012. the decrease in costs as a percentage of licenses fees and services revenue is primarily related to aforementioned decrease in expense during the period . costs of customer support , excluding depreciation and amortization costs of revenue for customer support increased 17 % , or $ 0.3 million , to $ 1.9 million for the year ended december 31 , 2014 from $ 1.6 million for the year ended december 31 , 2013. the increase in costs is related to embedded software maintenance and subcontracted support services . as a percentage of customer support revenue , costs of customer support revenue , excluding depreciation and amortization , increased slightly to 19 % for the year ended december 31 , 2014 from 18 % for the year ended december 31 , 2013. the increase in costs as a percentage of customer support revenue is due primarily to the aforementioned increase in costs during the period . costs of revenue for customer support increased 6 % , or $ 0.1 million , to $ 1.6 million for the year ended december 31 , 2013 from $ 1.5 million for the year ended december 31 , 2012. the increase in costs is related to embedded software maintenance , partner fees and travel . as a percentage of customer support revenue , costs of customer support revenue , excluding depreciation and amortization , increased slightly to 18 % for the year ended december 31 , 2013 from 17 % for the year ended december 31 , 2012. the increase in costs as a percentage of customer support revenue is due primarily to the aforementioned increase in costs during the period . story_separator_special_tag restructuring decreased to $ 0.2 million for the year ended december 31 , 2014 from $ 0.6 million for the year ended december 31 , 2013. restructuring expense for both years was a result of the acquisition of telespree . as a percentage of revenue , restructuring expense decreased to 1 % for the year ended december 31 , 2014 from 2 % for the year ended december 31 , 2013. the decrease of amortization expense as a percentage of total revenue is due increased revenue and to the aforementioned decrease of expense . restructuring increased to $ 0.6 million for the year ended december 31 , 2013 from $ 0 for the year ended december 31 , 2012. the increase in restructuring expense was a result of the acquisition of telespree . as a percentage of revenue , restructuring expense increased to 2 % for the year ended december 31 , 2013 from 0 % for the year ended december 31 , 2012. interest income interest income includes interest income earned on cash , cash equivalents and long-term investments . interest income increased 73 % , or $ 8,000 , to $ 19,000 for the year ended december 31 , 2014 from $ 11,000 for the year ended december 31 , 2013 . 24 interest income decreased 98 % , or $ 0.6 million , to $ 11,000 for the year ended december 31 , 2013 from $ 0.6 million for the year ended december 31 , 2012. the decrease was primarily due to the sale of our long-term investments in the second quarter of 2012. interest expense interest expense includes interest expense on our long-term debt and capital lease obligations as well as amortization of debt issuance costs . interest expense for the year ended december 31 , 2014 decreased 15 % , or $ 3,000 , to $ 17,000 as compared to $ 20,000 for the year ended december 31 , 2013. this decrease was primarily due to the amortized costs related to our loan and security agreement and interest expense from our capital leases . refer to note 6 , long-term debt , of our consolidated financial statements included elsewhere in this annual report on form 10-k for more information regarding the loan and security agreement . interest expense for the year ended december 31 , 2013 increased 567 % , or $ 17,000 , to $ 20,000 as compared to $ 3,000 for the year ended december 31 , 2012. this increase was primarily due to the amortized costs related to our loan and security agreement and interest expense from our capital leases . gain on sale of investments gain on the sale of investments for the year ended december 31 , 2012 of $ 0.9 million is a result of the sale of long-term investments in the second quarter of 2012. there were no gains recorded in the years ended december 31 , 2014 and 2013. gain ( loss ) on foreign exchange transactions gain ( loss ) on foreign exchange transactions consists of realized and unrealized foreign currency transaction gains and losses . foreign currency transaction gains and losses result from transactions denominated in a currency other than the functional currency of the respective subsidiary . the foreign currency transaction loss of $ 9,000 for the year ended december 31 , 2014 compared to a $ 39,000 loss for the year ended december 31 , 2013 resulted in a year over year gain of 77 % or $ 30,000. the net loss was generated through the re-measurement of certain non-functional currency denominated financial assets and liabilities of our evolving systems u.k. and india subsidiaries . the foreign currency transaction loss of $ 39,000 for the year ended december 31 , 2013 compared to a $ 0.1 million loss for the year ended december 31 , 2012 resulted in a year over year gain of 63 % or $ 0.1 million . the net loss was generated through the re-measurement of certain non-functional currency denominated financial assets and liabilities of our evolving systems u.k. and india subsidiaries . income tax expense we recorded income tax expense of $ 2.8 million , $ 1.3 million and $ 1.4 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . the net expense during year ended december 31 , 2014 consisted of current income tax expense of $ 3.1 million and a net deferred tax benefit of ( $ 0.3 ) million . the current tax expense consists primarily of income tax from our u.s. , u.k. and india based operations , alternative minimum tax ( ยamtย ) and unrecoverable foreign withholding tax in the u.s. u.s. income taxes payable of $ 1.4 million were offset due to realization of net operating losses ( ยnolย ) comprised of windfall tax benefits related to stock-based compensation . unused windfall tax benefits may not be recorded as an asset on our consolidated balance sheets but are recorded as a reduction to our taxes payable when realized , with a corresponding credit to additional paid in capital . the deferred tax benefit was related primarily to the increase of certain net deferred tax assets in the u.s. in addition , we had a deferred tax expense from our u.k.-based operations and evolving systems labs related to a decrease in net deferred tax assets including intangible assets . the net expense during year ended december 31 , 2013 consisted of current income tax expense of $ 1.6 million and a net deferred tax benefit of ( $ 0.3 ) million . the current tax expense consists primarily of income tax from our u.s. , u.k. and india based operations , alternative minimum tax ( ยamtย ) and unrecoverable foreign withholding tax in the u.s. and u.k. u.s. income taxes payable of $ 0.4 million were offset due to realization of net operating losses ( ยnolย ) comprised of windfall tax benefits related to stock-based compensation .
| results of operations the following table presents our consolidated statements of operations in comparative format . replace_table_token_5_th the following table presents our consolidated statements of operations reflected as a percentage of total revenue . replace_table_token_6_th 21 revenue revenue is comprised of license fees and services and customer support . license fees and services revenue represent the fees we receive from the licensing of our software products and those services directly related to the delivery of the licensed product as well as integration services , saas services and time and materials work . customer support revenue includes annual support fees , recurring maintenance fees , minor product upgrades and warranty fees . warranty fees are typically bundled with a license sale and the related revenue , based on vendor specific objective evidence ( ยvsoeย ) , is deferred and recognized ratably over the warranty period . license fees and services license fees and services revenue increased 23 % , or $ 3.7 million to $ 19.7 million for the year ended december 31 , 2014 compared to $ 16.0 million for the year ended december 31 , 2013. the increase in license fee and services revenue is due to an increase in dsa revenue primarily related to increased first user activations ( ยfuasย ) and revenue generated from evolving systems labs , which we acquired in october 2013. license fees and services revenue decreased 9 % , or $ 1.6 million to $ 16.0 million for the year ended december 31 , 2013 compared to $ 17.6 million for the year ended december 31 , 2012. the decrease in license fee and services revenue is due to a decline in dsa and tertio service activation ( ยtsaย ) revenues of $ 1.1 million and $ 0.5 million , respectively .
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note 12 - equity authorized capital stock consists of 19,500,000 shares of common stock , par value $ 0.01 per share and 500,000 shares of undesignated preferred stock , par value $ 0.01 per share . on may 6 , 2015 , the company issued and sold 636,500 shares of common stock , $ 0.01 par value per share , to various investors in a registered offering for an aggregate purchase price of $ 7,001,500 in cash . the purchase price was $ 11.00 per share , which constituted approximately 9.6 % of the total of issued and outstanding shares of common stock immediately before the initial execution of the securities purchase agreement . in connection with the closing , the company incurred $ 667,256 in offering costs , which included a commission of $ 420,090 paid to taglich brothers , inc. the placement agent . in december 2014 , in a series of transactions , various investors ( collectively the โ investors โ ) joined a securities purchase agreement ( the โ purchase agreement โ ) with the company pursuant to which the company issued and sold 963,750 ( the โ shares โ ) of common stock , $ 0.01 par value per share ( the โ common stock โ ) , to the investors in a private placement for an aggregate purchase price of approximately $ 9,396,562 in cash . the purchase price for the shares under the purchase agreement was $ 9.75 per share . the shares constituted approximately 17.2 % of the total of issued and outstanding shares of common stock immediately before the initial execution of the purchase agreement and the subsequent closing of the purchase and sale of the shares thereunder . in connection with the closing of the purchase and sale of the shares , the company paid to taglich brothers , inc. ( `` taglich brothers `` ) , the placement agent , commissions of approximately $ 751,725 . in connection with the sale , the company issued to designees of taglich brothers , warrants ( the โ warrant โ ) to purchase 96,375 shares of common stock story_separator_special_tag results of operations . the following discussion and analysis of our financial condition and results of operations , our expectations regarding the future performance of our business and the other non-historical statements in the discussion and analysis are forward-looking statements . these forward-looking statements are subject to risks , uncertainties and other factors including those described in โ item 1a . risk factors โ of this annual report on form 10-k. our actual results may differ materially from those contained in any forward-looking statements . you should read the following discussion together with our audited consolidated financial statements and related notes thereto and other financial information included in this annual report on form 10-k. our financial information may not be indicative of our future performance . overview we are a leading national provider of temporary staffing services and have completed a series of acquisitions including the acquisition of bg personnel , lp and b g staff services inc. in june 2010 , and substantially all of the assets of jna staffing , inc. in december 2010 , extrinsic , llc in december 2011 , american partners , inc. in december 2012 , instaff in june 2013 , d & w in march 2015 and vts in october 2015. we operate within three industry segments : commercial , multifamily and professional . we provide services to customers primarily within the united states of america . the commercial segment provides temporary workers primarily to logistics customers needing a flexible workforce in illinois , wisconsin , new mexico , texas , tennessee and mississippi . the multifamily segment provides front office and maintenance temporary workers to various apartment communities , in texas and other states , via property management companies responsible for the apartment communities day to day operations . the professional segment provides skilled temporary workers on a nationwide basis for it customer projects , and finance and accounting needs in texas and louisiana . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > ) . the in crease in depreciation and amortization is primarily due to professional segment intangible assets acquired in the d & w acquisition of $ 0.8 million and vts acquisition of $ 0.5 million . interest expense , net : interest expense , net in creased approximately $ 0.3 million ( 11.6 % ) due primarily to the increase in the amortization of earn out discounts from the d & w and vts acquisitions , offset by an decrease in the interest under our revolving facility ( as defined below ) from a lower revolver balance during the second and third quarters of 2015 than during the same time period in 2014. the revolving facility balance was increased in the fourth quarter 2015 for the purchase of vts . income taxes : we had an income tax expense of approximately $ 3.4 million in fiscal 2015 , compared with approximately $ 1.4 million in fiscal 2014 . the in crease in income taxes is primarily due to a n in crease in taxable income , offset by a significant decrease in the effective rate due primarily to equity related items in 2014 . 25 liquidity and capital resources our working capital requirements are primarily driven by temporary worker payments and customer accounts receivable receipts . since receipts from customers lag payments to temporary workers , working capital requirements increase substantially in periods of growth . our primary sources of liquidity are cash generated from operations and borrowings under our credit agreement with texas capital bank , national association ( โ tcb โ ) that provides for a revolving credit facility maturing august 21 , 2019 ( the โ revolving facility โ ) . story_separator_special_tag proceeds from the foregoing loan arrangements were used to pay off existing indebtedness of the company under the fifth third bank senior credit facility and $ 438,507 was recorded as a loss on extinguishment of debt in the third quarter of 2015. borrowings under the revolving facility bear interest equal to ( i ) base rate ( the higher of prime rate , federal funds rate plus 0.5 % , or libor plus 1.0 % ) plus 0.5 % or ( ii ) libor plus 3.25 % . the pc subordinated debt bears interest of 10 % paid quarterly plus a compounding deferred interest of 3 % . additionally , the company pays a unused commitment fee of 0.25 % on the unfunded portion of the revolving facility . the credit agreement and the senior subordinated credit agreement contain customary affirmative covenants as well as negative covenants restricting the ability of the company and its subsidiaries to , among other things ( with certain exceptions ) : ( i ) incur indebtedness ; ( ii ) incur liens ; ( iii ) enter into mergers , consolidations , or similar transactions ; ( iv ) pay dividends or make distributions ( except for permitted distributions ) ; ( v ) make loans ; ( vi ) dispose of assets ; ( vii ) enter into transactions with affiliates ; or ( viii ) change the nature of their business . in addition , the company must comply with certain financial covenants , including minimum debt service ratio , minimum current ratio and maximum leverage ratio . as of december 27 , 2015 , the company was in compliance with these covenants . contractual obligations the following table summarizes our cash contractual obligations as of december 27 , 2015 . replace_table_token_13_th 27 off-balance sheet arrangements we are not party to any off-balance sheet arrangements . critical accounting policies and estimates we have identified the policies listed below as critical to our business and the understanding of our results of operations . for a detailed discussion of the application of these and other accounting policies , see note 2 in the notes to the consolidated financial statements of this annual report on form 10-k. the preparation of financial statements in conformity with 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 financial statements , and the reported amounts of revenues and expenses during the reporting period . on an ongoing basis , management evaluates its estimates , including those related to revenue recognition , collectability of accounts receivable , impairment of goodwill and intangible assets , contingencies , litigation , income taxes , stock option expense , and put option liabilities . management bases its estimates and judgments on historical experiences and on various other factors believed to be reasonable under the circumstances . actual results under circumstances and conditions different than those assumed could result in differences from the estimated amounts in the consolidated financial statements . revenue recognition the company derives its revenues from three segments : commercial , multifamily and professional . the company provides temporary and consultant staffing and permanent placement services . revenues as presented on the consolidated statements of operations represent services rendered to customers less sales adjustments and allowances . reimbursements , including those related to out-of-pocket expenses , are also included in revenues , and equivalent amounts of reimbursable expenses are included in cost of services . the company and its customers enter into agreements that outline the general terms and conditions of the staffing arrangement . revenue is recognized as services are performed and associated costs have been incurred . the company records revenue on a gross basis as a principal versus on a net basis as an agent in the presentation of revenues and expenses . the company has concluded that gross reporting is appropriate because the company ( i ) has the risk of identifying and hiring qualified workers , ( ii ) has the discretion to select the workers and establish their price and duties and ( iii ) bears the risk for services that are not fully paid for by customers . temporary and consultant staffing revenues - temporary and consultant staffing revenues are recognized when the services are rendered by the company 's temporary workers or consultants . the company assumes the risk of acceptability of its workers to its customers . permanent placement staffing revenues - permanent placement staffing revenues are recognized when employment candidates accept offers of permanent employment . the company estimates the effect of permanent placement candidates who do not remain with its customers through the guarantee period ( generally 90 days ) based on historical experience . allowances are established to estimate these losses . fees to customers are generally calculated as a percentage of the new worker 's annual compensation . no fees for permanent placement services are charged to employment candidates . goodwill and intangible assets goodwill represents the excess of the purchase price over the fair value of assets acquired in the business acquisitions . intangible assets consist of the value of contract-related intangible assets , trade names and non-compete agreements acquired in acquisitions . we amortize on a straight-line basis intangible assets over their estimated useful lives unless their useful lives are determined to be indefinite . we review goodwill and other intangible assets for impairment annually during the fourth quarter or whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable . contingent consideration the company historically has obligations , to be paid in cash , related to its acquisitions if certain future operating and financial goals are met . the fair value of this contingent consideration is determined using expected cash flows and present value technique . the calculation of the fair value of the expected future payments uses a
| results of operations the following tables summarize key components of our results of operations for the periods indicated , both in dollars and as a percentage of revenues , and have been derived from our consolidated financial statements . replace_table_token_7_th 23 replace_table_token_8_th fifty-two week fiscal year ended december 27 , 2015 ( fiscal 2015 ) compared with fifty-two week fiscal year ended december 28 , 2014 ( fiscal 2014 ) revenues : replace_table_token_9_th commercial revenues : commercial revenues have in creased approximately $ 5.7 million ( 7.0 % ) primarily from operations in texas . texas branches in creased revenues $ 11.4 million , which was offset a $ 5.7 million de crease in our other areas , primarily illinois and wisconsin locations due to a 29.1 % de crease in billed hours . the overall revenue increase was due to a 0.9 % in crease in billed hours , primarily overtime premium , and a 6.3 % in crease in average bill rate . multifamily revenues : multifamily revenues in creased approximately $ 8.8 million ( 25.8 % ) due to our continued focus on expansion outside of the state of texas . revenue from branches outside of texas accounted for approximately $ 5.6 million of the in crease and revenue from branches in texas in creased approximately $ 3.2 million . the increase was due to a 20.2 % in crease in billed hours and a 4.3 % in crease in average bill rate . professional revenues : professional revenues in creased approximately $ 30.1 million ( 53.3 % ) primarily from the d & w and vts acquisitions , which contributed approximately $ 19.1 million and $ 9.2 million , respectively , of new revenues . the remaining in crease was due to a 6.4 % in crease in billed hours offset by a 1.4 % de crease in average bill rate .
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off-balance sheet arrangements , guarantees and contractual obligations that discusses our financial commitments . critical accounting policies that discusses the policies we believe are important to understanding the assumptions and judgments underlying our financial statements . you should note that this md & a discussion contains forward-looking statements that involve risks and uncertainties . please see item 1a of this report for important information to consider when evaluating our forward-looking statements . the private securities litigation reform act of 1995 ( the reform act ) provides a โ safe harbor โ for forward-looking statements to encourage companies to provide prospective information . we are filing this cautionary statement in connection with the reform act . when we use the words or phrases โ should result , โ โ believe , โ โ intend , โ โ plan , โ โ are expected to , โ โ targeted , โ โ will continue , โ โ will approximate , โ โ is anticipated , โ โ estimate , โ โ project , โ โ outlook , โ `` forecast '' or similar expressions in this annual report on form 10-k , in future filings with the securities and exchange commission , in our press releases , investor presentations and in oral statements made by our representatives , they indicate forward-looking statements within the meaning of the reform act . executive overview we provide solutions that help our customers acquire and engage their customers across multiple channels , as well as operate their businesses efficiently and effectively . to promote and sell a wide range of products and services , we use printed and electronic marketing ; a direct sales force ; referrals from financial institutions , telecommunication clients and other partners ; networks of safeguard ยฎ distributors and independent dealers ; and an outbound telemarketing group . over the past 24 months , our small business services segment has provided products and services to approximately 4.4 million small business customers and our direct checks segment has provided products and services to more than 5.1 million consumers . through our financial services segment , we provide products and services to approximately 4,900 financial institution clients . we operate primarily in the united states . small business services also has operations in canada , australia and portions of europe . our product and service offerings are comprised of the following : checks โ we remain one of the largest providers of checks in the united states . during 2017 , checks represented 39 % of our small business services segment 's revenue , 43 % of our financial services segment 's revenue and 84 % of our direct checks segment 's revenue . marketing solutions and other services ( mos ) โ we offer products and services designed to meet our customers ' sales and marketing needs , as well as various other service offerings . our marketing products include digital printing and web-to-print solutions such as business cards , print marketing , promotional goods and apparel . our web services offerings include logo design ; hosting , domain name and web design services ; search engine optimization ; and marketing programs , including email , mobile and social media . we also offer fraud protection and security services , online and offline payroll services , and electronic checks ( `` echecks '' ) . our financial services segment also offers a selection of financial technology ( `` fintech '' ) solutions . these solutions include data-driven marketing solutions , including outsourced marketing campaign targeting and execution ; treasury management solutions , including accounts receivable processing and remote deposit capture ; and digital engagement solutions , including loyalty and rewards programs . during 2017 , mos represented 34 % of our small business services segment 's revenue , 55 % of our financial services segment 's revenue and 11 % of our direct checks segment 's revenue . forms โ our small business services segment is a leading provider of printed forms to small businesses , including deposit tickets , billing forms , work orders , job proposals , purchase orders , invoices and personnel forms . this segment also offers computer forms compatible with accounting software packages commonly used by small businesses . forms sold by our financial services and direct checks segments include deposit tickets and check registers . accessories and other products โ small business services offers products designed to provide small business owners with the customized documents necessary to efficiently manage their business including envelopes , office supplies , ink stamps and labels . our financial services and direct checks segments offer checkbook covers , labels and ink stamps . throughout the past several years , we have focused on opportunities to increase revenue and operating income despite the continuing decline in check and forms usage . these opportunities have included new product and service offerings , brand awareness and positioning initiatives , investing in technology for our service offerings , enhancing our information technology 25 capabilities and infrastructure , improving customer segmentation , extending the reach of our sales channel , and reducing costs . in addition , we invested in various acquisitions that extend the range of products and services we offer to our customers , primarily mos offerings . information about our acquisitions can be found under the caption `` note 5 : acquisitions '' of the notes to consolidated financial statements appearing in item 8 of this report . during 2018 , we plan to continue our focus in these areas , with an emphasis on profitable revenue growth and increasing the mix of mos revenue , primarily data-driven marketing , treasury management and web services . we also plan to assess acquisitions that complement our large customer bases , with a focus on mos offerings . we believe we have reached a turning point where revenue from our mos offerings will grow at a faster rate going forward , augmented by acquisitions . story_separator_special_tag we also expect material costs and delivery rates to increase in 2018. we estimate that our annual effective tax rate for 2018 will be approximately 25 % . we anticipate that net cash provided by operating activities will be between $ 360.0 million and $ 380.0 million in 2018 , compared to $ 338.4 million in 2017 , driven by stronger operating performance and a decrease of approximately $ 25.0 million in income tax payments driven primarily by the tax cuts and jobs act of 2017 , partially offset by higher interest and medical payments . we anticipate contract acquisition payments of approximately $ 27.0 million in 2018 , and we estimate that capital spending will be approximately $ 55.0 million in 2018 as we plan to accelerate investments in key revenue growth initiatives and order fulfillment and information technology infrastructure . we believe that cash generated by operating activities , along with availability under our revolving credit facility , will be sufficient to support our operations in 2018 , including dividend payments , capital expenditures , and required debt principal and interest payments , as well as likely acquisitions . we also believe we have access to capital markets should additional cash be necessary to fund acquisitions that exceed amounts available under our credit facility . as of december 31 , 2017 , $ 101.6 million was available for borrowing under our revolving credit facility . we expect to maintain a disciplined approach to capital deployment that focuses on our need to continue investing in initiatives to drive revenue growth , including acquisitions . we anticipate that our board of directors will maintain our current dividend level . however , dividends are approved by the board of directors on a quarterly basis , and thus are subject to change . to the extent we generate excess cash , we plan to opportunistically repurchase common shares and or reduce the amounts outstanding under our credit facility . as of december 31 , 2017 , $ 707.9 million was outstanding under our credit facility agreement that matures in february 2019. we plan to obtain a new multi-year credit facility to refinance the amount outstanding under the current credit facility and to satisfy those obligations . we have been successful in obtaining long-term financing with terms and in amounts adequate to meet our objectives in the past , and we expect to execute the new credit facility in the first half of 2018. story_separator_special_tag style= '' line-height:120 % ; text-align : left ; font-size:9pt ; '' > net restructuring charges replace_table_token_9_th we recorded restructuring charges and reversals related to the cost reduction initiatives discussed under executive overview . the net charges for each period primarily relate to costs of our restructuring and integration activities such as employee severance benefits , information technology costs , employee and equipment moves , training and travel . in addition to the restructuring charges shown here , restructuring charges of $ 0.6 million in 2017 and 2016 and $ 1.8 million in 2015 were 28 included within total cost of revenue in our consolidated statements of income . further information can be found under restructuring costs . asset impairment charges change ( in thousands ) 2017 2016 2015 2017 vs. 2016 2016 vs. 2015 asset impairment charges $ 54,880 $ โ $ โ $ 54,880 $ โ during the third quarter of 2017 , we recorded pre-tax asset impairment charges of $ 46.6 million within small business services related to goodwill , the discontinued nebs trade name and other non-current assets , primarily internal-use software . further information regarding these charges can be found under the caption `` note 7 : fair value measurements '' of the notes to consolidated financial statements appearing in item 8 of this report . also during 2017 , we recorded pre-tax asset impairment charges of $ 8.3 million related to a small business distributor that was sold during the second quarter of 2017. further information regarding these charges can be found in the discussion of assets held for sale under the caption `` note 2 : supplemental balance sheet and cash flow information '' of the notes to consolidated financial statements appearing in item 8 of this report . loss on early debt extinguishment replace_table_token_10_th during the fourth quarter of 2016 , we retired all $ 200.0 million of our 6.0 % senior notes due in november 2020 , realizing a pre-tax loss of $ 7.9 million , consisting of a contractual call premium and the write-off of related debt issuance costs . to fund the retirement , we amended the credit agreement governing our credit facility to include a new term loan facility . further information regarding the term loan facility can be found under the caption `` note 13 : debt and lease obligations '' of the notes to consolidated financial statements appearing in item 8 of this report . during the first quarter of 2015 , we retired all $ 200.0 million of our 7.0 % senior notes due in march 2019 , realizing a pre-tax loss of $ 8.9 million , consisting of a contractual call premium and the write-off of related debt issuance costs . we funded the retirement utilizing our revolving credit facility and a short-term bank loan that we repaid in december 2015. interest expense replace_table_token_11_th the decrease in interest expense for 2017 , as compared to 2016 , was primarily driven by our lower weighted-average interest rate in 2017 resulting from the fourth quarter 2016 retirement of long-term debt that carried a higher interest rate .
| consolidated results of operations consolidated revenue replace_table_token_5_th the increase in total revenue in each of the past 2 years was driven by incremental revenue from acquired businesses of approximately $ 173.0 million in 2017 and $ 114.0 million in 2016 , as well as price increases in all of our segments . information regarding our acquisitions can be found under the caption `` note 5 : acquisitions '' of the notes to consolidated financial statements appearing in item 8 of this report . these increases in revenue were partially offset by lower order volume for both personal and business checks , as well as forms and accessories sold by small business services . in addition , revenue declined due to continued pricing allowances within financial services . service revenue represented 25.2 % of total revenue in 2017 , 20.3 % in 2016 and 18.1 % in 2015 . as such , the majority of our revenue is generated by product sales . we do not manage our business based on product versus service revenue . instead , we analyze our products and services based on the following categories : replace_table_token_6_th the number of orders decreased in each of the past 2 years driven by the impact of the continuing decline in check and forms usage , partially offset by growth in mos , including the impact of acquisitions . revenue per order increased in each of the 27 past 2 years primarily due to the benefit of price increases and favorable product and service mix , partially offset by the impact of continued pricing allowances in financial services .
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the lease also provides for participating contingent payments to talisker story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes related thereto included in this form 10-k. to the extent that the following management 's discussion and analysis contains statements which are not of a historical nature , such statements are forward-looking statements which involve risks and uncertainties . these risks include , but are not limited to , those discussed in item 1a , โ risk factors โ in this form 10-k. the following discussion and analysis should be read in conjunction with the forward-looking statements section and item 1a , โ risk factors โ each included in this form 10-k. management 's discussion and analysis includes discussion of financial performance within each of our segments . we have chosen to specifically include reported ebitda ( defined as segment net revenue less segment operating expense , plus or minus segment equity investment income or loss and for the real estate segment , plus gain on sale of real property ) and net debt ( defined as long-term debt plus long-term debt due within one year less cash and cash equivalents ) , in the following discussion because we consider these measurements to be significant indications of our financial performance and available capital resources . reported ebitda and net debt are not measures of financial performance or liquidity under gaap . we utilize reported ebitda in evaluating our performance and in allocating resources to our segments . refer to the end of the results of operations section for a reconciliation of reported ebitda to net income attributable to vail resorts , inc. we also believe that net debt is an important measurement as it is an indicator of our ability to obtain additional capital resources for our future cash needs . refer to the end of the results of operations section for a reconciliation of net debt . items excluded from reported ebitda and net debt are significant components in understanding and assessing financial performance or liquidity . reported ebitda and net debt should not be considered in isolation or as an alternative to , or substitute for , net income , net change in cash and cash equivalents or other financial statement data presented in the consolidated financial statements as indicators of financial performance or liquidity . because reported ebitda and net debt are not measurements determined in accordance with gaap and are thus susceptible to varying calculations , reported ebitda and net debt as presented may not be comparable to other similarly titled measures of other companies . overview our operations are grouped into three integrated and interdependent segments : mountain , lodging and real estate . resort is the combination of the mountain and lodging segments . revenue from the mountain , lodging and real estate segments represented 77 % , 19 % and 4 % , respectively , of our net revenue for fiscal 2013. mountain segment the mountain segment is comprised of the operations of eight ski resort properties at the vail , breckenridge , keystone and beaver creek mountain resorts in colorado ( โ colorado โ resorts ) ; the heavenly , northstar and kirkwood mountain resorts in the lake tahoe area of california and nevada ( โ tahoe โ resorts ) ; the canyons mountain resort in park city , utah ( acquired in may 2013 ) ; and the ski areas of afton alps in minnesota and mount brighton in michigan ( both acquired in december 2012 ) ( `` urban '' ski areas ) ; as well as ancillary services , primarily including ski school , dining and retail/rental operations . our mountain ski resorts were open for business for the 2012/2013 ski season primarily from mid-november through mid-april , which is the peak operating season for the mountain segment . our single largest source of mountain segment revenue is the sale of lift tickets ( including season passes ) , which represented approximately 45 % , 45 % and 46 % of mountain segment net revenue for fiscal 2013 , fiscal 2012 and fiscal 2011 , respectively . lift revenue is driven by volume and pricing . pricing is impacted by both absolute pricing as well as the demographic mix of guests , which impacts the price points at which various products are purchased . the demographic mix of guests is divided into two primary categories : ( 1 ) out-of-state and international ( โ destination โ ) guests and ( 2 ) in-state and local ( โ in-state โ ) guests . for the 2012/2013 ski season , destination guests comprised approximately 56 % of our mountain resort skier visits , while in-state guests comprised approximately 44 % of our mountain resort skier visits , which compares to approximately 57 % and 43 % , respectively , for the 2011/2012 and 2010/11 ski seasons . destination guests generally purchase our higher-priced lift ticket products and utilize more ancillary services such as ski school , dining and retail/rental , as well as lodging at or around our resorts . destination guest visitation is less likely to be impacted by changes in the weather , but can be more impacted by adverse economic conditions or the global geopolitical climate . in-state guests tend to be more value-oriented and weather sensitive . we offer a variety of season pass products for all of our ski resorts/ski areas , marketed towards both destination and in-state guests . our season pass product offerings range from providing access to a combination of our resorts to our epic season pass that allows pass holders unlimited and unrestricted access to all of our ski resorts and urban ski areas . story_separator_special_tag through september 22 , 2013 , our 38 pre-season pass sales for the upcoming 2013/2014 ski season ( including the urban ski areas and canyons for both the current and prior year , which prior year includes pass sales that occurred before our acquisition of the urban ski areas and the canyons transaction ) have increased approximately 19 % in units and increased approximately 23 % in sales dollars , compared to the prior year period ended september 23 , 2012. we can not predict if this favorable trend will continue through the fall 2013 pass sales campaign , nor can we predict the overall impact that season pass sales will have on lift revenue for the 2013/2014 ski season . in fiscal 2013 , our lift revenue was favorably impacted by price increases at our mountain resorts that were implemented for the 2012/2013 ski season . prices for the 2013/2014 ski season have not yet been finalized ; and as such , there can be no assurances as to the level of price increases , if any , which will occur and the impact that pricing may have on visitation or revenue . our fiscal 2013 results for our mountain and lodging segments showed significant improvement over fiscal 2012 largely due to the unprecedented low snowfall conditions throughout the 2011/2012 ski season . however , our fiscal 2013 results were tempered by poor snowfall and unseasonably warm temperatures that occurred during the early 2012/2013 ski season in colorado and during the latter half of the 2012/2013 ski season in tahoe . we can not predict whether snowfall levels will return to historical averages for the upcoming 2013/2014 ski season nor can we estimate the impact there may be to advance bookings , guest travel , season pass sales , lift revenue ( excluding season passes ) , retail/rental sales or other ancillary services revenue next ski season as a result of the past two ski seasons ' snowfall conditions , or if snowfall levels do not return to their historical average levels . although many key economic indicators have improved recently including growth in the us stock markets , rising consumer confidence , and housing prices and lower unemployment , the us economy has struggled to gain momentum amid sweeping federal budget cuts , higher taxes , uncertainty over monetary policy and slow growth in many economies around the world . given these economic trends and uncertainties , we can not predict what the impact will be on overall travel and leisure or more specifically , on our guest visitation , guest spending or other related trends for the upcoming 2013/2014 ski season . on may 29 , 2013 , we entered into a long-term lease with talisker pursuant to which we assumed resort operations of canyons which includes the ski area and related amenities . the lease between us and talisker for canyons has an initial term of 50 years with six 50-year renewal options . the lease provides for $ 25 million in annual fixed payments , which increase each year by an inflation linked index of cpi less 1 % , with a floor of 2 % per annum . in addition , the lease includes participating contingent payments to talisker of 42 % of the amount by which ebitda for the resort operations , as calculated under the lease , exceeds approximately $ 35 million , with such threshold amount increased by an inflation linked index and a 10 % adjustment for any capital improvements or investments made under the lease by us . as a result of this transaction , we recorded $ 306.3 million in long-term debt ( including capital lease obligations ) and other liabilities including an estimate for future participating contingent payments . in addition to the lease , we entered into ancillary transaction documents setting forth our rights among others , to ongoing litigation between the current operator of park city mountain resort and talisker related to the validity of a lease of the talisker owned land under the ski terrain of park city mountain resort . if the outcome of the litigation is favorable to talisker , the land under the ski terrain of park city mountain resort will become subject to our lease with talisker , which we expect would be beneficial to us as the inclusion of the ski terrain of park city mountain resort in the lease would require no additional consideration from us but any earnings derived from that ski terrain would accrue to our benefit . any such financial contribution from the additional ski terrain would be included as part of the calculation of ebitda for the resort operations , and as a result , factor into the participating contingent payment component of the lease payment as described above . if the outcome of the litigation is unfavorable , we will be entitled to receive from talisker the rent payments that talisker receives from the current resort operator until such time as the current resort operator 's lease has ended and the ski terrain under park city mountain resort is then included in the lease . we can not predict whether we will realize all of the synergies expected from our operation of canyons nor can we predict the resources required to integrate its operations and the ultimate impact canyons will have on our future results of operations . furthermore , if the litigation associated with the land under the ski terrain of park city mountain resort results in an unfavorable outcome it could result in a material impairment charge attributable to goodwill , certain indefinite-lived intangible assets and or other assets recorded in conjunction with this transaction , negatively impacting our results of operations and stockholders ' equity .
| summary shown below is a summary of operating results for fiscal 2013 , fiscal 2012 and fiscal 2011 ( in thousands ) : replace_table_token_4_th mountain segment mountain segment operating results for fiscal 2013 , fiscal 2012 and fiscal 2011 are presented by category as follows ( in thousands , except etp ) : replace_table_token_5_th certain mountain segment operating expenses presented above for fiscal 2012 and fiscal 2011 , have been reclassified to conform to the current fiscal year presentation . mountain reported ebitda includes $ 9.0 million , $ 7.6 million and $ 7.1 million of stock-based compensation expense for fiscal 2013 , fiscal 2012 and fiscal 2011 , respectively . fiscal 2013 compared to fiscal 2012 overall , fiscal 2013 results reflect an increase in mountain net revenue of $ 100.9 million , or 13.2 % , compared to fiscal 2012 driven by higher overall visitation due to improved weather conditions during the 2012/2013 ski season compared to the 2011/2012 ski season . our fiscal 2013 results also benefited from higher pricing , increased average guest spend on ancillary services and higher pass sales . excluding the incremental revenue from the acquisitions ( as defined below ) of $ 29.3 million , 41 revenue increased $ 71.6 million , or 9.3 % , for fiscal 2013 compared to fiscal 2012. mountain reported ebitda for fiscal 2013 increased $ 29.8 million , or 15.0 % , compared to fiscal 2012 , and includes incremental positive ebitda of $ 5.5 million from the acquisitions of kirkwood ( acquired in april 2012 ) and the urban ski areas ( acquired in december 2012 ) , and $ 8.4 million of negative ebitda ( including $ 5.5 million of transaction and transition related costs ) related to the canyons transaction ( entered into in may 2013 ) ( the `` acquisitions '' ) .
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actual results may differ materially from those expressed or implied in these statements and , therefore , undue reliance should not be placed on them . important factors that could cause actual events or results to differ materially from those indicated in such statements are discussed elsewhere in this report , including the sections entitled โ cautionary note regarding forward-looking statements โ and part i item 1a โ risk factors. โ this discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto included in part ii item 8 โ consolidated financial statements โ of this report . tabular amounts are in u.s. dollars in thousands , except share amounts , unless otherwise noted . overview we are a global property and casualty , or p & c , insurance and reinsurance company with approximately $ 1.2 billion in capital as of december 31 , 2020 , comprised of $ 172.7 million of senior notes , $ 52.4 million of contingently redeemable preference shares and $ 941.3 million of common shareholders ' equity . through operations in bermuda , the united states and europe , we write insurance and reinsurance on a worldwide basis . our objective is to deliver attractive returns to shareholders by combining disciplined underwriting with superior investment management . our strategy combines a diversified , casualty-focused underwriting portfolio , accessed through our multi-year , renewable strategic underwriting management relationship with arch , with a disciplined investment strategy comprised primarily of non-investment grade corporate credit assets , managed by hps . in addition , we have a services arrangement with aim and other investment managers to manage our investment grade portfolio . while we are positioned to provide a full range of p & c lines , we focus on writing specialty lines of business . we believe that our experienced management team , our relationship with arch and our strong capital base have enabled us to successfully compete and establish a meaningful presence in the insurance and reinsurance markets in which we participate . we seek to generate an attractive return on average equity across the relevant insurance and investment cycles . we opportunistically seek to underwrite new lines that fit our return profile while maintaining a disciplined underwriting approach . proposed merger on october 9 , 2020 , we entered into an agreement and plan of merger with arch and greysbridge ltd. , or merger sub , pursuant to which , among other things , merger sub will merge with and into our company . further , on november 2 , 2020 , we entered into amendment no . 1 to the agreement and plan of merger with arch and merger sub , and arch assigned its interests and obligations under the merger agreement to greysbridge holdings ltd. , a newly formed entity , or holdco , of which arch will own approximately 40 % , and funds managed by warburg pincus llc and kelso & company will each own approximately 30 % . arch remains contractually responsible for the performance of its obligations under the merger agreement . in this report , we refer to the agreement and plan of merger , as amended , as the โ merger agreement , โ and we refer to the merger of merger sub with and into watford pursuant to the merger agreement , with watford surviving as a wholly-owned subsidiary of holdco , as the โ merger. โ 131 pursuant to the merger agreement , subject to certain conditions set forth therein , at the effective time of the merger , each issued and outstanding common share of watford ( other than shares to be canceled pursuant to the merger agreement and restricted share units to be canceled and exchanged pursuant to the merger agreement ) , will be converted into the right to receive $ 35.00 in cash , without interest , and each issued and outstanding 8ยฝ % cumulative redeemable preference share of watford will remain outstanding as a preference share of the surviving company and will be entitled to the same dividend and other relative rights , preferences , limitations and restrictions as are now provided to the preference shares . the consummation of the merger is subject to the satisfaction of certain remaining customary closing conditions , including , without limitation , ( i ) approval of the merger agreement and the transactions contemplated thereby by the affirmative votes of not less than 50 % of the holders of our outstanding common shares and preference shares voting as a single class at a meeting of our shareholders ; ( ii ) the receipt of certain remaining regulatory approvals without the imposition of a burdensome condition ( as defined in the merger agreement ) ; ( iii ) the absence of any law , judgment or other legal restraint that prevents , makes illegal or prohibits the consummation of the merger and the other transactions contemplated by the merger agreement ; ( iv ) the accuracy of each party 's representations and warranties ( subject to certain qualifications ) ; ( v ) each party 's performance in all material respects of its obligations contained in the merger agreement ; and ( vi ) the absence of a material adverse effect on our company since the date of the merger agreement . in addition , holdco 's and arch 's obligation to consummate the merger is conditioned on our non-investment grade portfolio not suffering a loss of more than $ 208 million from september 30 , 2020 , through the date that is two business days prior to the closing of the merger . the merger agreement includes customary representations , warranties and covenants of watford , holdco , arch and merger sub . among other things , we have agreed to customary covenants regarding the operation of our business prior to the closing . we are permitted to pay regular quarterly dividends on our preference shares pursuant to the merger agreement . story_separator_special_tag 133 our outsourced business model we have engaged arch and hps to perform certain services for us that are essential to the results of our operations , and have entered into long-term , renewable contracts with each in order to ensure continued access to these services . for our underwriting operations , arch provides underwriting services including sourcing and evaluating underwriting opportunities as well as related services such as claims-handling , loss control , exposure management , portfolio management , modeling , statistical , actuarial and administrative support services , in each case , subject to our underwriting and operational guidelines and the oversight of our senior management and board of directors . with regard to our investments , hps manages our non-investment grade portfolio while aim manages the largest portion of our investment grade portfolio , in each case subject to compliance with our investment guidelines and the oversight of our senior management and board of directors . we outsource these functions in order to cost-effectively leverage the respective expertise and strong market positions of our trusted partners . through our association with arch , we access arch 's worldwide platform on a variable cost basis , thus avoiding the fixed expense of maintaining a multi-line platform for our underwriting operations . similarly , we believe that the terms of service and structure of the compensation we pay to hps and aim provide benefits to us both in terms of cost-effective access to the expertise required to execute our investment strategy and in aligning interests . natural catastrophe risk while we are more casualty-focused and assume less catastrophe exposure than many of our peers , we do underwrite a limited amount of natural catastrophe risk in order to balance and diversify our underwriting portfolio . we carefully monitor our natural catastrophe risk globally for all perils and regions where we believe our underwriting portfolio might have significant exposure . recently , arch has been increasing its writings in this line in response to an improving rate environment and , as a result , our premiums have grown in proportion . limited operating history and comparability of results we were incorporated in july 2013 and completed our initial funding and began underwriting business in the first quarter of 2014. our initial underwriting activities focused on writing reinsurance . in 2015 , we began our insurance business in connection with the establishment of our u.s. and european insurance platforms . as a result , we have a limited operating history and , given our underwriting and investment strategies , are exposed to volatility in our results of operations that may not be apparent from a review of our historical results . period-to-period comparisons of our results of operations may not be meaningful . in addition , the amount of premiums written may vary from year to year and period to period as a result of any number of factors , including changes in market conditions and our view of the long-term profit potential of individual lines of business . financial measures and ratios our management and board of directors use financial indicators and ratios in evaluating our performance and measuring the overall growth in value generated for our common shareholders . the key financial measures that we believe are meaningful in analyzing our performance are : underwriting income ( loss ) , combined ratio , adjusted underwriting income ( loss ) , adjusted combined ratio , net interest income , net interest income yield on average net assets ( including the non-investment grade portfolio and investment grade portfolio components thereof ) , net investment income ( loss ) , net investment income return on average net assets , net investment income return on average total investments ( excluding accrued investment income ) ( including the non-investment grade portfolio and investment grade portfolio components thereof ) , book value per diluted common share , growth in book value per diluted common share and return on average equity . 134 the table below shows the key performance indicators for the years ended december 31 , 2020 , 2019 and 2018 : replace_table_token_10_th ( 1 ) net interest income yield on average net assets and net investment income return on average net assets are calculated by dividing net interest income , and net investment income ( loss ) , respectively , by average net assets . net assets is calculated as the sum of total investments , accrued investment income and receivables for securities sold , less revolving credit agreement borrowings , payable for securities purchased and payable for securities sold short . for the twelve-month period , average net assets is calculated using the averages of each quarterly period . however , for the investment grade portfolio component of these returns , the impact of the revolving credit agreement borrowings is not subtracted from net interest income , net investment income ( loss ) , or the net assets calculation . the separate components of these returns ( non-investment grade portfolio and investment grade portfolio ) are non-u.s. gaap financial measures . refer to โ -reconciliation of non-u.s. gaap financial measures โ for a reconciliation of these components of our net interest income yield on average net assets and net investment income return on average net assets . ( 2 ) net investment income return on average total investments ( excluding accrued investment income ) is calculated by dividing net investment income by average total investments . for the twelve-month period , average total investments is calculated using the averages of each quarterly period . however , for the investment grade portfolio component of these returns , the impact of revolving credit agreement borrowings is not subtracted from net investment income . the separate components of these returns ( non-investment grade portfolio and investment grade portfolio ) are non-u.s. gaap financial measures . refer to โ -reconciliation of non-u.s. gaap financial measures โ for a reconciliation of these components of our net investment income return on average total investments ( excluding accrued investment income ) .
| investment results the following table summarizes the components of total investment income : replace_table_token_17_th ( 1 ) net interest income yield on average net assets and net investment income return on average net assets are calculated by dividing net interest income , and net investment income ( loss ) , respectively , by average net assets . net assets is calculated as the sum of total investments , accrued investment income and receivables for securities sold , less revolving credit agreement borrowings , payable for securities purchased and payable for securities sold short . for the twelve-month period , average net assets is calculated using the averages of each quarterly period . however , for the investment grade portfolio component of these returns , the impact of the revolving credit agreement borrowings is not subtracted from net interest income , net investment income ( loss ) , or the net assets calculation . the separate components of these returns ( non-investment grade portfolio and investment grade portfolio ) are non-u.s. gaap financial measures . refer to โ -reconciliation of non-u.s. gaap financial measures โ for a reconciliation of these components of our net interest income yield on average net assets and net investment income return on average net assets . ( 2 ) net investment income return on average total investments ( excluding accrued investment income ) is calculated by dividing net investment income by average total investments . for the twelve-month period , average total investments is calculated using the averages of each quarterly period . however , for the investment grade portfolio component of these returns , the impact of revolving credit agreement borrowings is not subtracted from net investment income . the separate components of these returns ( non-investment grade portfolio and investment grade portfolio ) are non-u.s. gaap financial measures . refer to โ -reconciliation of non-u.s. gaap financial measures โ for a reconciliation of these components of our net investment income return on average total investments ( excluding accrued investment income ) .
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additionally , for the year ended december 31 , 2018 , the trust acquired oil and gas royalty interests in approximately 346 net royalty acres for an aggregate purchase price of $ 3.7 million , an average price of approximately $ 10,555 per net royalty acre . there were no oil and gas royalty interest transactions for the years ended december 31 , 2017 and 2016 . f- 14 6. employee benefit plans the trust has a defined contribution plan available to all regular employees having one or more years of continuous service . contributions are at the discretion of the trustees of the trust . the trust contributed approximately $ 0.1 million for each of the years ended december 31 , 2018 , 2017 and 2016 , respectively . the trust has a noncontributory pension plan ( plan ) available to all regular employees having one or more years of continuous service . the plan provides for normal retirement at age 65. contributions to the plan reflect benefits attributed to employees ' services to date , as well as services expected in the future . the following table sets forth the plan 's changes in benefit obligation , changes in fair value of plan assets , and funded story_separator_special_tag the following discussion and analysis should be read together with the factors discussed in item 1a โ risk factors โ and with the consolidated financial statements , including the notes thereto , and the other financial information appearing elsewhere in this report . period-to-period comparisons of financial data are not necessarily indicative , and therefore should not be relied upon as indicators , of the trust 's future performance . words or phrases such as โ does not believe โ and โ believes , โ or similar expressions , when used in this form 10-k or other filings with the sec , are intended to identify โ forward-looking statements โ within the meaning of the private securities litigation reform act of 1995. overview the trust was organized in 1888 and holds title to extensive tracts of land in numerous counties in west texas which were previously the property of the texas and pacific railway company . we continue to manage those lands for the benefit of the holders of certificates of proprietary interest in the trust ( and or sub-shares in the certificates of proprietary interest ) . our revenues are derived primarily from oil , gas and water-related royalties , sales of water and land , easements and leases of the land . due to the nature of our operations , our revenue is subject to substantial fluctuations from quarter to quarter and year to year . we do not actively solicit sales of land . in addition , the demand for , and sale price of , particular tracts of land is influenced by many factors beyond our control , including general economic conditions , the rate of development in nearby areas and the suitability of the particular tract for the ranching uses prevalent in western texas . we are not an oil and gas producer . rather , our oil and gas revenue is derived from our oil and gas royalty interests . thus , in addition to being subject to fluctuations in response to the market prices for oil and gas , our oil and gas royalty revenues are also subject to decisions made by the owners and operators of the oil and gas wells to which our royalty interests relate as to investments in and production from those wells . we monitor production reports by the oil and gas companies to assure that we are being paid the appropriate royalties . we review conditions in the agricultural industry in the areas in which our lands are located and seek to keep as much of our lands as possible under lease to local ranchers . our revenue from easements is generated from easement contracts covering activities such as oil and gas pipelines and subsurface wellbore easements . the majority of our easements have a ten-year term . we also enter into agreements with operators and mid-stream companies to lease land from us , primarily for facilities and roads . in prior years , we entered into agreements with energy companies and oilfield service businesses to allow such companies to explore for water , drill water wells , construct water-related infrastructure and purchase water sourced from land that we own . energy businesses use water for their oil and gas projects while non-energy businesses ( i.e. , water management service companies ) operate water facilities to produce and sell water to energy businesses . we continue to collect revenue from royalties and water sales under these legacy agreements . demand for water solutions is expected to grow as drilling and completion activity in the permian basin continues to increase . in response to that demand , the trust formed tpwr in june 2017. tpwr , a single member llc and wholly owned subsidiary of the trust , focuses on providing full-service water offerings to operators in the permian basin . these services include , but are not limited to , brackish water sourcing , produced-water gathering/treatment/recycling , infrastructure development/construction , disposal , water tracking , analytics and well testing services . tpwr is committed to sustainable water development with significant focus on the large-scale implementation of recycled water operations . story_separator_special_tag this increase in oil royalty revenue is principally due to the combined effect of a 43.8 % increase in crude oil production , subject to the trust 's royalty interest , and a 22.6 % increase in the average price per royalty barrel of crude oil received during the year ended december 31 , 2017 compared to the same period in 2016 . gas royalty revenue was $ 13.8 million for the year ended december 31 , 2017 , an increase of 86.7 % over the year ended december 31 , 2016 when gas royalty revenue was $ 7.4 million . this increase in gas royalty revenue resulted from a volume increase of 59.8 % for the year ended december 31 , 2017 as compared to the same period of 2016 , and a 16.0 % increase in the average price received . additionally , oil and gas royalties for the year ended december 31 , 2017 included $ 7.7 million related to the chevron settlement in september 2017. no such settlement was received for the year ended december 31 , 2016 . 12 easements and sundry income . easements and sundry income was $ 64.2 million for the year ended december 31 , 2017 , an increase of 145.4 % compared to $ 26.2 million for the year ended december 31 , 2016. this increase resulted primarily from increases in pipeline easement income , temporary permit income , material sales of caliche and , to a lesser extent , sundry lease rental income . pipeline easement income increased 140.7 % to $ 41.5 million for the year ended december 31 , 2017 compared to the year ended december 31 , 2016. material sales increased 481.1 % to $ 7.1 million for the year ended december 31 , 2017 compared to the same period of 2016. easements and sundry income is unpredictable and may vary significantly from period to period . land sales and other income . land sales and other income includes revenue generated from land sales and grazing leases . for the year ended december 31 , 2017 , we sold approximately 11.0 acres of land for total consideration of $ 0.2 million , or approximately $ 20,000 per acre . for the year ended december 31 , 2016 , land sales generated $ 2.9 million of income for selling approximately 774.6 acres at an average price of $ 3,803 per acre . grazing lease income was approximately $ 0.5 million for both years ended december 31 , 2017 and 2016. net income . net income for the land and resource management segment was $ 78.5 million for the year ended december 31 , 2017 compared to $ 37.0 million for the year ended december 31 , 2016. as discussed above , revenues for the land and resource management segment increased $ 65.4 million for the year ended december 31 , 2017 compared to the same period of 2016. expenses for the land and resource management segment were $ 44.9 million and $ 20.9 million for the years ended december 31 , 2017 and 2016 , respectively . the increase in expenses was principally related to increased salary expense and legal and professional fees . see further discussion of these expenses below under โ other financial data โ consolidated. โ water service and operations water service and operations segment revenues increased $ 23.2 million , or 285.2 % , to $ 31.3 million for the year ended december 31 , 2017 as compared with revenues of $ 8.1 million for the comparable period of 2016. water sales and royalties . water sales and royalty revenues for the year ended december 31 , 2017 of $ 25.5 million were more than three times the amount of revenue for the comparable period of 2016. this increase is due primarily to the trust 's decision to develop water well fields on its own land along with an increase in the royalties received from existing agreements . easements and sundry income . easements and sundry income for the water service and operations segment includes pipeline easement royalties , commercial lease royalties and income from temporary permits . for the year ended december 31 , 2017 , the combined revenue from these revenue streams was $ 5.8 million . there was no such revenue for the year ended december 31 , 2016. net income . net income for the water service and operations segment was $ 18.8 million for the year ended december 31 , 2017 compared to $ 5.2 million for the year ended december 31 , 2016. as discussed above , revenues for the water service and operations segment increased $ 23.2 million for the year ended december 31 , 2017 compared to the same period of 2016. expenses for the water service and operations segment were $ 12.5 million for the year ended december 31 , 2017 while depreciation and income taxes were the only expenses for the year ended december 31 , 2016. the increase in expenses during 2017 is directly related to the formation of tpwr . other financial data โ consolidated salaries and related employee expenses . salaries and related employee expenses were $ 3.8 million for the year ended december 31 , 2017 compared to $ 1.4 million for the comparable period of 2016. the increase in salaries and related employee expenses is directly related to the increase in the number of employees from eight employees as of december 31 , 2016 to 26 as of december 31 , 2017. water service-related expenses .
| results of operations we operate our business in two segments : land and resource management and water service and operations . we eliminate any inter-segment revenues and expenses upon consolidation . we analyze financial results for each of our reportable segments . the reportable segments presented are consistent with our reportable segments discussed in note 10 , โ business segment reporting โ in item 8. financial statements and supplementary data in this annual report on form 10-k. we monitor our reporting segments based upon revenue and net income calculated in accordance with accounting principles generally accepted in the united states of america ( โ gaap โ ) . 9 year ended december 31 , 2018 compared to year ended december 31 , 2017 revenues . revenues increased $ 145.6 million , or 94.1 % to $ 300.2 million for the year ended december 31 , 2018 compared to $ 154.6 million for the year ended december 31 , 2017 . net income increased $ 112.5 million , or 115.7 % to $ 209.7 million for the year ended december 31 , 2018 compared to $ 97.2 million for the year ended december 31 , 2017 . the following is an analysis of our operating results for the comparable periods by reportable segment ( in thousands ) : replace_table_token_7_th land and resource management land and resource management segment revenues increased $ 88.1 million , or 71.5 % , to $ 211.5 million for the year ended december 31 , 2018 as compared with revenues of $ 123.3 million for the comparable period of 2017 . oil and gas royalties . oil and gas royalty revenue was $ 123.8 million for the year ended december 31 , 2018 compared to $ 58.4 million for the year ended december 31 , 2017 , an increase of 112.0 % .
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revolving credit facility on january 31 , 2014 , the borrowers also entered into a $ 425.0 million revolving credit facility , which matures in 2019 ( the โ revolving credit facility โ ) . borrowing rates under the revolving credit facility are based on libor plus a margin based on our consolidated net secured leverage ratio , which is the ratio of ( i ) our consolidated secured debt ( less up to $ 150.0 million of unrestricted cash ) to ( ii ) our consolidated ebitda ( as defined in the credit agreement ) for the trailing four consecutive quarters . interest on the revolving credit facility is payable at the end of each libor period , but in no event less frequently than quarterly . the commitment fee based on the amount of unused commitments under the revolving credit facility in 2014 , was $ 1.9 million . as of december 31 , 2014 , there were no outstanding borrowings under the revolving credit facility . as of december 31 , 2014 story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations ( โ md & a โ ) should be read in conjunction with our historical consolidated financial statements and the notes thereto in part ii , item 8 , of this annual report on form 10-k. this md & a contains forward-looking statements that involve numerous risks and uncertainties . the forward-looking statements are subject to a number of important factors , including , but not limited to , those factors discussed in โ item 1a . risk factors โ and the โ cautionary statement regarding forward-looking statements โ section of this annual report on form 10-k , that could cause our actual results to differ materially from the results described herein or implied by such forward-looking statements . our prior period financial statements and the notes thereto , included in part ii , item 8 , of this annual report on form 10-k , were presented on a โ carve-out โ basis from the consolidated financial statements of cbs using the historical results of operations , cash flows , assets and liabilities attributable to cbs 's outdoor americas operating segment and include allocations of expenses from cbs . these allocations reflect significant assumptions , and the financial statements do not necessarily reflect what our financial position , results of operations or cash flows would have been had we been a stand-alone company during the periods presented . as a result , historical financial information is not necessarily indicative of our future results of operations , financial position or cash flows . overview we provide advertising space ( โ displays โ ) on out-of-home advertising structures and sites across the united states ( the โ u.s. โ ) , canada and latin america . we manage our business through two segments - u.s. and international . on april 2 , 2014 , we completed an ipo of 23,000,000 shares of our common stock , including 3,000,000 shares of our common stock sold pursuant to the underwriters ' option to purchase additional shares , at a price of $ 28.00 per share for total net proceeds , after underwriting discounts and commissions , of $ 615.0 million . of the total net proceeds , $ 515.0 million was transferred to a wholly owned subsidiary of cbs as partial consideration for the contribution of the entities comprising cbs ' outdoor americas operating segment to us . the remaining $ 100.0 million was retained by us and was applied to the cash portion of the e & p purge . on april 16 , 2014 , cbs received a private letter ruling from the internal revenue service ( the โ irs โ ) with respect to certain issues relevant to our ability to qualify as a real estate investment trust ( a โ reit โ ) . on july 16 , 2014 , cbs completed a registered offer to exchange 97,000,000 shares of our common stock that were owned by cbs for outstanding shares of cbs class b common stock ( the โ exchange offer โ ) . in connection with the exchange offer , cbs disposed of all of its shares of our common stock and as of july 16 , 2014 , we were separated from cbs ( the โ separation โ ) and were no longer a subsidiary of cbs . on july 16 , 2014 , we ceased to be a member of the cbs consolidated tax group and on july 17 , 2014 , we began operating in a manner that will allow us to qualify as a reit for u.s. federal income tax purposes for the tax year commencing july 17 , 2014 , and ending december 31 , 2014. on october 1 , 2014 , we completed our acquisition of certain outdoor advertising businesses ( the โ acquired business โ ) of van wagner communications , llc , for $ 690.0 million in cash , plus working capital adjustments ( the โ acquisition โ ) . ( see the โ overview : acquisition โ section of this md & a . ) in order to comply with certain reit qualification requirements , on october 29 , 2014 , our board of directors approved a special dividend of approximately $ 547.7 million , or $ 4.56 per share , to distribute accumulated earnings and profits as of july 17 , 2014 , the date we began operating in a manner that will allow us to qualify as a reit for u.s. federal income tax purposes , including any earnings and profits allocated to us by cbs in connection with the separation ( the โ e & p purge โ ) . story_separator_special_tag economic environment our revenues and operating results are sensitive to fluctuations in advertising expenditures , general economic conditions and other external events beyond our control . 36 business environment we operate in a highly competitive industry . increasing the number of digital billboard displays in our most heavily trafficked locations is an important element of our organic growth strategy , as digital billboard displays have the potential to attract additional business from both new and existing customers . we believe digital billboard displays are attractive to our customers because they allow for the development of richer and more visually engaging messages , provide our customers with the flexibility both to target audiences by time of day and to quickly launch new advertising campaigns , and eliminate or greatly reduce production costs . in addition , digital billboard displays enable us to run multiple advertisements on each display ( up to eight per minute ) . as a result , digital billboard displays generate approximately three to four times more revenue per display on average than traditional static billboard displays , and digital billboard displays generate higher profits and cash flows than traditional static billboard displays . our revenues and profits may fluctuate due to seasonal advertising patterns and influences on advertising markets . typically , our revenues and profits are highest in the fourth quarter , during the holiday shopping season , and lowest in the first quarter , as advertisers cut back on spending following the holiday shopping season . our large-scale portfolio allows our customers to reach a national audience and also provides the flexibility to tailor campaigns to specific regions or markets . in 2014 , 2013 and 2012 , we generated approximately 40 % of our u.s. revenues from national advertising campaigns . our transit shelter and transit systems businesses require us to obtain and renew contracts with municipalities and other governmental entities . when these contracts expire , we generally must participate in highly competitive bidding processes in order to obtain a new contract . in november 2014 , we were informed that we were not successful in our bid to renew the new york city phone kiosk contract which we obtained as part of the acquisition , and our operation of these kiosks are expected to cease during the first quarter of 2015. in the fourth quarter of 2014 , we generated revenue of $ 5.3 million related to these operations . our transit contracts with the new york metropolitan transit authority ( the โ mta โ ) , which represents 57 % of our u.s. transit and other revenues , or 17 % of our total u.s. revenues , are scheduled to expire or are otherwise terminable by the mta in 2015. we expect that a request for proposal will be issued by the mta in mid-2015 . see โ item 1a . risk factorsโrisks related to our business and operationsโthe success of our transit advertising business is dependent on obtaining and renewing key municipal concessions on favorable terms. โ tax status our qualification to be taxed as a reit is dependent on our ability to meet various complex requirements under the internal revenue code of 1986 , as amended ( the โ code โ ) , related to , among other things , the sources of our gross income , the composition and values of our assets and the diversity of ownership of our shares . see โ item 1a . risk factorsโrisks related to our status as a reit. โ as long as we remain qualified to be taxed as a reit , we generally will not be subject to u.s. federal income tax on reit taxable income that we distribute to stockholders . to maintain reit status , we must meet a number of organizational and operational requirements , including a requirement that we annually distribute to our stockholders at least 90 % of our reit taxable income , determined without regard to the dividends-paid deduction and excluding any net capital gains . to the extent that we satisfy this distribution requirement and qualify for taxation as a reit but distribute less than 100 % of our reit taxable income , determined with the above modifications , we will be subject to u.s. federal income tax on our undistributed net taxable income . in addition , we will be subject to a nondeductible 4 % excise tax if the amount that we actually distribute to our stockholders in a calendar year is less than a minimum amount specified under u.s. federal tax laws . we intend to pay regular quarterly distributions to our stockholders in an amount not less than 100 % of our reit taxable income ( determined before the deduction for dividends paid ) . we believe we are organized in conformity with the requirements for qualification and taxation as a reit under the code and that our manner of operation will enable us to continue to meet those requirements . if we fail to qualify to be taxed as a reit in any taxable year and do not qualify for certain statutory relief provisions , we will be subject to u.s. federal income tax at regular corporate rates and will be precluded from re-electing reit status for the subsequent four taxable years . despite our status as a reit , we will be subject to certain u.s. federal , state and local taxes on our income or property and the income of our taxable reit subsidiaries ( โ trss โ ) will be subject to taxation at regular corporate rates . 37 key performance indicators our management reviews our performance by focusing on the indicators described below . several of our key performance indicators are not prepared in conformity with generally accepted accounting principles in the united states of america ( โ gaap โ ) . we believe these non-gaap performance indicators are meaningful supplemental measures of our operating performance and should not be considered in isolation of , or as a substitute for , their most directly comparable gaap financial measures .
| segment results of operations we present adjusted oibda as the primary measure of profit and loss for our operating segments in accordance with financial accounting standards board ( the โ fasb โ ) guidance for segment reporting . ( see the โ key performance indicators โ section of this md & a . ) the following table presents our revenues , adjusted oibda , operating income ( loss ) and depreciation and amortization by segment in 2014 , 2013 and 2012. replace_table_token_15_th ( a ) revenues on a constant dollar basis are calculated as reported revenues excluding the impact of foreign currency exchange rates between years . ( b ) restructuring charges , costs related to the acquisition and stock-based compensation are classified as corporate expenses . ( c ) restructuring charges relate to the severance of two executives and includes stock-based compensation expenses of $ 5.6 million . 47 united states replace_table_token_16_th * calculation not meaningful . ( a ) organic revenues exclude revenues associated with significant acquisitions and divestitures , and business lines we no longer operate ( โ non-organic revenues โ ) . total u.s. revenues increased $ 68.7 million , or 6 % , and u.s. organic revenues increased $ 23.9 million , or 2 % , in 2014 compared to 2013. non-organic revenues primarily reflect the acquisition in 2014 , the november 2013 sale of our transit shelter operations in the greater los angeles area and the april 2014 non-renewal of an unprofitable contract . total revenue growth in 2014 compared to 2013 was led by increases in the television , professional services and retail categories and growth attributable to the conversion of traditional static billboard displays to digital billboard displays . total u.s. revenues increased $ 31.5 million , or 3 % , and u.s. organic revenues increased $ 33.2 million , or 3 % , in 2013 compared to 2012 , reflecting growth attributable to the conversion of traditional static billboard displays to digital billboard displays .
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we have four internally discovered therapeutic product candidates in clinical trials targeting conditions such as depression , alzheimer 's disease , cardiovascular disease and cognitive impairment . our blood-pool imaging agent , vasovist , is approved for marketing in over 30 countries outside of the united states . we also have collaborations with smithkline beecham corporation ( glaxosmithkline ) , amgen inc. , cystic fibrosis foundation therapeutics , incorporated , and bayer schering pharma ag , germany . our business strategy is to develop our internally discovered , novel pharmaceutical products through the point of proof of clinical concept , typically completion of phase 2 clinical trials and then to seek pharmaceutical partnerships for the continued development , regulatory approvals and world-wide commercialization of the product 45 candidates . in certain disease areas , such as pulmonary hypertension , where we believe we can efficiently obtain regulatory approval and effectively market the product through a specialty sales force , we may seek to retain commercialization rights in the united states . the focus of our therapeutic drug discovery and development efforts is on the two classes of drug targets known as g-protein coupled receptors , or gpcrs , and ion channels . gpcrs and ion channels are classes of proteins embedded in the surface membrane of all cells and are responsible for mediating much of the biological signaling at the cellular level . we believe that our proprietary drug discovery technology and approach addresses many of the inefficiencies associated with traditional gpcr and ion channel-targeted drug discovery . by integrating computer-based , or in silico , technology with in-house medicinal chemistry , we believe that we can rapidly identify and optimize highly selective drug candidates . we focus on gpcr and ion channel drug targets whose role in disease has already been demonstrated in clinical trials or in preclinical studies . in each of our four clinical-stage therapeutic programs , we used our drug discovery technology and approach to optimize a lead compound into a clinical drug candidate in less than ten months , synthesizing fewer than 80 compounds per program . we moved each of these drug candidates into clinical trials in less than 18 months from lead identification . we believe our drug discovery technology and approach enables us to efficiently and cost-effectively discover and develop gpcr and ion channel-targeted drugs . on august 16 , 2006 , we completed our acquisition of predix pharmaceuticals holdings , inc. pursuant to the terms of that certain agreement and plan of merger , dated as of april 3 , 2006 as amended on july 10 , 2006 , by and among us , epix delaware , inc. , our wholly-owned subsidiary , and predix , as amended . pursuant to the merger agreement , predix merged with and into epix delaware , inc. and became a wholly-owned subsidiary of us . the merger with predix was primarily a stock transaction valued at approximately $ 125.0 million , including the assumption of net debt at closing . as part of the merger , we also assumed all outstanding options and warrants to purchase capital stock of predix . the purchase price included a $ 35.0 million milestone payment to the holders of predix stock , options and warrants payable in cash , stock or a combination of both . pursuant to the terms of the merger agreement , $ 20.0 million of the milestone was paid in cash on october 29 , 2006. the remaining $ 15.0 million of the milestone payment , including accrued interest , was paid on october 29 , 2007 through the issuance of 3,167,000 common shares and the payment of $ 5.8 million in cash . critical accounting policies and estimates the discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect our reported assets and liabilities , revenues and expenses , and other financial information . actual results may differ significantly from the estimates under different assumptions and conditions . our significant accounting policies are more fully described in note 2 of our consolidated financial statements for the year ended december 31 , 2007. not all significant accounting policies require management to make difficult , subjective or complex judgments or estimates . we believe that our accounting policies related to revenue recognition , research and development and employee stock compensation , as described below , require ยcritical accounting estimates and judgments.ย revenue recognition we recognize revenue relating to collaborations in accordance with the securities and exchange commission 's , or sec 's , staff accounting bulletin ( sab ) no . 104 , ยrevenue recognition , ย or sab 104. revenue under collaborations may include the receipt of non-refundable license fees , milestone payments , and research and development payments and royalties . we recognize nonrefundable upfront license fees and guaranteed , time-based payments that require continuing involvement in the form of research and development as license fee revenue : ratably over the development period ; or based upon the level of research services performed during the period of the research contract . 46 when the period of deferral can not be specifically identified from the contract , we estimate the period based upon other critical factors contained within the contract . we continually review such estimates which could result in a change in the deferral period and might impact the timing and amount of revenue recognized . milestone payments which represent a significant performance risk are recognized as product development revenue when the performance obligations , as defined in the contract , are achieved . performance obligations typically consist of significant milestones in the development life cycle of the related technology , such as the filing of investigational new drug applications , initiation of clinical trials , filing for approval with regulatory agencies and approvals by regulatory agencies . story_separator_special_tag however , compensation expense is recognized , based on the requirements of sfas 123 ( r ) , for ( a ) all share-based payments granted after the effective date and ( b ) all awards granted to employees prior to the effective date that remain unvested on the effective date . determining the appropriate fair value model and calculating the fair value of share-based awards requires us to make various judgments , including estimating the expected life of the share-based award , the expected stock price volatility over the expected life of the share-based award and forfeiture rates . in order to determine the fair value of share-based awards on the date of grant , we use the black-scholes option-pricing model . inherent in this model are assumptions related to stock price volatility , option life , risk-free interest rate and dividend yield . the risk-free interest rate is a less subjective assumption as it is based on treasury instruments whose term is consistent with the expected life of options . we use a dividend yield of zero as we have never paid cash dividends and have no intention to pay cash dividends in the foreseeable future . the stock price volatility and option life assumptions require a greater level of judgment . estimating forfeitures also requires significant judgment . our stock-price volatility assumption is based on trends in both our current and historical volatilities of our stock and those of comparable companies . we use the ยsimplifiedย method , as prescribed by the sec 's sab no . 107 , to calculate the expected term of options . we estimate forfeitures based on our historical experience of cancellations of share-based compensation prior to vesting . we believe that our 48 estimates are based on outcomes that are reasonably likely to occur . to the extent actual forfeitures differ from our estimates , we will record an adjustment in the period the estimates are revised . story_separator_special_tag style= '' line-height : 3pt ; font-size : 1pt '' > ( 2 ) we have discontinued clinical development of prx-00023 at a dose of 80 mg once daily in generalized anxiety disorder and are currently focusing our development efforts for this drug candidate on depression . in march 2007 , we initiated a phase 2b clinical trial to evaluate the efficacy of prx-00023 in patients with a primary diagnosis of major depressive disorder ( mdd ) who also have concurrent anxiety . the randomized , double-blind , placebo-controlled trial completed enrollment in october 2007 , enrolling 362 adult patients with mdd , and is designed to evaluate the effect of treatment with up to 120 mg of prx-00023 twice-daily for eight weeks as determined by change from baseline in the montgomery asberg depression rating scale ( madrs ) compared with placebo . all patients randomized to the drug treatment began with 40 mg prx-00023 twice daily , and would increase the dose , if tolerated , to a maximum of 120 mg twice daily within the first week . changes in the hamilton anxiety score ( ham-a ) , clinical global impressions improvement scale ( cgi-i ) and clinical global severity of illness scale ( cgi-s ) were also measured . results of the study are expected to be reported in march 2008 . ( 3 ) we completed a phase 2 trial of prx-03140 alone and in combination with an approved drug for alzheimer 's disease ( the cholinesterase inhibitor aricept ( donepezil ) ) in patients with alzheimer 's disease in the fourth quarter of 2007. this randomized , double-blind , placebo-controlled , multiple ascending dose trial enrolled 80 patients with mild alzheimer 's disease . patients were studied on prx-03140 across three dose groups of 10 patients each : 50 mg once-daily , 150 mg once-daily and placebo , or in a placebo-controlled combination across five dose arms of 10 patients each : prx-03140 at 5 , 25 , 50 , 100 and 200 mg with aricept 10 mg once-daily . the two primary endpoints of the trial were : ( 1 ) to assess the safety and tolerability of prx-03140 in patients with alzheimer 's disease when dosed orally once-daily for 14 days alone and in combination with donepezil , and ( 2 ) to assess the effect of prx-03140 on brain wave activity , as was performed in the phase 1b clinical trial . secondary endpoints of the trial included evaluating the pharmacokinetic effect of prx-03140 on aricept concentrations in patients with mild alzheimer 's disease and assessing the effects of repeat doses of prx-03140 on a battery of standardized cognitive function tests , such as the alzheimer 's disease assessment scale cognitive subscale ( adas-cog ) . efficacy results show that patients receiving 150 mg of prx-03140 orally once daily as monotherapy achieved a mean 3.6 point improvement on the adas-cog versus a 0.9 point worsening in patients on placebo . this result corresponds to a p-value of 0.021 , which is statistically significant . data for the patients on a 50 mg dose of prx-03140 showed a 1.0 point improvement on the adas-cog . the monotherapy dose response ( 150 mg versus 50 mg versus placebo ) was also statistically significant ( p=0.026 ) . adas-cog changes in the combination arms of the trial were not statistically significant . 50 prx-03140 appeared to be well tolerated in this trial , both alone and in combination with aricept . no serious drug-related adverse events occurred during the trial . ( 4 ) in april 2007 , we completed a phase 1 multiple ascending dose clinical trial studying the safety , tolerability , pharmacokinetics , and pharmacodynamics of prx-07034 administered once-daily for 28 days in a population of 33 otherwise healthy obese adults with body mass indices , or bmi , between 30 and 42 kg/m2 . normal bmi is less than 25 kg/m2 . prx-07034 demonstrated predictable pharmacokinetics with dose proportional increases in exposures , and a half-life supporting once-daily dosing .
| results of operations research and development overview research and development expense consists primarily of : salaries , benefits and related expenses for personnel engaged in research and development activities ; fees paid to contract research organizations to manage and monitor clinical trials ; fees paid to research organizations in conjunction with preclinical studies ; fees paid to access chemical and intellectual property databases ; costs of materials used in research and development and clinical studies ; academic testing and consulting , license and sponsored research fees paid to third-parties ; and costs of facilities and equipment , including depreciation , used in research and development activities . we expense both internal and external research and development costs as incurred . we expect that a large percentage of our research and development expenses in the future will be incurred in support of our current and future preclinical and clinical development programs . these expenditures are subject to numerous uncertainties in timing and cost to completion . we test drug candidates in preclinical studies for safety , toxicology and efficacy . we then conduct early-stage clinical trials for each drug candidate . as we obtain results from trials , we may elect to discontinue or delay clinical trials for certain drug candidates in order to focus our resources on more promising drug candidates . we currently have one imaging product , vasovist , which is currently approved for marketing in more than 30 countries outside of the united states . in january 2008 , based on written confirmation from the u.s. food and drug administration , or fda , regarding our protocol design and statistical analysis plan , we initiated a re-read of the images obtained in prior phase 3 studies . as a result , future costs expected to be incurred for vasovist are currently limited to the costs of performing the re-read of the phase 3 clinical trial images and the submission of the results to the fda .
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surfactants are manufactured at five u.s. sites , two european sites ( united kingdom and france ) , five latin american sites ( colombia and two sites in each of mexico and brazil ) and two asian sites ( philippines and singapore ) . recent significant surfactants events include : o during january 2019 , the company 's plant in ecatepec , mexico experienced a sulfonation equipment failure that contributed to an operating loss at the site in 2019. the ecatepec facility is now fully operational and , in december 2019 , the company received insurance recovery proceeds for damaged equipment , incremental supply chain expenses and business interruption . this plant , and a portion of its related surfactant business , was acquired from basf in march 2018 ( see note 21 , acquisitions and note 24 , insurance recovery for additional details ) . o 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 markets . the acquired business did not impact the company 's 2019 financial results nor is it expected to be accretive to earnings in 2020 ( see note 21 , acquisitions , for additional details ) o 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 throughout 2019 ( see note 23 , business restructuring , for additional details ) . o in 2016 , the company shut down its production facility in canada , moving the production of goods previously manufactured in canada to other company north american production sites . manufacturing operations at the facility ceased in the fourth quarter of 2016 , but decommissioning activities have been ongoing since 2017 and will continue throughout 2020 ( see note 23 , business restructuring , for additional details ) . polymers โ polymers , which accounted for 28 percent of consolidated net sales in 2019 , 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 . in addition , the company uses phthalic anhydride internally in the production of polyols . in the united states , polyurethane polyols and phthalic anhydride are manufactured at the company 's millsdale , illinois , site , and specialty polyols are manufactured at the company 's columbus , georgia , site . in europe , polyurethane polyols are manufactured by the company 's subsidiary in germany , and specialty polyols are manufactured by the company 's poland subsidiary . in china , polyurethane polyols and specialty polyols are manufactured at the company 's nanjing , china , manufacturing plant . specialty products โ specialty products , which accounted for four percent of consolidated net sales in 2019 , include flavors , emulsifiers and solubilizers used in food , flavoring , nutritional supplement and pharmaceutical applications . specialty 21 products are primarily manufactured at the company 's maywood , new jersey , site and , in some instances , by third-party contractors . o during 2019 , the company restructured its specialty products office in the netherlands and eliminate positions from the site 's supply chain , quality control and research and development areas . this restructuring was designed to better align the number of personnel with current business requirements and reduce costs at the site ( see note 23 , business restructuring , for additional details ) . change in accounting principle during the first quarter of 2019 the company elected to change its method of accounting for u.s. inventory valuation from the lifo basis to the fifo basis . non-u.s. inventories have historically been maintained on the fifo basis . the company believes that this change to the fifo method of inventory valuation is preferable as it provides a better matching of costs with the physical flow of goods , more accurately reflects the current market value of inventory presented on the company 's consolidated balance sheet , standardizes the company 's inventory valuation methodology and improves comparability with the company 's industry peers . the company has retrospectively applied this change to its prior year financial statement comparables . ( see note 2 , change in method of accounting for inventory valuation , for additional details ) . 2019 acquisition on december 17 , 2019 , the company acquired an oilfield demulsifier product line . the purchase price of the acquisition was $ 9,000,000 and was paid with cash on hand . this acquisition was accounted for as a business combination and the assets were measured and recorded at their estimated fair values . the primary assets acquired were intangibles , mostly comprised of goodwill ( $ 3,497,000 ) , product know-how ( $ 1,500,000 ) and customer relationships ( $ 3,200,000 ) . a small amount of inventory was also acquired . all the acquired assets are included within the company 's surfactants segment . the fair value analysis remains in process and is expected to be finalized during the first half of 2020. the acquired business did not impact the company 's 2019 financial results . deferred compensation plans the accounting for the company 's deferred compensation plans can cause period-to-period fluctuations in company expenses and profits . story_separator_special_tag the higher unit margins partially reflect one-time benefits related to a vat tax recovery in brazil and insurance recovery related to the ecatepec , mexico incident . excluding the effect of the above items , average margins were flat between years . the unfavorable impact of foreign currency translation and three percent lower sales volume negatively impacted the year-over-year change in gross profit by $ 1.4 million and $ 0.7 million , respectively . gross profit for asian operations decreased $ 3.4 million , or 20 percent , largely due to an 11 percent decline in sales volume and lower unit margins . these items negatively impacted the year-over-year change in gross profit by $ 1.8 million and $ 1.7 million , respectively . the decline in sales volume was largely due to lower commodity demand in the laundry and cleaning end markets and lower sales to our distribution partners . the lower unit margins are primarily due to higher unit overhead costs in singapore due to unfavorable production timing differences . operating expenses for the surfactants segment increased $ 2.1 million , or two percent , year-over-year . most of this increase was attributable to higher salary and associated fringe benefit expenses . polymers polymers 2019 net sales decreased $ 15.1 million , or three percent , versus net sales for 2018. a four percent increase in sales volume positively impacted the year-over-year change in net sales by $ 19.6 million . sales volume of polyols used in rigid foam applications increased nine percent during the year but was partially offset by lower phthalic anhydride sales volume . the 26 unfavorable impact of lower average selling prices and foreign currency translation negatively impacted the year-over-year change in net sales by $ 22.4 million and $ 12.3 million , respectively . a year-over-year comparison of net sales by region follows : replace_table_token_13_th net sales for north american operations declined $ 8.8 million , or three percent , primarily due to lower average selling prices partially offset by slightly favorable volume growth . the lower average selling prices negatively impacted the change in net sales by $ 11.6 million . sales volume growth positively impacted the change in net sales by $ 2.8 million . sales volume of polyols used in rigid foam applications increased 12 percent during the year but was largely offset by lower phthalic anhydride and specialty polyols sales volume . net sales for european operations decreased $ 14.2 million , or eight percent , year-over-year . sales volume growth of two percent positively impacted the year-over-year change in net sales by $ 4.1 million . the unfavorable impact of foreign currency translation and lower average selling prices negatively impacted the change in net sales by $ 10.5 million and $ 7.8 million , respectively . a stronger u.s. dollar relative to the polish zloty led to the foreign currency translation effect . net sales for asia and other operations increased $ 7.9 million , or 25 percent , primarily due to a 37 percent increase in sales volume . the increase in sales volume positively impacted the year-over-year change in net sales by $ 11.5 million . the unfavorable impact of foreign currency translation and lower average selling prices negatively impacted the change in net sales by $ 1.8 million each . polymer operating income for 2019 increased $ 3.2 million , or five percent , versus operating income for 2018. gross profit increased $ 3.9 million , or four percent , year-over-year . operating expenses increased $ 0.7 million , or two percent , in 2019. year-over-year comparisons of gross profit by region and total segment operating expenses and operating income follow : replace_table_token_14_th ( 1 ) the 2018 gross profit and operating income line items have been retrospectively changed from the amounts originally reported as a result of the company 's first quarter 2019 change in method of accounting for u.s. inventory valuation from lifo to fifo . gross profit for north american operations increased $ 0.5 million , or one percent , due to slightly higher sales volume . sales volume of polyols used in rigid foam applications increased 12 percent during the year but was largely offset by lower phthalic anhydride and specialty polyols sales volume . average unit margins were flat year-over-year . the flat margins largely reflect the consumption of higher priced 2018 year-end inventories carried to guard against winter supply disruptions and the non-recurrence of a $ 2.1 million class action settlement received in the first quarter of 2018. gross profit for european operations declined $ 1.5 million , or six percent , year-over-year . sales volume growth of two percent positively impacted the year-over-year change in gross profit by $ 0.6 million . the unfavorable impact of foreign currency translation and lower unit margins negatively impacted the year-over-year change in gross profit by $ 1.5 million and $ 0.6 million , respectively . gross profit for asia and other operations improved $ 4.9 million primarily due to higher unit margins and 37 percent sales volume growth year-over-year . operating expenses for the polymers segment increased $ 0.7 million , or two percent , year-over-year . 27 specialty products specialty products net sales decreased $ 6.8 million , or eight percent , versus net sales in 2018. a one percent increase in sales volume was more than offset by lower average selling prices . gross profit increased $ 4.3 million and operating income increased $ 4.8 million year-over-year . these increases primarily reflect improved margins within the company 's medium chain triglycerides ( mcts ) product line and lower operating expenses as a result of the 2019 restructuring efforts . corporate expenses corporate expenses , which include deferred compensation , business restructuring and other operating expenses that are not allocated to the reportable segments , increased $ 19.2 million between years . corporate expenses were $ 81.5 million in 2019 versus $ 62.3 million in the prior year . this increase was primarily attributable to higher deferred compensation expense ( $ 17.5 million ) .
| results of operations 2019 compared with 2018 summary net income attributable to the company for 2019 decreased seven percent from $ 111.1 million , or $ 4.76 per diluted share in 2018 to $ 103.1 million , or $ 4.42 per diluted share , in 2019. adjusted net income increased seven percent to $ 119.4 million , or $ 5.12 per diluted share , from $ 111.7 million , or $ 4.79 per diluted share in 2018 ( 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 , profits and expenses . a detailed discussion of segment operating performance for 2019 compared to 2018 follows the summary . consolidated net sales decreased $ 135.1 million , or seven percent , between years . lower average selling prices negatively impacted the year-over-year change in net sales by $ 60.8 million . the decrease in average selling prices was primarily due to the pass through of lower raw material costs . foreign currency translation negatively impacted the year-over-year change in net sales by $ 37.3 million due to a stronger u.s. dollar against the majority of currencies where the company has foreign operations . consolidated sales volume decreased two percent and negatively impacted the change in net sales by $ 37.0 million . sales volume in the surfactant segment decreased three percent while sales volume in the polymer and specialty product segments increased four and one percent , respectively . operating income declined $ 22.0 million , or 15 percent , between years . the majority of this decrease reflects higher deferred compensation expenses in 2019. deferred compensation expenses increased $ 17.5 million year-over-year .
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83 8. stockholders ' equity our authorized capital stock consists of 520,000,000 shares , all with a par value of $ 0.0001 per share story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated and combined financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion and other parts of this annual report contain forward-looking statements that involve risk and uncertainties , such as statements of our plans , objectives , expectations and intentions . as a result of many factors , including those factors set forth in the โ risk factors โ 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 . we are a clinical-stage biopharmaceutical company focused on developing meaningful therapies for patients with severe and life-threatening diseases that have been underserved by scientific innovation . we are focused on developing allogeneic , or third-party derived , antigen-specific t-cells . t-cells are a type of white blood cell . cytotoxic t-cells , otherwise known as cytotoxic t lymphocytes , or ctls , can mount an immune response against an antigen or antigens in order to combat viral infection or disease . our cellular therapy platform is designed to provide a healthy immune capability to a patient whose immune system is compromised or is unable to identify the disease targets . our product candidates are derived from cells donated by healthy individuals . these cells are trained to recognize an antigen , expanded , characterized , banked and held as inventory . these cells are ready to infuse in a partially human leukocyte antigen , or hla , matched patient in approximately 3-5 days . once administered , the cells home to their target , expand in-vivo to eliminate diseased cells , and eventually recede . this versatile platform can be directed towards a broad array of disease causing targets and has demonstrated clinical proof of concept across both viral and non-viral targets in conditions ranging from liquid and solid tumors to infectious and autoimmune diseases . we licensed rights to t-cell product candidates from memorial sloan kettering cancer center , or msk , in june 2015 and to know how and technology from qimr berghofer medical research institute , or qimr berghofer , in october 2015 and september 2016. our relationship with qimr berghofer provides rights to know how and a technology that is complementary to that which was licensed from msk . this know-how and technology is enabling the development of ebv and other virally targeted ctls for other indications such as multiple sclerosis , or ms. we are working with qimr berghofer on the development of product candidates for these new indications . ata129 our most advanced t-cell product candidate , ata129 ( previously referred to as ebv-ctl ) , is currently being investigated for the treatment of epstein-barr virus , or ebv , associated post-transplant lymphoproliferative disorder , or ebv-ptld . in immunocompromised patients , ebv causes lymphomas and other lymphoproliferative disorders , collectively called ebv-ptld . ebv-ptld most commonly affects patients after hematopoietic cell transplant , or hct , or after solid organ transplant , or sot . in december 2016 , we announced that we had reached agreement with the u.s. food and drug administration , or fda , on the designs of two phase 3 trials for ata129 intended to support approval in two separate indications , the treatment of rituximab-refractory ebv-ptld , after hct and after sot . the match trial ( ebv-ptld after hct ) is designed to be a multicenter , open label , single arm trial designed to enroll approximately 35 patents with rituximab refractory ebv-ptld after hct . the allele trial ( ebv-ptld after sot ) is designed to be a multicenter , open label trial with two non-comparative cohorts . each cohort is designed to enroll approximately 35 patients . the first cohort will include patients who previously received rituximab monotherapy , and the second cohort will include patients who previously received rituximab plus chemotherapy . both cohorts are planned to enroll concurrently . the primary endpoint of both the match and allele trials is objective response rate , defined as the percent of patients achieving either a complete or partial response to treatment with ata 129. secondary endpoints for both trials include duration of response , overall survival , safety , quality of life metrics , and other data in support of potential health economic benefits . the trials are expected to open initially in the united states and later expand to include ex-u.s. sites . in addition , in june 2016 , we opened a multicenter expanded access protocol , or eap , trial to provide access to ata129 treatment and collect additional safety data while the medication is not commercially available or available to patients through another protocol . the trial is open to patients with ebv-associated viremia or certain malignancies for whom there are no appropriate alternative treatment options . we generated and evaluated data from new material manufactured by our contract manufacturing organization , or cmo , and initiated discussions with the fda . we have been successful in producing ata129 drug product and identified certain assays that need refinement prior to initiating the phase 3 trials . we are refining these assays within our laboratories , manufacturing lots to further support comparability evaluations and the phase 3 trials , and expect to review these data in ongoing discussions with the fda . 57 in clinical t rials that enrolled patients with ebv-ptld following hct or sot , efficacy following treatment with ata129 compared favorably with historical data in these patient populations . story_separator_special_tag financial overview basis of presentation and recapitalization atara , nina biotherapeutics , inc. , or nina , pinta biotherapeutics , inc. , or pinta , and santa maria biotherapeutics , inc. , or santa maria , were incorporated in august 2012. atara was originally formed as a management company with the sole purpose of providing management , financial and administrative services for nina , pinta and santa maria . prior to our recapitalization on march 31 , 2014 , the results of operations and financial condition of the four companies are presented on a combined basis as they were under common management and common ownership , with intercompany transactions eliminated . on march 31 , 2014 , we implemented a recapitalization in which ( a ) all the outstanding shares of common stock of atara were cancelled and forfeited by existing stockholders and ( b ) the stockholders of nina , pinta and santa maria exchanged their existing common and convertible preferred stock for newly-issued shares of atara , in the same proportions and with the same rights and privileges as the outstanding capital stock of nina , pinta and santa maria , on a collective nine-for-one basis . atara assumed the separate equity incentive plans sponsored by nina , pinta and santa maria and all outstanding restricted stock units ( โ rsus โ ) and restricted stock awards ( โ rsas โ ) granted under such plans . at the time of rsu settlement , each employee or consultant will receive one share of common stock of atara for three rsus in each of nina , pinta , and santa maria ( collectively , a nine-for-one exchange ) . we refer to this transaction as our recapitalization . as a result of the recapitalization , nina , pinta and santa maria became wholly owned subsidiaries of atara effective march 31 , 2014. the recapitalization was accounted for as a combination of businesses under common control and the assets and liabilities of nina , pinta and santa maria were recorded by atara at their historical carrying amounts on march 31 , 2014. beginning march 31 , 2014 , our financial statements are presented on a consolidated basis , with all intercompany transactions eliminated . except as otherwise noted , all share and per share amounts presented in this โ management 's discussion and analysis of financial condition and results of operations โ give effect to the recapitalization . revenues to date , we have not generated any revenues . we do not expect to receive any revenues from any product candidates that we develop until we obtain regulatory approval and commercialize our products or enter into collaborative agreements with third parties . research and development expenses the largest component of our total operating expenses since inception has been our investment in research and development activities , including the preclinical and clinical development of our product candidates . research and development expenses consist primarily of compensation and benefits for research and development employees , including stock-based compensation ; expenses incurred under agreements with contract research organizations and investigative sites that conduct clinical trials and preclinical studies ; the costs of acquiring and manufacturing clinical trial materials and other supplies ; payments under licensing and research and development agreements ; other outside services and consulting costs ; and an allocation of facilities and overhead expenses . research and development costs are expensed as incurred . we plan to increase our research and development expenses as we continue the development of our product candidates . our current planned research and development activities include the following : advancing ata129 into phase 3 clinical trials for the treatment of ebv-ptld after hct and sot ; process development , testing and manufacturing of drug supply to support clinical trials and ind-enabling studies ; initiation of the phase 1 trial of ata188 in ms ; continuing development of ata520 for the treatment of hematologic malignancies , including plasma cell leukemia ; collaborating with msk and qimr berghofer in the discovery and development of additional t-cell programs ; enrollment of patients in the ata129 clinical trials ; and leveraging our relationships and experience to in-license or acquire additional product candidates or technologies . 59 in addition , we believe it is important to invest in the development of new product candidates to continue to build the value of our product candidate pipeline and our business . we plan to continue to advance our most promising early product candidates into preclinical development with the objective to advance these early-stage programs to human clinical trials o ver the next several years . our expenditures on current and future preclinical and clinical development programs are subject to numerous uncertainties in timing and cost to completion . the duration , costs , and timing of clinical trials and development of our product candidates will depend on a variety of factors , including : the availability of qualified material for use in our planned phase 3 or other clinical trials ; the scope , rate of progress , and expenses of our ongoing as well as any additional clinical trials and other research and development activities ; future clinical trial results ; uncertainties in clinical trial enrollment rates or discontinuation rates of patients ; potential additional safety monitoring or other studies requested by regulatory agencies ; significant and changing government regulation ; and the timing and receipt of any regulatory approvals . the process of conducting the necessary clinical research to obtain fda approval is costly and time consuming and the successful development of our product candidates is highly uncertain . the risks and uncertainties associated with our research and development projects are discussed more fully in the section of this report titled โ 1a . risk factors.
| results of operations comparison of the years ended december 31 , 2016 , 2015 and 2014 research and development expenses by program for the periods indicated were as follows : replace_table_token_3_th 63 ata129 costs were $ 8.8 million in 2016 as compared to $ 1.0 million in 2015 and zero in 2014. this increase in 2016 was primarily due to outside service costs related to the preparation for two phase 3 clinical trials of ata129 in ebv-ptld after hct and sot , as well as the initiation of our eap clinical trial in 2016. the increase in 2015 was primarily due to development work undertaken following the exercise of our option to license this program from msk in june 2015. we anticipate that ata129 costs will increase in 2017 due to the initiation of the two phase 3 clinical trials for this product candidat e in ebv-ptld . ata230 costs were $ 2.6 million in 2016 as compared to $ 0.1 million in 2015 and zero in 2014. the increases in 2016 and 2015 were primarily related to outside services costs associated with the phase 2 clinical trial for this product candidate . t-cell manufacturing and other program-related expenses were $ 18.7 million in 2016 as compared to $ 9.1 million in 2015. the increase of $ 9.6 million in 2016 was primarily due to an increase of $ 14.1 million for manufacturing-related activities , including the technical transfer of manufacturing to a third party cmo , partially offset by a decrease in license payments of $ 4.5 million . expenses in 2016 included cash payments to qimr berghofer of $ 3.3 million related to the license of additional ctl programs and the option to license additional technologies from them .
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also , based on current expectations , management announced its plans to continue to recommend to the board an increase of $ 0.0025 per unit per quarter to our cash distribution rate with respect to 2019. the anticipated rate of increase would result in distributions for 2019 ( of $ 1.7650 per unit ) being 2.3 % higher than those paid for 2018 ( of $ 1.7250 per unit ) . the payment of any quarterly cash distribution is subject to board approval and management 's evaluation of our financial condition , results of operations and cash flows in connection with such payment . service begins on the midland-to-echo 2 pipeline system the midland-to-echo 2 pipeline system , which began limited commercial service in february 2019 , provides us with approximately 200 mbpd of incremental crude oil transportation capacity from the permian basin to markets in the houston area . the pipeline is expected to enter full commercial service in april 2019. the pipeline originates at our midland terminal and extends 440 miles to our sealy terminal , with volumes arriving at sealy transported to our echo terminal using the rancho ii pipeline , which is a component of our south texas crude oil pipeline system . we converted a portion of our seminole ngl pipeline system from ngl service to crude oil service to create the midland-to-sealy segment of this pipeline system . the conversion is supported by a 10.75-year transportation contract with firm demand fees . the conversion does not reduce our ngl transportation capacity since displaced ngls are transported using our other ngl pipelines , including our shin oak ngl pipeline . furthermore , we have the ability to convert this pipeline back to ngl service should market and physical takeaway conditions warrant . 65 enterprise increasing ngl fractionation capacity in texas and louisiana the demand for ngl fractionation capacity continues to expand as producers in domestic shale plays like the permian basin , eagle ford and denver-julesburg ( โ dj โ ) basin seek market access and end users require supply assurance . in light of this ongoing trend , we are constructing a new ngl fractionation facility in chambers county , texas adjacent to our existing mont belvieu ngl fractionation complex . the new facility will consist of two fractionation trains capable of processing a combined 300 mbpd of ngls . the first of the two fractionation trains will have a nameplate capacity of 150 mbpd and is scheduled to be completed and begin service in the fourth quarter of 2019. the second of these fractionation trains will also have a nameplate capacity of 150 mbpd , and is scheduled to begin service in the first half of 2020. in november 2018 , we announced a project to optimize our shoup ngl fractionator located in nueces county , texas by expanding and repurposing a portion of our south texas pipelines . this project would entail the construction of approximately 21 miles of new pipeline along with the conversion of approximately 65 miles of existing natural gas pipelines to ngl service , which will allow us to supply shoup with an additional 25 mbpd of ngl volumes . the expanded pipeline capacity is expected to be available in the third quarter of 2019. we restarted our tebone ngl fractionator located in ascension parish , louisiana in february 2019. tebone has a fractionation capacity of 30 mbpd and is connected by pipeline to each of our louisiana natural gas processing plants , as well as our mont belvieu storage complex . the resumption of service at tebone complements our operations at the norco and promix ngl fractionators and provides us with another processing option for ngls delivered to the mont belvieu hub . the construction of our new 300 mbpd ngl fractionation facility at our mont belvieu ngl fractionation complex , the optimization of our shoup facility and restart of our tebone fractionator highlights the flexibility of our integrated midstream network and provides a timely , efficient and cost-effective solution for accommodating growing production from domestic shale basins . once these projects are fully complete , total ngl fractionation capacity across our network would increase to approximately 1.1 mmbpd in the mont belvieu area , and approximately 1.5 mmbpd company-wide . enterprise begins construction of seventh natural gas processing plant in delaware basin ; second train at orla natural gas processing plant begins service in october 2018 , we announced that construction of our mentone cryogenic natural gas processing plant had commenced . the mentone plant , which is located in loving county , texas , is expected to have the capacity to process 300 mmcf/d of natural gas and extract in excess of 40 mbpd of ngls . the project is scheduled to be completed in the first quarter of 2020 and is supported by a long-term acreage dedication agreement . the mentone plant further extends our presence in the growing delaware basin and provides access to our fully integrated midstream asset network serving domestic and international markets . to support development of the mentone plant , we are constructing approximately 70 miles of gathering and residue pipelines and expanding compression capabilities . these projects will allow the mentone plant to link to our ngl system , including the shin oak ngl pipeline which entered limited commercial service in february 2019 , as well as our texas intrastate system . we will own and operate the mentone facility and related infrastructure . the mentone plant will complement our existing cryogenic natural gas processing plant located near orla , texas in reeves county . in may 2018 and october 2018 , we commenced operations of the first and second processing trains ( orla i and orla ii ) , respectively , at the facility . story_separator_special_tag a third processing train ( orla iii ) is scheduled to be completed in the second quarter of 2019. we own and operate the orla facility . in conjunction with the start-up of orla i , we placed into service approximately 70 miles of natural gas pipelines that connect the orla facility to our texas intrastate system . we also placed into service a 30-mile extension of our ngl system that provides producers at the orla facility with ngl takeaway capacity and direct access to our integrated network of downstream ngl assets . when the mentone plant is completed and placed into service , we expect to have an aggregate 1.6 bcf/d of natural gas processing capacity and 250 mbpd of ngl production from our processing plants in the delaware basin . 66 cme group launches physical west texas intermediate ( โ wti โ ) houston crude oil futures contract in september 2018 , the cme group , a leading derivatives marketplace , announced that suppliers , refiners and end users of u.s. crude oil have a new way to price and hedge wti in houston , texas . participants will have the flexibility to make or take delivery of wti at our echo terminal , enterprise hydrocarbons terminal ( โ eht โ ) or pipeline interconnect at genoa junction . the new futures contracts received regulatory approval in october 2018 and are listed with and subject to the rules of the new york mercantile exchange ( โ nymex โ ) , beginning with the january 2019 contract month . enterprise expanding lpg capacity at houston ship channel terminal in september 2018 , we announced a project to increase lpg loading capacity at eht by 175 mbpd , or approximately 5 mmbbls per month . the expansion will bring our total lpg export capacity at eht to 720 mbpd , or approximately 21 mmbbls per month . upon completion of this expansion project , eht will have the capability to load up to six very large gas carrier ( โ vlgc โ ) vessels simultaneously , while maintaining the option to switch between loading propane and butane . once operational , the expansion will allow eht to load a single vlgc in less than 24 hours , creating greater efficiencies and cost savings for our customers . the incremental loading capacity is expected to be available in the third quarter of 2019. enterprise to develop offshore texas crude oil export terminal in july 2018 , management announced that we are in the planning stage to develop a crude oil export terminal located offshore along the texas gulf coast . the terminal would be capable of fully loading very large crude carrier ( โ vlcc โ ) marine tankers , which have capacities of approximately 2 mmbbls and provide the most efficient and cost-effective solution to export crude oil to the largest international markets in asia and europe . we started front-end engineering and design work for the terminal in 2018 and filed our application for regulatory permitting with the maritime administration ( โ marad โ ) in january 2019. based on initial designs , the project could include pipelines extending from onshore facilities to an offshore terminal loading crude oil for export at approximately 85,000 barrels per hour . a final investment decision for the project will be subject to receiving state and federal permits and customer demand . seaway commences loading services for vlcc tankers in june 2018 , we commenced the loading of vlcc tankers using a combination of our jointly owned seaway marine terminal located in texas city , texas and lightering operations in the gulf of mexico . approximately 1.1 mmbbls of crude oil were loaded onto the fpmc c melody at the texas city marine terminal and the remainder of the crude oil shipment was loaded on the vlcc in a lightering zone in the gulf of mexico . the fpmc c melody , chartered by vitol , inc. , was the first vlcc to be loaded at a texas port . the seaway marine terminal features two docks , a 45-foot draft , an overall length of 1,125 feet , a 200-foot beam ( width ) and the capacity to load crude oil at a rate of 35,000 barrels per hour . affiliate of western gas acquires 20 % ownership interest in portion of midland-to-echo 1 pipeline system in june 2018 , an affiliate of western gas partners , lp ( โ western โ ) acquired a noncontrolling 20 % equity interest in our subsidiary , whitethorn pipeline company llc ( โ whitethorn โ ) , for $ 189.6 million in cash . whitethorn owns the majority of our midland-to-echo 1 pipeline system , which originates at our midland terminal and extends 418 miles to our sealy terminal . volumes arriving at sealy are then transported to our echo terminal using our rancho ii pipeline . the midland-to-echo 1 pipeline system provides permian basin producers with the ability to transport multiple grades of crude oil , including wti , light wti , west texas sour , and condensate , to gulf coast markets . as a result of operating enhancements and supplementary infrastructure , the pipeline 's transportation capacity is expected to increase to 620 mbpd beginning in march 2019. we report the pipeline 's transportation volumes on a net basis that reflects our 80 % interest . upon closing of the transaction whereby western acquired its 20 % equity interest in whitethorn , we credited western for 20 % of the pipeline 's earnings since it was placed into service in november 2017. we paid western $ 45.7 million in june 2018 to settle this obligation . 67 construction begins on ethylene export dock in may 2018 , we announced that construction of our ethylene export terminal located at morgan 's point on the houston ship channel had commenced . when completed , the terminal , which we will operate , is expected
| income statement highlights the following table summarizes the key components of our consolidated results of operations for the years indicated ( dollars in millions ) : replace_table_token_3_th revenues the following table presents each business segment 's contribution to consolidated revenues for the years indicated ( dollars in millions ) : replace_table_token_4_th for periods through december 31 , 2017 , we accounted for our revenue streams using financial accounting standards board ( โ fasb โ ) accounting standards codification ( โ asc โ ) 605 , revenue recognition . effective january 1 , 2018 , we adopted fasb asc 606 , revenue from contracts with customers , using a modified retrospective approach that applied the new revenue recognition standard to existing contracts at the implementation date and any future revenue contracts . for additional information regarding our consolidated revenues , including the adoption of asc 606 , see note 9 of the notes to consolidated financial statements included under part ii , item 8 of this annual report . 75 comparison of 2018 with 2017 total revenues for 2018 increased $ 7.29 billion when compared to 2017 primarily due to a $ 6.05 billion increase in marketing revenues . revenues from the marketing of crude oil increased $ 2.64 billion year-to-year primarily due to higher sales prices , which accounted for a $ 1.99 billion increase , and higher sales volumes , which accounted for an additional $ 646.3 million increase . revenues from the marketing of ngls , petrochemicals and refined products increased a net $ 3.24 billion year-to-year primarily due to higher sales prices , which accounted for a $ 3.39 billion increase , partially offset by a $ 149.2 million decrease due to lower sales volumes .
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our discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties , such as our plans , objectives , opinions , expectations , anticipations and intentions and beliefs . actual results and the timing of events could differ materially from those anticipated in those forward-looking statements as a result of a number of factors . see โ cautionary note regarding forward-looking statements , โ โ business โ and โ risk factors , โ sections elsewhere in this annual report on form 10-k. in the following discussion and analysis of results of operations and financial condition , certain financial measures may be considered โ non-gaap financial measures โ under the sec rules . these rules require supplemental explanation and reconciliation , which is provided in this annual report on form 10-k. enersys ' management uses the non-gaap measures , ebitda and adjusted ebitda , in its computation of compliance with loan covenants . these measures , as used by enersys , adjust net earnings determined in accordance with gaap for interest , taxes , depreciation and amortization , and certain charges or credits as permitted by our credit agreements , that were recorded during the periods presented . enersys ' management uses the non-gaap measures , `` primary working capital '' and `` primary working capital percentage '' ( see definition in โ liquidity and capital resources โ below ) along with capital expenditures , in its evaluation of business segment cash flow and financial position performance . these non-gaap disclosures have limitations as analytical tools , should not be viewed as a substitute for cash flow or operating earnings determined in accordance with gaap , and should not be considered in isolation or as a substitute for analysis of the company 's results as reported under gaap , nor are they necessarily comparable to non-gaap performance measures that may be presented by other companies . this supplemental presentation should not be construed as an inference that the company 's future results will be unaffected by similar adjustments to operating earnings determined in accordance with gaap . overview enersys ( the โ company , โ โ we , โ or โ us โ ) is the world 's largest manufacturer , marketer and distributor of industrial batteries . we also manufacture , market and distribute products such as battery chargers , power equipment , battery accessories , and outdoor cabinet enclosures . additionally , we provide related aftermarket and customer-support services for our products . we market our products globally to over 10,000 customers in more than 100 countries through a network of distributors , independent representatives and our internal sales force . we operate and manage our business in three geographic regions of the worldโamericas , emea and asia , as described below . our business is highly decentralized with manufacturing locations throughout the world . more than half of our manufacturing capacity is located outside the united states , and approximately 50 % of our net sales were generated outside the united states . the company has three reportable business segments based on geographic regions , defined as follows : americas , which includes north and south america , with our segment headquarters in reading , pennsylvania , u.s.a. ; emea , which includes europe , the middle east and africa , with our segment headquarters in zug , switzerland ; and asia , which includes asia , australia and oceania , with our segment headquarters in singapore . we evaluate business segment performance based primarily upon operating earnings exclusive of highlighted items . highlighted items are those that the company deems are not indicative of ongoing operating results , including those charges that the company incurs as a result of restructuring activities and those charges and credits that are not directly related to ongoing business segment performance . all corporate and centrally incurred costs are allocated to the business segments based principally on net sales . we evaluate business segment cash flow and financial position performance based primarily upon capital expenditures and primary working capital levels ( see definition of primary working capital in โ liquidity and capital resources โ below ) . although we monitor the three elements of primary working capital ( receivables , inventory and payables ) , our primary focus is on the total amount due to the significant impact it has on our cash flow . 24 our management structure , financial reporting systems , and associated internal controls and procedures , are all consistent with our three geographic business segments . we report on a march 31 fiscal year-end . our financial results are largely driven by the following factors : global economic conditions and general cyclical patterns of the industries in which our customers operate ; changes in our selling prices and , in periods when our product costs increase , our ability to raise our selling prices to pass such cost increases through to our customers ; the extent to which we are able to efficiently utilize our global manufacturing facilities and optimize our capacity ; the extent to which we can control our fixed and variable costs , including those for our raw materials , manufacturing , distribution and operating activities ; changes in our level of debt and changes in the variable interest rates under our credit facilities ; and the size and number of acquisitions and our ability to achieve their intended benefits . we have two primary product lines : reserve power and motive power products . net sales classifications by product line are as follows : reserve power products are used for backup power for the continuous operation of critical applications in telecommunications systems , uninterruptible power systems , or โ ups โ applications for computer and computer-controlled systems , and other specialty power applications , including medical and security systems , premium starting , lighting and ignition applications , in switchgear , electrical control systems used in electric utilities , large-scale energy storage , energy pipelines , in commercial aircraft , satellites , military aircraft , submarines , ships and tactical vehicles . story_separator_special_tag in january 2017 , we started our operational excellence program , referred to as the enersys operating system , or eos . currently , eos engages over 2,700 employees world-wide who impact approximately $ 700 million in cost of production . eos serves as our continuous improvement engine . during fiscal 2018 , we were able to fund our investment in new product development and digital core with savings of nearly $ 25 million , which included the aforementioned $ 7.0 million savings in fiscal 2018 from restructuring programs . we remain on pace with our global deployment of eos , and constantly evaluate the return on investment to ensure we achieve our targeted 200 basis point improvement by end of fiscal 2021 . 26 critical accounting policies and estimates our significant accounting policies are described in notes to consolidated financial statements in item 8. in preparing our financial statements , management is required to make estimates and assumptions that , among other things , affect the reported amounts in the consolidated financial statements and accompanying notes . these estimates and assumptions are most significant where they involve levels of subjectivity and judgment necessary to account for highly uncertain matters or matters susceptible to change , and where they can have a material impact on our financial condition and operating performance . we discuss below the more significant estimates and related assumptions used in the preparation of our consolidated financial statements . if actual results were to differ materially from the estimates made , the reported results could be materially affected . revenue recognition we recognize revenue when the earnings process is complete . this occurs when risk and title transfers , collectibility is reasonably assured and pricing is fixed or determinable . shipment terms to our battery product customers are either shipping point or destination and do not differ significantly between our business segments . accordingly , revenue is recognized when risk and title is transferred to the customer . amounts invoiced to customers for shipping and handling are classified as revenue . taxes on revenue producing transactions are not included in net sales . we recognize revenue from the service of reserve power and motive power products when the respective services are performed . management believes that the accounting estimates related to revenue recognition are critical accounting estimates because they require reasonable assurance of collection of revenue proceeds and completion of all performance obligations . also , revenues are recorded net of provisions for sales discounts and returns , which are established at the time of sale . these estimates are based on our past experience . asset impairment determinations we test for the impairment of our goodwill and indefinite-lived trademarks at least annually and whenever events or circumstances occur indicating that a possible impairment has been incurred . we perform our annual goodwill impairment test on the first day of our fourth quarter for each of our reporting units based on the income approach , also known as the discounted cash flow ( โ dcf โ ) method , which utilizes the present value of future cash flows to estimate fair value . we also use the market approach , which utilizes market price data of companies engaged in the same or a similar line of business as that of our company , to estimate fair value . a reconciliation of the two methods is performed to assess the reasonableness of fair value of each of the reporting units . the future cash flows used under the dcf method are derived from estimates of future revenues , operating income , working capital requirements and capital expenditures , which in turn reflect specific global , industry and market conditions . the discount rate developed for each of the reporting units is based on data and factors relevant to the economies in which the business operates and other risks associated with those cash flows , including the potential variability in the amount and timing of the cash flows . a terminal growth rate is applied to the final year of the projected period and reflects our estimate of stable growth to perpetuity . we then calculate the present value of the respective cash flows for each reporting unit to arrive at the fair value using the income approach and then determine the appropriate weighting between the fair value estimated using the income approach and the fair value estimated using the market approach . finally , we compare the estimated fair value of each reporting unit to its respective carrying value in order to determine if the goodwill assigned to each reporting unit is potentially impaired . in january 2017 , the financial accounting standards board ( โ fasb โ ) issued asu 2017-04 , โ intangibles-goodwill and other ( topic 350 ) : simplifying the accounting for goodwill impairment โ , which eliminated step 2 from the goodwill impairment test . if the fair value of the reporting unit exceeds its carrying value , goodwill is not impaired and no further testing is required . if the fair value of the reporting unit is less than the carrying value , an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit 's fair value ; however , the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit . this update is effective for annual or any interim goodwill impairment tests in fiscal years beginning after december 15 , 2019 with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after january 1 , 2017. the company was able to early adopt asu 2017-04 in fiscal 2017 and eliminated step 2 from the goodwill impairment test conducted in fiscal 2017. significant assumptions used include management 's estimates of future growth rates , the amount and timing of future operating cash flows , capital expenditures , discount rates , as well as market and industry conditions and relevant comparable company 27 multiples for the market approach .
| overview our sales in fiscal 2018 were $ 2.6 billion , a 9 % increase from prior year 's sales . this increase was the result of a 4 % increase in pricing , a 3 % increase in organic volume and a 2 % increase in foreign currency translation impact . a discussion of specific fiscal 2018 versus fiscal 2017 operating results follows , including an analysis and discussion of the results of our reportable segments . 30 net sales segment sales replace_table_token_4_th the americas segment 's net sales increased by $ 97.5 million or 7.3 % in fiscal 2018 , as compared to fiscal 2017 , primarily due to a 4 % increase in organic volume and a 3 % increase in pricing . the emea segment 's net sales increased by $ 86.4 million or 11.3 % in fiscal 2018 , as compared to fiscal 2017 , primarily due to a 7 % increase in currency translation impact and a 5 % increase in pricing , partially offset by a 1 % decrease in organic volume . the asia segment 's net sales increased by $ 30.8 million or 11.3 % in fiscal 2018 , as compared to fiscal 2017 , primarily due to a 5 % increase in organic volume , a 4 % increase in pricing and a 2 % increase in currency translation impact . product line sales replace_table_token_5_th sales in our reserve power products increased in fiscal 2018 by $ 105.7 million or 9.2 % compared to the prior year , primarily due to a 4 % increase in pricing , a 3 % increase in organic volume and a 2 % increase in currency translation impact .
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our portfolio is mainly comprised of agency rmbs , agency cmbs , non-agency rmbs , non-agency cmbs and residential whole-loans . to a significantly lesser extent , we have invested in other securities including certain gse risk sharing securities , as well as certain non u.s. cmbs and abs investments secured by a portfolio of private student loans . in addition , our holdings included a securitized commercial loan from a consolidated vie , although we only own a portion of the vie . we use leverage , currently consisting of borrowings under repurchase agreements , as part of our business strategy in order to increase potential returns to our stockholders . we accomplish this by borrowing against existing investments primarily through repurchase agreements . we may also change our financing strategy and leverage without the consent of our stockholders . we operate and elected to be taxed as a reit , commencing with our taxable year ended december 31 , 2012. we generally will not be subject to u.s. federal income taxes on our taxable income to the extent that we annually distribute , in accordance with the reit regulations , all of our net taxable income to stockholders and maintain our intended qualification as a reit . certain of our non-qualifying investments were held in our taxable reit subsidiary or `` trs '' . net income generated in our trs is taxable and subject to federal , state and local income tax at the applicable corporate tax rates . we also intend to operate our business in a manner that will permit us to maintain our exemption from registration under the 1940 act . factors impacting our operating results our results of operations are affected by a number of factors and primarily depend on , among other things , the size of our investment portfolio , our net interest income , changes in the market value of our investments , derivative instruments and to a lesser extent realized gains and losses on the sale of our investments and termination of our derivative instruments . our overall performance is also impacted by the supply and demand for our target assets in the market , the terms and availability of financing for such assets , general economic conditions , the impact of u.s government actions that affect the real estate and mortgage sectors , and the unanticipated credit events experienced by borrowers whose loans are included in our mbs , as well as our whole-loan borrowers . our net interest income varies primarily as a result of changes in market interest rates and constant prepayment rates , or ( โ cpr โ ) on our agency rmbs . the cpr measures the amount of unscheduled principal prepayments on rmbs as a percentage of the principal balance . interest income on our credit sensitive investments can also be impacted by unanticipated prepayments , defaults , liquidations or delinquencies experienced by the underlying borrowers . these factors can vary according to type of investment and conditions in the financial markets , none of which can be predicted with any certainty . see the item 1a . `` risk factors '' in this annual report on form 10-k for additional factors that may impact our operating results . recent market conditions our business is affected by general u.s. residential real estate fundamentals , domestic and foreign commercial real estate fundamentals and the overall u.s. and international economic environment . in particular , our strategy is influenced by the specific characteristics of these markets , including but not limited to prepayment rates and interest rate levels . we expect the results of our operations to be affected by various factors , many of which are beyond our control . our results of operations will primarily depend on , among other things , the level of our net interest income , the market value of our investment portfolio and the supply of and demand for mortgage-related assets . our net interest income , which includes the amortization of purchase premiums and accretion of discounts , will vary primarily as a result of changes in interest rates , defaults and loss severity rates , borrowing costs , and prepayment speeds on our mbs and other target assets ( as defined herein ) investments . similarly , the overall value of our 38 investment portfolio will be impacted by these factors as well as changes in the value of residential and commercial real estate and continuing regulatory changes . the unexpected election of donald trump in november 2016 , triggered a major repricing in the financial markets . the market has embraced the optimism that u.s. growth is going to improve and that fiscal policy is going to help charge growth despite economic and policy uncertainty . this optimism triggered risk-on sentiment , which sparked an increase in interest rates , generating a positive impact on net interest income . the upward pressure on interest rates and volatility in the markets led to spread widening , resulting in a significant decrease in our book value . our manager 's global outlook for 2017 , is sensitive to the potential downside risks , such as policy uncertainties from current administration , policy implications from changing political environment in europe and economic slowdown in china . it expects steady but unspectacular global growth , and that u.s. growth and inflation may rise with fiscal stimulus . global inflation has stopped declining ; however , central banks , which have been a big source of accommodation for the global recovery , are becoming less accommodative . nonetheless , our manager believes government bonds should remain underpinned by low policy rates and spread sectors should outperform over the longer term . u.s. rates reflect growth and optimism and upside risks to u.s. growth may come from potential fiscal policy changes . we believe our portfolio is well positioned to generate attractive risk-adjusted returns for our shareholders . residential mbs , whole-loans ( residential and commercial ) , cmbs and gse crt investments continue to look attractive on a risk-adjusted basis . story_separator_special_tag in determining whether an adverse change in cash flows occurred , the present value of the remaining cash flows , as estimated at the initial transaction date ( or the last date previously revised ) , is compared to the present value of the expected cash flows at the current reporting date . the estimated cash flows reflect those a โ market participant โ would use and are discounted at a rate equal to the current yield used to accrete interest income . any resulting otti adjustments are reflected in the โ other than temporary impairment โ line item in our consolidated statements of operations . the determination as to whether an otti exists is subjective , given that such determination is based on information available at the time of assessment as well as our estimate of the future performance and cash flow projections for the individual security . as a result , the timing and amount of an otti constitutes an accounting estimate that may change materially over time . increases in interest income may be recognized on a security on which we have previously recorded an otti charge if the cash flow of such security subsequently improves . securities in an unrealized loss position on december 31 , 2016 are not considered other than temporarily impaired if we had the ability and intent to hold the securities to maturity or for a period of time sufficient for a forecasted market price recovery up to or above the amortized cost of the investment , and we are not required to sell the security for regulatory or other reasons . in addition , unrealized losses on our agency securities , with explicit guarantee of principal and interest by the governmental sponsored entity ( `` gse '' ) , are not credit losses but rather were due to changes in interest rates and prepayment expectations . these securities would not be considered other than temporarily impaired provided we did not intent to sell the security . residential whole-loans investments in whole-loan are recorded in accordance with asc 310-20 , `` nonrefundable fees and other costs '' . we have chosen to make the fair value election pursuant to asc 825 for our whole-loan portfolio . whole-loans are recorded at fair value in the consolidated balance sheets with the periodic change in fair market value being recorded in earnings in our consolidated statements of operations as a component of `` unrealized gain ( loss ) , net '' . all other costs incurred in connection with acquiring whole-loans or committing to purchase these loans are charged to expense as incurred . 40 we amortize or accrete any premium or discount over the life of the related loan utilizing the effective interest method , based on the contractual payment terms of the loan . on at least a quarterly basis , we evaluate the collectability of both interest and principal of each loan , if circumstances warrant , to determine whether such loan is impaired . a loan is impaired when , based on current information and events , it is probable that we will be unable to collect all amounts due according to the existing contractual terms . when a loan is impaired , we do not record an allowance for loan loss as we have elected the fair value option . however , income recognition is suspended for loans at the earlier of the date at which payments become 90-days past due or when , in the opinion of management , a full recovery of income and principal becomes doubtful . when the ultimate collectability of the principal of an impaired loan is in doubt , all payments are applied to principal under the cost recovery method . when the ultimate collectability of the principal of an impaired loan is not in doubt , contractual interest is recorded as interest income when received , under the cash basis method until an accrual is resumed when the loan becomes contractually current and performance is demonstrated to be resumed . a loan is written off when it is no longer realizable and or legally discharged . interest income recognition agency mbs , non-agency mbs and other securities , excluding interest-only strips , rated aa and higher at the time of purchase interest income on mortgage-backed and other securities is accrued based on the respective outstanding principal balances and corresponding contractual terms . we record interest income in accordance with asc subtopic 835-30 `` imputation of interest '' , using the effective interest method . as such premiums and discounts associated with agency mbs , non-agency mbs and other securities , excluding interest-only strips , rated aa and higher at the time of purchase , are amortized into interest income over the estimated life of such securities . adjustments to premium and discount amortization are made for actual prepayment activity . we estimate prepayments at least quarterly for our securities and , as a result , if the projected prepayment speed increases , we will accelerate the rate of amortization on premiums or discounts and make a retrospective adjustment to historical amortization . alternatively , if projected prepayment speeds decrease , we will reduce the rate of amortization on the premiums or discounts and make a retrospective adjustment to historical amortization . non-agency mbs and other securities that are rated below aa at the time of purchase and interest-only strips that are not classified as derivatives interest income on non-agency mbs and other securities that are rated below aa at the time of purchase and interest-only strips that are not classified as derivatives are also recognized in accordance with asc 835 , using the effective yield method . the effective yield on these securities is based on the projected cash flows from each security , which is estimated based on our observation of the then current information and events , where applicable , and will include assumptions related to interest rates , prepayment rates and the timing and amount of credit losses .
| results of operations general for the year ended december 31 , 2016 , we had net loss of $ 25.0 million or $ 0.61 per basic and diluted weighted average common share , compared to net loss of $ 9.5 million or $ 0.25 per basic and diluted weighted average common share for the year ended december 31 , 2015 . our results of operations , for the year ended december 31 , 2016 , were impacted by a smaller investment portfolio coupled with a higher average cost of funds resulting in lower net interest income of our investment portfolio . the decrease in net interest income was offset by increases in fair value of our investment portfolio , as a result of generally tightening spreads on our investments and increases in the fair value of our derivative portfolio . comparison of the year ended december 31 , 2016 to the year ended december 31 , 2015 net interest income the following table sets forth certain information regarding our net investment income and net interest spread for the years ended december 31 , 2016 and december 31 , 2015 ( dollars in thousands ) : 58 replace_table_token_33_th ( 1 ) average cost of funds does not include the interest expense related to our derivatives . in accordance with gaap , such costs are included in `` gain ( loss ) on derivative instruments '' , in the consolidated statements of operations . for the years ended december 31 , 2016 and december 31 , 2015 , we earned interest income on our investments of approximately $ 123.8 million and $ 152.7 million , respectively , and incurred interest expense , which primarily related to our borrowings under repurchase of approximately $ 32.4 million and $ 27.6 million , respectively .
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โ we begin management 's discussion and analysis of financial condition and results of operations with an overview of the business , including our strategy to give the reader a summary of the goals of our business and the direction in which our business is moving . this is followed by a discussion of the critical accounting policies and estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results . in the next section , we discuss our results of operations for the year ended february 28 , 2011 compared to the years ended february 28 , 2010 and february 28 , 17 2009 . we then provide an analysis of changes in our balance sheet and cash flows , and discuss our financial commitments in the sections entitled โ liquidity and capital resources , including contractual and commercial commitments โ . we conclude this md & a with a discussion of โ related party transactions โ and โ recent accounting pronouncements โ . segment we have determined that we operate in one reportable segment , the electronics group , based on review of asc 280 โ segment reporting โ ( โ asc 280 โ ) . the characteristics of our operations that are relied on in making and reviewing business decisions include the similarities in our products , the commonality of our customers , suppliers and product developers across multiple brands , our unified marketing and distribution strategy , our centralized inventory management and logistics , and the nature of the financial information used by our executive officers . management reviews the financial results of the company based on the performance of the electronics group . outlook the company 's domestic and international business is subject to retail industry conditions and the sales of new and used vehicles . the current worldwide economic condition has adversely impacted consumer spending and vehicle sales . if the global macroeconomic environment continues to be weak or deteriorates further , this could have a negative effect on the company 's revenues and earnings . in an attempt to offset the current market condition , the company has reduced its operating expenses and has been introducing new product to obtain a greater market share . the company continues to focus on cash flow and anticipates having sufficient resources with its recent negotiated credit agreement , to operate during fiscal 2012 and 2013 . business overview and strategy audiovox corporation ( `` audiovox '' , `` we '' , `` our '' , `` us '' or `` company '' ) is a leading international distributor and value added service provider in the accessory , mobile and consumer electronics industries . we conduct our business through seventeen wholly-owned subsidiaries . audiovox has a broad portfolio of brand names used to market our products as well as private labels through a large domestic and international distribution network . we also function as an oem ( โ original equipment manufacturer โ ) supplier to several customers . over the last several years , we have focused on our intention to acquire synergistic businesses with the addition of seven new subsidiaries . these subsidiaries helped us to expand our core business and broaden our presence in the accessory and oem markets . our recent acquisition of invision has provided the opportunity to enter the manufacturing arena . our intention is to continue to pursue business opportunities which will allow us to further expand our business model while leveraging overhead and exploring specialized niche markets in the electronics industry . although we believe our product groups have expanding market opportunities , there are certain levels of volatility related to domestic and international markets , new car sales , increased competition by manufacturers , private labels , technological advancements , discretionary consumer spending and general economic conditions . also , all of our products are subject to price fluctuations which could affect the carrying value of inventories and gross margins in the future . acquisitions we have acquired and integrated several acquisitions which are outlined in the acquisitions section of part i and presented in detail in note 2. divestitures on november 7 , 2005 , we completed the sale of our majority owned subsidiary , audiovox malaysia ( โ avm โ ) , to the then current minority interest shareholder due to increased competition from non-local oem 's and deteriorating credit quality of local customers . we sold our remaining equity in avm in exchange for a $ 550 promissory note and were released from all of our malaysian liabilities , including bank obligations resulting in a loss on sale of $ 2,079. in fiscal 2011 , the company settled the note for $ 100. the balance of $ 303 was written off to other income during fiscal 2011. net sales growth net sales over a five-year period have increased 0.8 % from $ 539,716 for the year ended november 30 , 2005 to $ 561,672 for the year ended february 28 , 2011 . during this period , our sales were impacted by the following items : 18 the introduction of new products and lines such as portable dvd players , satellite radio , digital antennas and mobile multi-media devices , acquisition of invision 's mobile entertainment business , acquisition of schwaiger 's accessory business , acquisition of thomson 's americas consumer electronics accessory business , acquisition of oehlbach 's accessory business , acquisition of incaar 's oem business , acquisition of technuity 's accessory business , acquisition of thomson 's audio/video business , acquisition of terk technologies , acquisition of recoton and growth in jensen sales . partially offset by : the discontinuance of various high volume/low margin product lines such as navigation , gmrs radios and flat-panel tv 's , volatility in core mobile , consumer and accessories sales due to increased competition , lower selling prices and the decline in the national and global economy . story_separator_special_tag reversals of unearned sales incentives for the years ended february 28 , 2011 , 2010 and 2009 amounted to $ 977 , $ 1,369 and $ 1,664 , respectively . unclaimed sales incentives are sales incentives earned by the customer but the customer has not claimed payment within the claim period ( period after program has ended ) . reversals of unclaimed sales incentives for the years ended february 28 , 2011 , 2010 and 2009 amounted to $ 748 , $ 1,190 and $ 2,419 , respectively . accounts receivable we perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and current credit worthiness , as determined by a review of current credit information . we continuously monitor collections from our customers and maintain a provision for estimated credit losses based upon historical experience and any specific customer collection issues that have been identified . we record charges for estimated credit losses against operating expenses and charges for price adjustments against net sales in the consolidated financial statements . the reserve for estimated credit losses at february 28 , 2011 and 2010 were $ 6,179 and $ 5,742 , respectively . while such credit losses have historically been within management 's expectations and the provisions established , we can not guarantee that we will continue to experience the same credit loss rates that have been experienced in the past . since our accounts receivable are concentrated in a relatively few number of large customers , a significant change in the liquidity or financial position of any one of these customers could have a material adverse impact on the collectability of accounts receivable and our results of operations . inventories we value our inventory at the lower of the actual cost to purchase ( primarily on a weighted moving average basis , with a portion valued at standard cost ) and or the current estimated market value of the inventory less expected costs to sell the inventory . we regularly review inventory quantities on-hand and record a provision , in cost of sales , for excess and obsolete inventory based primarily from selling price reductions subsequent to the balance sheet date , indications from customers based upon current negotiations , and purchase orders . a significant sudden increase in the demand for our products could result in a short-term increase in the cost of inventory purchases while a significant decrease in demand could result in an increase in the amount of excess inventory quantities on-hand . in addition , our industry is characterized by rapid technological change and frequent new product introductions that could result in an increase in the amount of obsolete inventory quantities on-hand . during the years ended february 28 , 2011 , 2010 and 2009 , we recorded inventory write-downs of $ 3,911 , $ 2,972 and $ 13,818 , respectively . 20 estimates of excess and obsolete inventory may prove to be inaccurate , in which case we may have understated or overstated the provision required for excess and obsolete inventory . although we make every effort to ensure the accuracy of our forecasts of future product demand , any significant unanticipated changes in demand or technological developments could have a significant impact on the carrying value of inventory and our results of operations . goodwill and other intangible assets goodwill and other intangible assets , which consists of the excess cost over fair value of assets acquired ( goodwill ) and other intangible assets ( patents , contracts , trademarks and customer relationships ) amounted to $ 106,562 at february 28 , 2011 and $ 104,615 at february 28 , 2010 . goodwill and other intangible assets are determined in accordance with asc 805 โ business combinations โ ( โ asc 805 โ ) and asc 350 โ intangibles โ goodwill and other โ ( โ asc 350 โ ) , see goodwill and other intangible assets ( note 1 ( k ) ) . goodwill , is calculated as the excess of the cost of purchased businesses over the value of their underlying net assets . the company has used the discounted future cash flow method ( dcf ) as the principle method to determine the fair value ( โ fv โ ) of acquired businesses . the discount rate used for our analysis was 15.8 % . a five-year period was analyzed using a risk adjusted discount rate . the value of potential intangible assets separate from goodwill are evaluated and assigned to the respective categories using certain methodologies ( see note 1 ( k ) ) . certain estimates and assumptions are used in applying these methodologies including projected sales , which include incremental revenue to be generated from the product markets that the company has not been previously exposed to , disclosed future contracts and adjustments for declines in existing core sales ; ongoing market demand for the relevant products ; and required returns on tangible and intangible assets . in the event that actual results or market conditions deviate from these estimates and assumptions used , the future fv may be different than that determined by management and may result in an impairment loss . the company categorizes its intangible assets between goodwill and intangible assets . goodwill and other intangible assets that have an indefinite useful life are not amortized . intangible assets that have a definite useful life are amortized over their estimated useful life . on an annual basis , or as needed for a triggering event , we test goodwill and other indefinite lived intangible assets for impairment ( see note 1 ( k ) ) . to determine the fair value of these intangible assets , there are many assumptions and estimates used that directly impact the results of the testing . we have the ability to influence the outcome and ultimate results based on the assumptions and estimates we choose . to mitigate undue influence , we set criteria that are reviewed and approved by various levels of management .
| results of operations included in item 8 of this annual report on form 10-k are the consolidated balance sheets at february 28 , 2011 and 2010 and the consolidated statements of operations , consolidated statements of stockholders ' equity and consolidated statements of cash flows for the years ended february 28 , 2011 , 2010 and 2009 . in order to provide the reader meaningful comparison , the following analysis provides comparison of the audited year ended february 28 , 2011 with the audited years ended february 28 , 2010 , and 2009 . we analyze and explain the differences between periods in the specific line items of the consolidated statements of operations . year ended february 28 , 2011 compared to the years ended february 28 , 2010 and february 28 , 2009 continuing operations the following table sets forth , for the periods indicated , certain statement of operations data for the years ended february 28 , 2011 ( โ fiscal 2011 โ ) , february 28 , 2010 ( โ fiscal 2010 โ ) and february 28 , 2009 ( โ fiscal 2009 โ ) . net sales 22 replace_table_token_3_th fiscal 2011 electronics sales , which include both mobile and consumer electronics increased $ 40,146 in fiscal 2011 . this is a result of the recent acquisition of invision which accounted for approximately $ 47 million , and the favorable increase in our other oem groups as a result of new product offerings and increased automotive sales . revenue increased in our security groups due to new product introduction and strong remote start sales . finally , video sales were also up as a result of increased sales in the automotive market .
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however , there can be no assurance that the company will be able to obtain sufficient funds to continue the development of its projects . f-7 continental rail corp. notes to consolidated financial statements for the years ended december 31 , 2015 and 2014 in view of these conditions , the ability of the company to continue as a going concern is in substantial doubt and dependent upon achieving a profitable level of operations and on the ability of the company to obtain necessary financing to fund ongoing operations . these consolidated financial statements do not give effect to any adjustments which will be necessary should the company be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in the accompanying consolidated financial statements . summary of significant accounting policies principles of consolidation these consolidated financial statements presented are those of the company and its two wholly owned subsidiaries . all significant intercompany balances and transactions have been eliminated . estimates the preparation of the company 's consolidated financial statements requires management to make estimates and use assumptions that affect the reported amounts of assets , liabilities , revenues , and expenses . these estimates and assumptions are affected by management 's application of accounting policies . on an on-going basis , the company evaluates its estimates . actual results and outcomes may differ materially from these estimates and assumptions . cash and cash equivalents cash and cash equivalents includes highly liquid investments with original maturities of three months or less . the company has amounts deposited with financial institutions in excess of federally insured limits . fair value measurement the company measures fair value as the price that would be received to sell an asset or paid to transfer a liability ( an exit price ) in an orderly transaction between market participants at the reporting date . the company utilizes a three-tier hierarchy which prioritizes the inputs used in the valuation methodologies in measuring fair value : level 1. valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access . the company has no assets or liabilities valued with level 1 inputs . level 2. valuations based on quoted prices for similar assets or liabilities , quoted prices for identical assets or liabilities in markets that are not active , or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities . the company has no assets or liabilities valued with level 2 inputs . level 3. valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities . the company has no assets or liabilities valued with level 3 inputs . fair value of financial instruments the carrying value of cash and cash equivalents , accounts payable and interest payable approximate their fair value because of the short-term nature of these instruments and their liquidity . it is not practical to determine the fair value of the company 's notes payable due to the complex terms . management is of the opinion that the company is not exposed to significant interest or credit risks arising from these financial instruments . f-8 continental rail corp. notes to consolidated financial statements for the years ended december 31 , 2015 and 2014 income taxes the company accounts for income taxes using the asset and liability method . under the asset and liability method , deferred tax assets and liabilities are recognized for the future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credits and loss carry-forwards . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carry-forwards are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . a valuation allowance is established when necessary to reduce deferred tax assets to amounts expected to be realized . the company reports a liability for unrecognized tax benefits resulting from uncertain income tax positions , if any , taken or expected to be taken in an income tax return . estimated interest and penalties are recorded as a component of interest expense or other expense , respectively . revenue recognition the company follows the guidance of the securities and exchange commission 's staff accounting bulletin no . 104 for revenue recognition . the company records revenue when all of the following have occurred ; ( 1 ) persuasive evidence of an arrangement exists , ( 2 ) service delivery has occurred , ( 3 ) the sales price to the customer is fixed or determinable , story_separator_special_tag the following management 's discussion and analysis ( ยmd & aย ) is intended to help the reader understand the results of operations and financial condition of continental rail corp. and its subsidiaries . the md & a is provided as a supplement to , and should be read in conjunction with financial statements and the accompanying notes to the financial statements included in this form 10-k. our discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . story_separator_special_tag the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities and expenses and related disclosure of contingent assets and liabilities . management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . overview we are seeking to become a rail transportation holding company . our operations will be conducted through two divisions : ยท rail freight division , and ยท rail rolling stock leasing division . our rail freight division intends to acquire strategic short line and regional freight railroads , initially with revenues in the range of $ 2 million to $ 10 million annually . our rail rolling stock leasing division will seek to existing rail car and locomotive leasing companies and or directly purchase rolling stock for lease to railroads . this division will also seek to acquire rail-related service companies to partner with our freight railroad operations . we also expect to provide management and advisory services to rail entities in matters involving transportation and logistics , marketing , engineering , finance and regulatory matters . our company was originally formed in 1998 and has been engaged in a number of different businesses . most recently , between 2011 and june 2013 we were a shell company focused on researching and identifying potential merger and acquisition opportunities . in december 2012 we entered into an agreement with tbg , a company whose shareholders include mr. marino , jr. and mr. hart , executive officers and directors of our company , under which we engaged tbg to provide various consulting and advisory services , including assisting us in the identification of potential merger or acquisition targets . in pursuit of our business plan , in july 2013 we acquired tms , a company which provides railroad consulting services . in addition , in december 2013 we updated the business plan for the acquisition of short-line and regional freight railroads and establish a rail rolling stock leasing division . historically , we have funded our operating expenses from proceeds received from the sale of equity securities , as well as advances from tbg , a related party . in addition to the capital necessary to implement our business plan set forth above , we need to raise between $ 250,000 and $ 300,000 of working capital to provide sufficient funds to continue our operations for the next 12 months . while we have been able to raise working capital through the sale of our securities in private transactions in the past , we do not presently have any commitments for this working capital and there are no assurances that we will be successful in raising any of this necessary amount . we expect that tbg will continue to make working capital advances to us to pay our operating expenses until such time as we are able to raise this additional capital . if for any reason , however , it should cease making these advances and we are unable to raise the additional capital , we would be unable to continue our business . 14 in addition to short-term capital to fund our operating expenses until we are able to begin generating revenues , we will need to raise significant additional capital to fund the acquisitions of short line or regional freight railroads or rolling stock or locomotives for lease to railroads . we estimate the acquisition cost for each railroad will be between $ 5 million and $ 15 million , and we will need to raise an additional $ 100 million to fund the purchase of a fleet of 5,000 rail cars and 150 locomotives for our rolling stock division . we do not presently have any firm commitments for this capital and there are no assurances we will be successful in obtaining all or any portion the necessary capital . even if we are able to raise this necessary capital , we estimate that it could take between six and 12 months from the receipt of the capital to locate and negotiate the first acquisition . once we have closed one or more acquisitions , we expect to generate revenues from the operation of existing rail car leases through our rail rolling stock division . additional revenues will result from consulting and advisory services to operators . these consulting services may also result in contracts for the operation and shippers . our primary operating costs are expected to be the cost of due diligence to investigate and acquire profitable companies that meet our criteria . additional costs will include legal , audit and professional services necessary to include these operations and file the required regulatory sec and other filings . plan of operations we do not own any short line or regional freight railroads or any rolling stock for lease to railroads or shippers . during the next 12 months , our planned activities include : ยท closing the first shortline railroad . we will also continue to focus our efforts on securing management contracts which will permit us to generate revenues without the need to raise capital to acquire railroads or rolling stock . ยท our operational efforts to date have also included identifying acquisition targets , early stage discussion with these targets , establishing a relationship with a financing source and debt and or equity capital raising activities . during the second and third quarters of 2016 , subject to the availability of sufficient capital , we will seek to close an acquisition of a short line railroad . our efforts in connection with this transaction will include both negotiating the terms of an acquisition agreement and securing the commitment
| results of operations year ended december 31 , 2015 compared to the year ended december 31 , 2014 revenue we did not generate any revenues during the years of 2015 and 2014 . 15 operating expenses our total operating expenses decreased 348,621 or 49 % to $ 335,466 in 2015 as compared to $ 684,087 in 2014. included in this decrease was a decrease of $ 322,413 in professional fees associated with legal and accounting and $ 95,569 decrease in general and administrative expenses offset by an increase of $ 118,750 in the management fee paid to tbg and $ 36,234 increase in personnel related costs . liquidity and capital resources we have an accumulated deficit of $ 5,037,814 through december 31 , 2015. as of december 31 , 2015 , we had a working capital deficit of $ 1,027,292. additionally , due to the ยstart-upย nature of our business , we expect to continue to incur foreseeable losses . these conditions raise substantial doubt about our ability to continue as a going concern . management recognizes that in order for us to meet our capital requirements , and continue to operate , additional financing will be necessary . we expect to raise additional funds through private or public equity investment in order to maintain and or expand the range and scope of our business operations ; however , there is no assurance that such additional funds will be available for us on acceptable terms , if at all . if we are unable to raise additional capital when needed or generate positive cash flow , it is unlikely that we will be able to continue as a going concern . the financial statements do not include any adjustments that might result from the outcome of this uncertainty .
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f- 9 property , plant , equipment and depreciation property , plant and equipment additions are recorded at cost , including applicable freight , interest , construction and installation costs . the forest products segment production related plant and equipment are depreciated using the straight-line method over 3 to 20 years . high purity cellulose , pulp and paper production related plant and equipment are depreciated using the units-of-production method . the total units of production used to calculate depreciation expense is determined by factoring annual production days , based on normal production conditions , by the economic useful life of the asset involved story_separator_special_tag story_separator_special_tag manufacturing and maintenance supplies , depreciation , manufacturing overhead and transportation costs represent the remaining cost of sales . pulp we manufacture and market high-yield pulp which is used by paper manufacturers to produce paperboard , packaging , printing and writing papers and a variety of other paper products . pricing for high-yield pulp is typically referenced to published indexes marketed through our internal sales team . our two production facilities located in canada have the capacity to annually produce 570,000 metric tons of high-yield pulp . wood fiber , chemicals , and energy represent approximately 26 percent , 16 percent and 15 percent , respectively , of the per metric ton cost of sales . labor , manufacturing and maintenance supplies , depreciation , manufacturing overhead and transportation costs represent the remaining cost of sales . paper we manufacture and market paperboard and newsprint . paperboard is used for printing documents , brochures , promotional materials , paperback book or catalog covers , file folders , tags , and tickets . newsprint is a paper grade used to print newspapers , advertising materials and other publications . pricing for paperboard and newsprint is typically referenced to published indices and marketed through our internal sales team . our two production facilities located in canada have the capacity to annually produce 180,000 metric tons of paperboard and 205,000 metric tons of newsprint . wood fiber , chemicals , and energy represent approximately 40 percent , 11 percent and 3 percent , respectively , of the per metric ton cost of sales . labor , manufacturing and maintenance supplies , depreciation , manufacturing overhead and transportation costs represent the remaining cost of sales . outlook high purity cellulose in 2019 , we expect stability in cellulose specialties markets . cellulose specialty sales prices are anticipated to decline approximately 1 percent from 2018 primarily due to a contract acquired from tembec and excludes any impact of chinese duties . cellulose specialty sales volumes are expected to decline approximately 1 percent primarily due to weakness in the acetate market . commodity product sales prices are expected to increase in 2019. commodity product sales volumes are expected to increase by over 75,000 metric tons as a result of improved operational reliability and initiatives to reduce inventory levels . inflation is expected to be approximately 3 percent , driven primarily by higher wood and transportation costs , offset by the expected impact of the strategic pillars of growth in 2019. excluding the impact of the sale of the resin operations , adjusted ebitda for the segment is expected to be flat in 2019 , with the second half accounting for approximately 55 percent of ebitda . forest products lumber futures prices have improved from their lows in december and our lumber prices are expected to improve as the year progresses . longer-term , the u.s. housing market remains a key driver of lumber sales prices and we are well positioned to benefit from these long-term trends . in addition , softwood lumber duties of approximately 20 percent on sales to the u.s. are expected to continue throughout 2019. benefits from capital investments and cost reductions are also expected to provide incremental profitability in 2019. we will aggressively manage the asset utilization of and investment in the segment , including potentially taking downtime as deemed necessary , if market conditions warrant . 25 pulp high-yield pulp prices are expected to be lower in the first quarter of 2019 compared to fourth quarter of 2018 due to weaker demand , specifically from china . over the medium term , solid global demand for pulp , reduced recycled fiber imports to china , and global industry production at or near capacity continue to support pulp prices above historical averages . with no significant new capacity expected in the pulp markets through 2020 , supply-demand dynamics should continue to yield positive market conditions and strong segment results in 2019. paper in 2019 , paperboard prices are expected to remain stable while newsprint sales prices are expected to decline as a result of the reversal of duties in 2018. capital allocation and investment we anticipate spending approximately $ 95 million to $ 105 million in maintenance capital expenditures across all segments in 2019. in addition , we anticipate spending approximately $ 28 million on high-return strategic projects in 2019. we also expect to increase the percentage of our cash flow directed toward debt repayment due to weaker commodity forest products and paper markets . we anticipate the continued return of capital to shareholders through our common stock dividend and the opportunistic repurchase of common shares . reconciliation of non-gaap measures for a reconciliation of ebitda to net income , see item 7 โ management 's discussion and analysis of financial condition and results of operations โ performance and liquidity indicators . critical accounting policies and use of estimates the preparation of financial statements requires us to make estimates , assumptions and judgments that affect our assets , liabilities , revenues and expenses , and to disclose contingent assets and liabilities in our consolidated financial statements . we base these estimates and assumptions on historical data and trends , current fact patterns , expectations and other sources of information we believe are reasonable . actual results may differ from these estimates . revenue recognition revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied . story_separator_special_tag quarterly , we review our environmental liabilities related to assessment activities and remediation costs and adjust them as necessary . liabilities for financial assurance , monitoring and maintenance activities and other activities are assessed annually . a significant change in any of these estimates could have a material effect on the results of our operations . see note 9 โ liabilities for disposed operations of our consolidated financial statements for more information . determining the adequacy of pension and other postretirement benefit assets and liabilities our defined benefit pension and postretirement plans for employees in the u.s. , canada and france require numerous estimates and assumptions to determine the proper amount of pension and postretirement liabilities and annual expense to record in our financial statements . the key assumptions include discount rate , return on assets , salary increases , health care cost trends , mortality rates , longevity and service lives of employees . although authoritative guidance on how to select most of these assumptions exists , we exercise some degree of judgment when selecting these assumptions based on input from our actuary and other advisors . different assumptions , as well as actual versus expected results , would change the periodic benefit cost and funded status of the benefit plans recognized in the financial statements . our long-term return plan assets assumption was established based on historical long-term rates of return on broad equity and bond indices , discussions with our actuary and investment advisors and consideration of the actual historical annualized rate of 27 returns . in determining future pension obligations , we select a discount rate based on information supplied by our actuary . the actuarial rates are developed by models which incorporate high-quality ( aa rated ) , long-term corporate bond rates into their calculations . the weighted average discount rate increased from 3.55 percent at december 31 , 2017 to 3.99 percent at december 31 , 2018 . our defined pension plans were underfunded by $ 174 million at december 31 , 2018 . the funded status declined in 2018 due to lower than expected investment performance on our plan assets , increased service and interest costs , partially offset by slightly higher discount rates . in 2019 , pension expense is expected to increase due primarily to lower expected return on plan assets and higher amortization of actuarial losses partially offset by an increase in the assumed discount rate . future pension expense will be impacted by many factors including actual investment performance , changes in discount rates , timing of contributions and other employee related matters . see note 16 โ employee benefit plans of our consolidated financial statements for more information . in 2018 , we made mandatory contributions and benefit payments to plan participants of approximately $ 13 million . we expect to make mandatory and benefit payments to plan participants of approximately $ 12 million . future mandatory contribution requirements will vary depending on actual investment performance , changes in valuation assumptions , interest rates and legal requirements to maintain a certain funding status . the sensitivity of pension expense and projected benefit obligation related to our pension plans to changes in economic assumptions is highlighted below : replace_table_token_3_th realizability of both recorded and unrecorded tax assets and tax liabilities we have recorded certain deferred tax assets we believe will be realized in future periods . the recognition of these tax assets is based on our analysis of both positive and negative evidence about the future realization of the tax benefit of each existing deductible temporary difference or carryforward . future realization is based on the existence of sufficient taxable income of the appropriate character , within the appropriate taxing jurisdiction ( for example country , state or province ) , and within the carryback and carryforward periods available under the applicable tax laws . the strongest form of positive evidence is the evaluation of adjusted historical earnings and future earnings projections within the applicable carryforward periods . this evidence supports the realizability of all recorded deferred tax assets . tax assets are reviewed periodically for realizability . this review requires management to make assumptions and estimates about future profitability affecting the realization of these tax assets . if the review indicates the realizability may be less than likely , a valuation allowance is recorded . our income tax returns are subject to examination by u.s. federal and state taxing authorities as well as foreign jurisdictions , including canada and france . in evaluating the tax benefits associated with various tax filing positions , we record a tax benefit for an uncertain tax position if it is more-likely-than-not to be realized upon ultimate settlement of the issue . we record a liability for an uncertain tax position that does not meet this criterion . the liabilities for unrecognized tax benefits are adjusted in the period in which it is determined the issue is settled with the taxing authorities , the statute of limitations expires for the relevant taxing authority to examine the tax position or when new facts or information become available . see note 18 โ income taxes of our consolidated financial statements for more information . business combinations we allocate the total purchase price of assets acquired and liabilities assumed based on their estimated fair value as of the business combination date . in developing estimates of fair values for long-lived assets , including identifiable intangible assets , we utilize a variety of inputs including forecasted cash flows , anticipated growth rates , discount rates , estimated replacement costs and depreciation and obsolescence factors . determining the fair value for specifically identified intangible assets such as customer lists and trade-names involves judgment . we may refine our estimates and make adjustments to the assets acquired and liabilities assumed over a measurement period , not to exceed one year .
| overview we are transforming our business and growing ebitda to drive long-term value for our stockholders . our plan centers on the following four strategic pillars of growth : cost transformation - driving sustainable cost reductions by fostering a culture of continuous improvement . new products - expanding our business by developing next generation cellulose fibers and other value-added products utilizing our cellulose processing technology , expertise and co-products . we have made significant progress in developing and applying proprietary technologies to new products in many of the end-market segments we serve . market optimization - maximizing the profitability of our existing products and assets by optimizing the intersection of our customers ' needs , our manufacturing capabilities and transportation costs to drive higher value for our customers and our company . investments - delivering a capital allocation strategy that maximizes our risk adjusted returns . we intend to de-lever our balance sheet through ebitda growth and repayment of indebtedness with a target net leverage ratio of 2.5 times ebitda . in conjunction with this de-leveraging , we will allocate capital across high return investments in our facilities , acquisitions and other external investments to grow profitability , as well as return capital to stockholders through stock buybacks and dividends . on november 17 , 2017 , we acquired tembec which was engaged in the manufacture of cellulose specialties , commodity products , forest products , pulp and paper . the acquisition created a combined company with leading positions with acetate and ethers high purity cellulose end-use markets , as well as , a more diversified earnings stream given the addition of the forest products , pulp and paper businesses . we now operate in the following business segments : high purity cellulose forest products pulp paper high purity cellulose we manufacture and market high purity cellulose , which is sold as either cellulose specialties or commodity products .
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the company defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at story_separator_special_tag please read the following discussion in conjunction with our audited historical consolidated financial statements and notes thereto , which are included elsewhere in this form 10-k. management 's discussion and analysis of financial condition and results of operations contains statements that are forward-looking . these statements are based on current expectations and assumptions that are subject to risk , uncertainties and other factors . actual results could differ materially because of the factors discussed in part i , item 1a . โ risk factors โ of this form 10-k. critical accounting policies our discussion and analysis of the company 's financial condition and results of operations are based upon the consolidated financial statements included in this report , which have been prepared in accordance with u. s. generally accepted accounting principles . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts . we evaluate the estimates on an on-going basis . we base these estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for 21 making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions and conditions . we believe the following critical accounting policies involve significant judgments and estimates that are used in the preparation of the consolidated financial statements : โช we report income taxes under the asset and liability method . deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the financial reporting basis and tax basis of assets and liabilities , which are measured using the enacted tax laws and tax rates that will be in effect when the differences are expected to reverse . we assess the likelihood that the deferred tax assets will be realized . a valuation allowance is established against deferred tax assets to the extent the company believes that it is more likely than not that the deferred tax assets will not be realized , taking into consideration the level of historical taxable income and projections for future taxable income over the periods in which the temporary differences are deductible . the calculation of our tax liabilities involves assessing uncertainties with respect to the application of complex tax rules . uncertain tax positions must meet a more likely than not threshold to be recognized in the financial statements and the tax benefits recognized are measured based on the largest benefit that has a greater than 50 % likelihood of being realized upon final settlement . see note 15 โ income taxes of the notes to consolidated financial statements contained in item 8 for additional details . โช we recognize revenue upon the transfer of promised goods or services to customers , in an amount that reflects the consideration the company expects to be entitled in exchange for those goods or services . see note 2 - summary of significant accounting policies - revenue recognition of the notes to consolidated financial statements contained in item 8 for discussion on the identification of the company 's performance obligations and determination of transaction price , including treatment of rebates , right of returns , warranties , price protection and stock rotation . โช inventories are recorded at the lower of cost or net realizable value , with cost being determined on a first-in , first-out basis . we write down inventories to net realizable value based on forecasted demand while taking into account product release schedules and product life cycles , which may drive management judgment . we also review and write down inventory , as appropriate , based on the age and condition of the inventory . actual demand and market conditions may be different from those projected by management , which could have a material effect on our operating results and financial position . see note 2 โ summary of significant accounting policies of the notes to consolidated financial statements contained in item 8 . โช we evaluate the recoverability of property , plant , and equipment and intangible assets by testing for impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets ' carrying amounts . an impairment loss is recognized in the event the carrying value of these assets exceeds the fair value of the applicable assets . impairment evaluations involve management estimates of asset useful lives and future cash flows . actual useful lives and cash flows could be different from those estimated by management , which could have a material effect on our operating results and financial position . see note 6 โ intangibles , net and goodwill of the notes to consolidated financial statements contained in item 8 . โช the company evaluates goodwill and other intangible assets . goodwill is recorded at the time of an acquisition and is calculated as the difference between the total consideration paid for an acquisition and the fair value of the net tangible and intangible assets acquired . the company tests goodwill and other intangible assets for impairment on an annual basis or more frequently if the company believes indicators of impairment exist . impairment evaluations involve management 's assessment of qualitative factors to determine whether it is more likely than not that goodwill and other intangible assets are impaired . if management concludes from its assessment of qualitative factors that it is more likely than not that impairment exists , then a quantitative impairment test will be performed involving management estimates of asset useful lives and future cash flows . significant management judgment is required in the forecasts of future operating results that are used in these evaluations . story_separator_special_tag in applying the use-of-hindsight practical expedient , we re-assessed whether we were reasonably certain to exercise extension options within our lease agreements . this resulted in the lease term being extended on a number of leases . the 23 previously capitalized initial direct costs and lease creditor were recalculated assuming these extended lease terms had always applied , resulting in an adjustment of $ 1.0 million to opening retained earnings on transition . in june 2016 , the fasb issued asu 2016-13 , financial instruments โ credit losses ( topic 326 ) : measurement of credit losses on financial instruments . this asu requires credit losses on available-for-sale debt securities to be presented as an allowance rather than a write-down . unlike current u.s. gaap , the credit losses could be reversed with changes in estimates , and recognized in current year earnings . this asu is effective for annual periods beginning after december 15 , 2019 , and interim periods within those annual periods . early adoption is permitted for annual periods beginning after december 15 , 2018 , including interim periods . the company is currently evaluating the impact of this asu , but does not expect a material impact to the financial statements upon adoption . in january 2017 , the fasb issued asu 2017-04 , intangibles โ goodwill and other ( topic 350 ) : simplifying the test for goodwill impairment . this asu eliminates step two of the goodwill impairment test . an impairment charge is to be recognized for the amount by which the current value exceeds the fair value . this asu is effective for annual periods beginning after december 15 , 2019 , including interim periods . early adoption is permitted , for interim or annual goodwill impairment tests performed after january 1 , 2017 and should be applied prospectively . an entity is required to disclose the nature of and reason for the change in accounting principle upon transition . that disclosure should be provided in the first annual period and in the interim period within the first annual period when the entity initially adopts the amendments in this update . the company is currently evaluating the impact of this asu , but does not expect a material impact to the financial statements upon adoption . in march 2017 , the fasb issued asu 2017-07 , compensation - retirement benefits ( topic 715 ) : improving the presentation of net periodic pension cost and net periodic postretirement benefit cost . this asu requires an employer to disaggregate the service cost component from the other components of net benefit cost . it also provides guidance on income statement presentation for service cost and other components of net benefit cost . this asu is effective for annual periods beginning after december 15 , 2017 , including interim periods . the company adopted this asu in the first quarter of fiscal year 2019. the impact of adoption included the buy-out settlement of the defined benefit pension plan , discussed further in note 9. in may 2017 , the fasb issued asu 2017-09 , compensation - stock compensation ( topic 718 ) : scope of modification accounting . this asu applies to any company that changes the terms or conditions of a share-based award , considered a modification . modification accounting would be applied unless certain conditions were met related to the fair value of the award , the vesting conditions and the classification of the modified award . this asu is effective for annual periods beginning after december 15 , 2017 , with early adoption permitted . the standard should be applied prospectively to an award modified on or after the adoption date . the company adopted this asu in the first quarter of fiscal year 2019 with no financial statement impact as no awards were modified in the current period . in february 2018 , the fasb issued asu 2018-02 , income statement - reporting comprehensive income ( topic 220 ) : reclassification of certain tax effects from accumulated other comprehensive income . this asu allows for the classification of stranded tax effects resulting from the tax cuts and jobs act ( the โ tax act โ ) from accumulated other comprehensive income to retained earnings . this asu is effective for annual periods beginning after december 15 , 2018 , with early adoption permitted . the standard should be applied in the period of adoption or retrospectively to each period ( or periods ) in which the effect of the change in tax rate is recognized . the company is currently evaluating the impact of this asu , but does not expect a material impact to the financial statements upon adoption . in june 2018 , the fasb issued asu 2018-07 , compensation - stock compensation ( topic 718 ) : improvements to nonemployee share-based payment accounting . this asu expands the scope of topic 718 to include all share-based payment transactions for acquiring goods and services from nonemployees and will apply to all share-based payment transactions in which the grantor acquires goods and services to be used or consumed in its own operations by issuing share-based payment awards . this asu is effective for fiscal years beginning after december 15 , 2018 , including interim periods within that fiscal year , with early adoption permitted . the company intends to adopt this guidance in the first quarter of fiscal year 2020 , but does not expect a material impact to the financial statements . in august 2018 , the fasb issued asu 2018-13 , fair value measurement ( topic 820 ) : disclosure framework-changes to the disclosure requirements for fair value measurement . this asu adjusts current required disclosures related to fair value measurements . this asu is effective for fiscal years beginning after december 15 , 2019 , including interim periods within that fiscal year , with early adoption permitted . the company is currently evaluating the impact of this asu , but does not expect a material impact to the financial statements .
| results of operations the following table summarizes the results of our operations for each of the past three fiscal years as a percentage of net sales . all percentage amounts were calculated using the underlying data , in thousands : replace_table_token_5_th net sales we report sales in two product categories : portable products and non-portable and other products . our sales by product line are as follows ( in thousands ) : replace_table_token_6_th net sales for fiscal year 2019 decreased by 22.6 % percent , to $ 1.19 billion from $ 1.53 billion in fiscal year 2018 . the decrease in net sales reflects a $ 331.8 million decrease in portable product sales and a $ 14.8 million decrease in non-portable and other product sales . the portable product line experienced a decrease in net sales attributable to a reduction in sales of portable products shipping in smartphones , along with digital headsets and adaptors , which was partially offset by increased amplifier sales at android customers . non-portable and other product line sales of $ 153.5 million represented a 8.8 percent decrease from fiscal year 2018 sales of $ 168.3 million , which was primarily attributable to decreases in legacy product sales . net sales for fiscal year 2018 decreased slightly by 0.4 % percent , to $ 1.53 billion from $ 1.54 billion in fiscal year 2017. the decrease in net sales reflects a $ 10.0 million decrease in portable product sales and a $ 3.2 million increase in non-portable and other product sales . portable product line sales experienced a decrease in net sales attributable to lower asp components at a key android oem and asp reductions on certain other portable products , partially offset by increased smartphone sales volumes versus fiscal year 2017 .
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borrowings under the lines of credit and the term loan bear interest at variable interest rates , which are based off libor plus an applicable spread . the maturity date is may 20 , 2020 for the long-term line of credit . tade was in compliance with all financial and non-financial covenants as of december 31 , 2015 , including but not limited story_separator_special_tag forward looking statements the following โ management 's discussion and analysis of financial condition and results of operations โ contains forward-looking statements which relate to future events or future financial performance and involve known and unknown risks , uncertainties and other factors that may cause actual results , levels of activity , performance or achievements to be materially different from those expressed or implied by these forward-looking statements . you are urged to carefully consider these risks and factors , including those listed under item 1a , โ risk factors. โ in some cases , you can identify forward-looking statements by terminology such as โ may , โ โ anticipates , โ โ believes , โ โ estimates , โ โ predicts , โ or the negative of these terms or other comparable terminology . these statements are only predictions . actual events or results may differ materially . these forward-looking statements relate only to events as of the date on which the statements are made and the company undertakes no obligation , other than any imposed by law , to publicly update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . although we believe that the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity , performance or achievements . executive overview our operations are organized , managed and classified into five reportable business segments : grain , ethanol , plant nutrient , rail , and retail . each of these segments is based on the nature of products and services offered . the agricultural commodity-based business is one in which changes in selling prices generally move in relationship to changes in purchase prices . therefore , increases or decreases in prices of the agricultural commodities that the business deals in will have a relatively equal impact on sales and cost of sales and a much less significant impact on gross profit . as a result , changes in sales for the period may not necessarily be indicative of the overall performance of the business and more focus should be placed on changes to gross profit . in the first quarter of 2015 , the plant nutrient group merged with the turf & specialty group , as announced in the fourth quarter of 2014. management has adjusted its internal reporting structure to reflect this organizational change and the result of this merger is one reportable business segment , referred to as the plant nutrient group . all prior periods have been recast to reflect this change . we believe this merger will allow the groups to operate under a common strategy to better service our customers , boost growth opportunities and improve profitability . grain group total grain storage capacity is approximately 164 million bushels as of december 31 , 2015 compared to 162 million bushels at december 31 , 2014. grain inventories on hand at december 31 , 2015 were 119.8 million bushels , of which 3.4 million bushels were stored for others . this compares to 109.5 million bushels on hand at december 31 , 2014 , of which 3.1 million bushels were stored for others . 2015 results were adversely impacted by a number of items . excessive rains during the second quarter in the eastern corn belt resulted in significantly lower crop production . growers have been reluctant to deliver or contract grain due to the current low price environment , negatively impacting both volumes and margins . 526 million bushels were shipped by our grain facilities during the year , an increase of 12 percent . the increase in volume primarily relates to the addition of the locations acquired in the fourth quarter of 2014. corn acres estimated for 2016 are approximately 90 million acres , which is up slightly from 2015. soybean acres to be planted are estimated at approximately 84 million acres , which is also up slightly compared to 2015. assuming trend yields in the areas the company does business , this should create a good base for the company 's grain group in late 2016. in 2016 , our grain group will also continue its focus on integrating recent acquisitions , continued implementation of the new erp system and enhancing risk management and grain marketing services . during the fourth quarter of 2015 , a new investor in ltg acquired newly issued shares in the company . a portion of the capital raised was then returned to the company through a partial share redemption of the existing owners . these two transactions lowered our ownership stake in the company to approximately 31 percent and resulted in a pre-tax gain of $ 23.1 million . ethanol group the ethanol group saw margins lower than the record levels in 2014 , primarily due to a decrease in ethanol prices , partly offset by a decrease in corn prices . additionally , income from the sale of ethanol byproducts decreased compared to the prior year . other factors impacting current margins include lower crude price and greater ethanol production . higher gasoline demand , improved demand and prices for ddg in relation to corn price , and an ample corn supply are factors that could potentially improve margins going into 2016 . 20 volumes shipped for the years ended december 31 , 2015 and 2014 were as follows : replace_table_token_8_th the above table shows only shipped volumes that flow through the company 's sales revenues . story_separator_special_tag cost of sales and merchandising revenues decreased $ 949 million following the decrease in average commodity prices . gross profit increased $ 12.6 million due to increased space income . most of the increase relates to wheat , but corn and beans also contributed to the increase . operating expenses were $ 15.9 million higher than 2013. approximately half of the increase in operating expenses relates to labor and benefit costs , including growth and incentive compensation expense . a significant portion of the remaining increase relates to the three acquisitions completed in the fourth quarter and approximately $ 6.6 million of one-time items , primarily asset write-downs and impairments . equity in earnings of affiliates decreased $ 5.5 million due to a decreased ownership percentage of the investment in ltg and lower 2014 operating results of ltg . this decrease was partially offset by an additional $ 5.0 million in earnings from our thompsons limited investment . other income increased $ 19.3 million , of which is almost entirely due to the gain recognized from the partial share redemption in our investment of ltg . ethanol group replace_table_token_18_th operating results for the ethanol group increased $ 41.7 million compared to full year 2013 results . sales and merchandising and service fee revenues decreased $ 66 million , with 60 percent of the decrease related to ethanol sales . while ethanol gallons sold increased almost two percent , average ethanol prices decreased eight percent . ddg volumes remained flat but average price per ton decreased greater than 25 percent compared to the prior year . cost of sales and merchandising revenues decreased $ 82 million following the decrease in average corn , ethanol , and ddg prices . gross profit increased $ 15.5 million and is attributed to the increase in ethanol demand and the prices of ethanol and ddg relative to corn prices which contributed to more favorable margins . 26 equity in earnings of affiliates increased $ 33.3 million from prior year and represents income from investments in three unconsolidated ethanol llcs . throughout the year , the ethanol facilities ' performance improved due to higher ethanol margins resulting from the decreased corn costs and higher demand for ethanol . the increase in income attributable to noncontrolling interests increased due to stronger earnings at the ethanol facilities that have noncontrolling interest owners . plant nutrient group replace_table_token_19_th operating results for the plant nutrient group decreased $ 7.5 million compared to full year 2013 results . sales and merchandising revenues decreased $ 46.8 million due to a nine percent decrease in the average price per ton sold , which followed the price of nutrients in the market . volumes were up less than two percent during the year , having little impact on the change in revenues . cost of sales and merchandising revenues decreased $ 47.8 million , also primarily due to lower costs per ton sold , comparable with the selling price decrease and reflective of the market . this resulted in a marginal increase in gross profit for the year . operating expenses increased $ 10.3 million from the prior year , due to increases in labor expense and additional depreciation from the current year acquisition and other recent capital projects . other income increased $ 2.6 million in 2014 and is due to the settlement of a legal claim during the third quarter of 2014. rail group replace_table_token_20_th operating results for the rail group decreased $ 11.3 million compared to the full year 2013 results . sales and merchandising revenues decreased $ 15.8 million . the decrease was driven by a decrease in car sales of $ 23.0 million , offset by a repairs and fabrication sales increase of $ 3.3 million and leasing revenues increase of $ 3.5 million . cost of sales and merchandising revenues decreased $ 16.7 million , primarily as a result of lower car sales . as a result , rail gross profit increased only slightly over the prior year . operating expenses increased by $ 6.0 million from prior year mainly due to higher labor and benefits costs , depreciation , and maintenance expense from recent expansion in the repair business . this increase includes $ 3.2 million of additional freight and maintenance expense incurred to move idle railcars into service . interest expense increased $ 1.7 million due to the increase in financing costs for our increase in railcars owned . other income decreased $ 4.6 million due to income from the settlement of two nonperforming railcar leases in 2013 . 27 retail group replace_table_token_21_th the operating results for the retail group improved $ 6.9 million compared to full year 2013 results . sales and merchandising revenues remained flat , while cost of sales and merchandising revenues decreased $ 1.8 million due to favorable product mix . despite lower volumes , gross profit increased $ 1.9 million primarily due to stronger margins realized in the workwear , deli , and seafood departments . operating expenses for the group decreased $ 4.5 million due to lower costs attributable to the closing of the woodville store in 2013 and the asset impairment charges in the amount of $ 3.9 million in the fourth quarter of 2013. other replace_table_token_22_th the net corporate operating loss ( costs not allocated back to the business units ) increased $ 13.6 million to a loss of $ 34.5 million for 2014. within operating expenses , the most significant increase was spending on the implementation of an erp system , as the first phase of implementation began in the second quarter of 2014. as such , much of the post-implementation spend in the current year is expense in nature , while the prior year spend was dedicated to software development and was capital in nature . stock compensation expense was higher in 2014 due to the 2013 grants not being granted until the fourth quarter . labor and benefit costs were also higher in 2014 due to increased headcount .
| operating results the following discussion focuses on the operating results as shown in the consolidated statements of operations with a separate discussion by segment . additional segment information is included in note 13 to the company 's consolidated financial statements in item 8. replace_table_token_10_th comparison of 2015 with 2014 grain group replace_table_token_11_th operating results for the grain group decreased $ 67.6 million compared to full year 2014 results . sales and merchandising revenues decreased $ 198 million compared to 2014 due to a decrease in commodity prices which was partially offset by a 12 percent increase in bushels sold as a result of the auburn bean & grain acquisition in late 2014. average prices for bushels sold during the year decreased by 13 percent for corn and 17 percent for soybeans compared to 2014. cost of sales and merchandising revenues decreased $ 191 million following the decrease in average commodity prices and increase in bushels sold noted above . gross profit decreased $ 7.5 million due to declines of $ 1.2 million from blending operations , $ 7.6 million from space income , and $ 9.6 million from the negative financial impact on risk management positions resulting from weather-induced market volatility . this was partially offset by gross profit increases of $ 1.4 million for merchandising fees and $ 5.4 million in higher margins on contracted sales . 22 operating , administrative , and general expenses were $ 8.5 million higher than 2014 almost entirely due to a $ 7.2 million increase in labor and benefits . the grain group also recognized a goodwill impairment charge of $ 46.4 million driven by compressed margins over the past several years and anticipated unfavorable operating conditions in domestic and global commodity markets , including oil and ethanol , as well as foreign exchange impacts .
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as a result , eastern energy gas recorded a contribution for the reset of deferred taxes of $ 1.3 billion , net of distributions of $ 895 million related to the pension and other postretirement employee benefit plans retained by dei and $ 107 million related to the settlement of affiliated balances . dominion energy gas restructuring the acquisition of cpmlp holdings company , llc ( formerly known as dominion cove point , llc ) ( `` dcp `` ) and eastern mlp holding company ii , llc ( formerly known as dominion mlp holding company ii , llc ) ( `` dmlphcii `` ) from , and the disposition of the east ohio gas company ( `` east ohio `` ) and eastern gathering and processing , inc. ( formerly known as dominion gathering and processing , inc. ) ( `` egp `` ) to , dei by eastern energy gas on november 6 , 2019 ( `` dominion energy gas restructuring `` ) was considered to be a reorganization of entities under common control . as a result , eastern energy gas ' basis in dcp and dmlphcii , which included the general partner of northeast midstream partners , lp ( formerly known as dominion energy midstream partners , lp ) ( `` northeast midstream `` ) , a controlling 75 % interest in cove point , carolina gas transmission , llc ( formerly known as dominion energy carolina gas transmission , llc ) , questar pipeline group , a 50 % noncontrolling interest in white river hub , llc ( `` white river hub `` ) and a 25.93 % noncontrolling interest story_separator_special_tag the following is management 's discussion and analysis of certain significant factors that have affected the consolidated financial condition and results of operations of eastern energy gas during the periods included herein . this discussion should be read in conjunction with eastern energy gas ' historical consolidated financial statements and notes to consolidated financial statements in item 8 of this form 10-k. eastern energy gas ' actual results in the future could differ significantly from the historical results . story_separator_special_tag unfavorable $ ( 66 ) million , or 46 % , for 2020 compared to 2019 primarily due to a charge for cash flow hedges of debt-related items that are probable of not occurring as a result of the gt & s transaction of $ 141 million , the absence of interest income from cove point 's notes receivable from dei of $ 82 million and interest expense on eastern energy gas ' november 2019 senior note issuance of $ 23 million , partially offset by the absence of interest expense of $ 100 million from cove point 's term loan borrowings , the absence of interest expense from intercompany borrowings as a result of the dominion energy gas restructuring of $ 38 million and interest income from dei of $ 27 million and the east ohio gas company of $ 20 million . income tax ( benefit ) expense decreased $ 125 million for 2020 compared to 2019. the effective tax rate was ( 12 ) % in 2020 and 13 % in 2019. the effective tax rate decreased primarily due to the impact of lower pre-tax income of $ 552 million driven by charges associated with the supply header project , partially offset by the effects of the changes in tax status in connection with the dominion energy gas restructuring of $ 24 million . net income attributable to noncontrolling interests increased $ 43 million , or 36 % for 2020 compared to 2019 , primarily due to dei 's 50 % interest in cove point effective with the gt & s transaction . year ended december 31 , 2019 compared to year ended december 31 , 2018 operating revenue increased $ 173 million , or 9 % , for 2019 compared to 2018 primarily due to : $ 257 million increase from the liquefaction facility , including terminalling services provided to st cove point , llc , a joint venture of sumitomo corporation and tokyo gas co. , ltd. and gail global ( usa ) lng , llc ( the `` export customers '' ) of $ 190 million , a decrease in credits associated with the start-up phase of $ 44 million and regulated gas transportation contracts to serve the export customers of $ 23 million ; and $ 18 million increase from egts contract changes . the increase in operating revenue was offset by : $ 99 million decrease in services performed for atlantic coast pipeline , which is offset in operations and maintenance expense ; and $ 16 million decrease in regulated gas sales primarily due to decreased volumes . cost of ( excess ) gas increased $ 15 million for 2019 compared to 2018 primarily due to an increase in purchased gas largely due to unfavorable prices of $ 56 million , partially offset by decreased volumes of $ 38 million . operations and maintenance decreased $ 26 million , or 3 % , for 2019 compared to 2018 primarily due to : the absence of a charge for disallowance of ferc-regulated plant of $ 127 million ; $ 99 million decrease in services performed for atlantic coast pipeline ; and the absence of a write-off associated with the eastern market access project of $ 37 million . 409 the decrease in operations and maintenance was offset by : the absence of gains related to agreements to convey shale development rights under natural gas storage fields of $ 115 million ; $ 45 million increase in operating expenses from the commercial operations of the liquefaction facility and costs associated with regulated gas transportation contracts to serve the export customers ; $ 39 million charge related to a voluntary retirement program ; the abandonment of the sweden valley project of $ 13 million ; and $ 10 million increase in salaries , wages and benefits and general administrative expenses . story_separator_special_tag as of december 31 , 2019 , eastern energy gas had $ 62 million of commercial paper outstanding at a weighted average interest rate of 1.98 % , $ 251 million of borrowings under an intercompany revolving credit agreement at a weighted average interest rate of 2.02 % and dcp had $ 9 million of borrowing with dominion energy services , inc. with a weighted-average interest rate of 3.85 % . for further discussion , refer to note 9 of notes to consolidated financial statements in item 8 of this form 10-k. long-term debt eastern energy gas made repayments on long-term debt totaling $ 700 million and $ 4.1 billion during the years ended december 31 , 2020 and 2019 , respectively . future uses of cash capital expenditures capital expenditure needs are reviewed regularly by management and may change significantly as a result of these reviews , which may consider , among other factors , changes in environmental and other rules and regulations ; impacts to customers ' rates ; outcomes of regulatory proceedings ; changes in income tax laws ; general business conditions ; system reliability standards ; the cost and efficiency of construction labor , equipment and materials ; commodity prices ; and the cost and availability of capital . expenditures for certain assets may ultimately include acquisition of existing assets . 411 historical and forecasted capital expenditures , each of which exclude amounts for non-cash equity afudc and other non-cash items , for the years ending december 31 are as follows ( in millions ) : replace_table_token_284_th ( 1 ) excludes capital expenditures related to entities disposed of in connection with the dominion energy gas restructuring . refer to note 3 of the notes to consolidated financial statements in item 8 of this form 10-k for further discussion . eastern energy gas ' natural gas transmission and storage capital expenditures primarily include growth capital expenditures related to planned regulated projects . eastern energy gas ' other capital expenditures consist primarily of non-regulated and routine capital expenditures for natural gas transmission , storage and liquefied natural gas terminalling infrastructure needed to serve existing and expected demand . contractual obligations eastern energy gas has contractual cash obligations that may affect its financial condition . the following table summarizes eastern energy gas ' material contractual cash obligations as of december 31 , 2020 ( in millions ) : replace_table_token_285_th ( 1 ) not reflected on the consolidated balance sheets . eastern energy gas has other types of commitments that relate to construction and other development costs ( liquidity and capital resources included within this item 7 and note 9 ) , uncertain tax positions ( note 11 ) and aros ( note 13 ) , which have not been included in the above table because the amount and timing of the cash payments are not certain . refer , where applicable , to the respective referenced note in notes to consolidated financial statements in item 8 of this form 10โk for additional information . regulatory matters eastern energy gas is subject to comprehensive regulation . refer to the discussion contained in item 1 of this form 10-k for further information regarding eastern energy gas ' general regulatory framework and current regulatory matters . environmental laws and regulations eastern energy gas is subject to federal , state and local laws and regulations regarding climate change , air and water quality , hazardous and solid waste disposal , protected species and other environmental matters that have the potential to impact its current and future operations . in addition to imposing continuing compliance obligations and capital expenditure requirements , these laws and regulations provide regulators with the authority to levy substantial penalties for noncompliance , including fines , injunctive relief and other sanctions . these laws and regulations are administered by various federal , state and local agencies . eastern energy gas believes it is in material compliance with all applicable laws and regulations , although many laws and regulations are subject to interpretation that may ultimately be resolved by the courts . refer to `` environmental laws and regulations '' in item 1 of this form 10-k for further discussion regarding environmental laws and regulations . 412 collateral and contingent features debt of eastern energy gas is rated by credit rating agencies . assigned credit ratings are based on each rating agency 's assessment of eastern energy gas ' ability to , in general , meet the obligations of its issued debt . the credit ratings are not a recommendation to buy , sell or hold securities , and there is no assurance that a particular credit rating will continue for any given period of time . eastern energy gas has no credit rating downgrade triggers that would accelerate the maturity dates of outstanding debt , and a change in ratings is not an event of default under the applicable debt instruments . off-balance sheet arrangements eastern energy gas has certain investments that are accounted for under the equity method in accordance with gaap . accordingly , an amount is recorded on eastern energy gas ' consolidated balance sheets as an equity investment and is increased or decreased for eastern energy gas ' pro-rata share of earnings or losses , respectively , less any dividends from such investments . as of december 31 , 2020 , eastern energy gas ' investments that are accounted for under the equity method had short- and long-term debt of $ 314 million and an unused revolving credit facility of $ 10 million . as of december 31 , 2020 , eastern energy gas ' pro-rata share of such short- and long-term debt was $ 157 million and unused revolving credit facility was $ 5 million . the entire amount of eastern energy gas ' pro-rata share of the outstanding short- and long-term debt and unused revolving credit facility is non-recourse to eastern energy gas .
| results of operations overview net income attributable to eastern energy gas for the year ended december 31 , 2020 was $ 109 million , a decrease of $ 612 million , or 85 % , compared to 2019 , primarily due to a charge associated with the probable abandonment of a project previously intended for egts to provide approximately 1,500,000 dths of firm transportation service to various customers in connection with the atlantic coast pipeline project ( `` supply header project '' ) of $ 463 million , a charge for cash flow hedges of debt-related items that are probable of not occurring as a result of the gt & s transaction of $ 141 million , the absence of interest income from cove point 's notes receivable from dei of $ 82 million , a charge for disallowance of capitalized afudc due to the resolution of egts ' 2015 ferc audit of $ 43 million and an increase in net income attributable to noncontrolling interests due to dei 's 50 % interest in cove point effective with the gt & s transaction of $ 39 million . these decreases are partially offset by the absence of interest expense of $ 100 million from cove point 's term loan borrowings and income tax benefit of $ 24 million in 2020 versus income tax expense of $ 101 million in 2019 , primarily due to lower pre-tax income .
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the government-assigned working interest partner was delinquent paying their share of the costs several times in 2009 and consequently was placed in story_separator_special_tag introduction vaalco owns producing properties and conducts exploration activities as an operator in gabon , west africa , conducts exploration activities as an operator in angola , west africa , and conducts exploration activities as a non-operator in equatorial guinea , west africa . vaalco is the operator of unconventional and conventional resource properties in the united states located in montana , south dakota , and north texas . the company also owns minor interests in conventional production activities as a non-operator in the united states . a significant component of the company 's results of operations is dependent upon the difference between prices received for its offshore gabon oil production and the costs to find and produce such oil . oil ( and gas ) prices have been and are expected in the future to be volatile and subject to fluctuations based on a number of factors beyond the control of the company . similarly , the costs to find and produce oil and gas are largely not within the control of the company , particularly in regard to the cost of leasing drilling rigs to drill and maintain offshore wells . a key focus of the company is to maintain oil production from the etame marin block located offshore gabon at optimal levels within the constraints of the existing infrastructure . the company operates the etame , avouma , south tchibala and ebouri fields on behalf of a consortium of five companies . three subsea wells plus production from two platforms are tied back by pipelines to deliver oil and associated gas through a riser system to allow for delivery , processing , storage and ultimately offloading the oil from a leased floating , production , storage and offloading vessel ( โ fpso โ ) anchored to the seabed on the block . with the fpso limitations of approximately 25,000 bopd and 30,000 barrels of total fluids per day , the challenge is to optimize production on both a near and long-term basis subject to investment and operational agreements between the company and the consortium . as part of the near-term optimization , drilling and workover campaigns are developed and executed to drill new wells , partly to replace maturing wells , partly to develop bypassed oil and to perform workovers to replace esps in existing wells . late in 2012 , a drilling and workover campaign began with the arrival of a drilling rig to conduct a six well program that was ultimately increased to an eight well program extending into 2014. in 2013 , the drilling and workover campaign included the drilling of a successful development well in the avouma field , three well workovers to replace esps and two unsuccessful exploration wells . the 2014 37 program includes an exploration well , a replacement development well and one workover to replace esps . the company drilled the exploration well in the first quarter of 2014 , an unsuccessful effort due to non-commercial quantities of hydrocarbons being found . long-term optimization progress was made in 2012 by the company and its partners approving the construction of two additional production platforms for installation in 2014. the two production platforms are part of the future development plans for the etame marin block . one platform will be located in the etame field and the second platform will be located between the southeast etame and north tchibala fields . multiple wells are expected to be drilled from each of the platforms . the company drilled a successful exploration well in the southeast etame area in 2010 which will be developed from the second platform . the total cost to build and install the platforms is expected to be $ 325.0 million ( $ 91.0 million net to the company ) . the cost of the wells is not included in the platform costs . at the end of 2013 , the platform jackets were 75 % complete and the deck sections were 45 % complete . in july 2012 , the company discovered the presence of hydrogen sulfide ( h 2 s ) from two of the three producing wells in the ebouri field . the wells were shut-in for safety reasons resulting in a decrease of approximately 2,000 bopd or approximately 10 % of the gross daily production from the etame marin block . in the second quarter of 2013 , the company spent $ 0.5 million ( $ 0.2 million net to the company ) to temporarily suspend the two affected wells . analysis and options for re-establishing production from the impacted area began in the second half of 2012 and is expected to continue through the first half of 2014. additional capital investment will be required , which is likely to include a new platform-type structure with h 2 s processing capability , recompletion of the temporarily abandoned wells , and potentially additional new wells to re-establish and maximize production from the impacted area . preliminary economics support the estimated additional capital investment . the design , cost projections and final investment decisions by the company and its partners are expected to be made in the second half of 2014. re-establishing production from the area impacted by h 2 s is expected in the first half of 2017. in january 2014 , the company executed a loan agreement with the international finance corporation ( ifc ) for a $ 65 .0 million reserve based loan facility ( โ rbl โ ) secured by the assets of the company 's gabon subsidiary . as of the date of this report , the company has no outstanding borrowings under the rbl . besides the offshore etame marin block in gabon , the company operates the mutamba iroru block located onshore gabon . the company has a 50 % working interest in the block ( 41 % net working interest assuming the republic of gabon exercises its back-in rights ) . story_separator_special_tag when it is determined that an oil and gas property 's estimated future net cash flows will not be sufficient to recover its carrying amount , an impairment charge must be recorded to reduce the carrying amount of the asset to its estimated fair value . this may occur if a field contains lower than anticipated reserves or if commodity prices fall below a level that significantly effects anticipated future cash flows on the field . impairment of unproved property the company evaluates its unproved properties for impairment on a property by property basis . the majority of the company 's unproved property consists of acquisition costs related to its undeveloped acreage in angola , equatorial guinea and gabon . on at least a quarterly basis , management reviews the unproved property for indicators of impairment based on the company 's current exploration plans with consideration given to results of any drilling and seismic activity during the period and known information regarding exploration activity by other companies on adjacent blocks . see item 2 โ properties and note 6 to the consolidated financial statements for further information on the company 's exploration plans in angola and equatorial guinea . in angola , any adverse developments related to the company 's ability to further extend the drilling obligation date , if necessary , could result in an impairment of the company 's unproved properties and other assets with a carrying value of approximately $ 11.0 million . 39 asset retirement obligations ( โ aro โ ) the company has significant obligations to remove tangible equipment and restore land or seabed at the end of oil and gas production operations . the company 's removal and restoration obligations are primarily associated with plugging and abandoning wells , removing and disposing of all or a portion of offshore oil and gas platforms , and capping pipelines . estimat ing the future restoration and removal costs is difficult and requires management to make estimates and judgments . asset removal technologies and costs are constantly changing , as are regulatory , political , environmental , safety , and public relations considerations . aro associated with retiring tangible long-lived assets is recognized as a liability in the period in which the legal obligation is incurred and becomes determinable . the liability is offset by a corresponding increase in the underlying asset . the aro liability reflects the estimated present value of the amount of dismantlement , removal , site reclamation , and similar activities associated with the company 's oil and gas properties . the company utilizes current retirement costs to estimate the exp ected cash outflows for retirement obligations . inherent in the present value calculation are numerous assumptions and judgments including the ultimate settlement amounts , inflation factors , credit-adjusted discount rates , timing of settlement , and changes in the legal , regulatory , environmental , and political environments . to the extent future revisions to these assumptions impact the present value of the existing aro liability , a corresponding adjustment is made to the oil and gas property balance . accretion expense is recognized over time as the discounted liability is accreted to its expected settlement value . capital resources and liquidity cash flows net cash provided by operati ng activities for 2013 was $ 75.4 million , as compared to $ 94.0 million in 2012 and $ 89.6 million in 2011. the decrease of $ 18.6 million in net cash provided by operating activities is primarily attributable to a decrease in working capital components of approximately $ 31.7 million and a decrease in non-cash adjustments to net income of $ 24.6 million . the decrease in non-cash adjustments is a result of a decrease in depreciation of $ 3.0 million , a decrease in dry hole costs of $ 14.8 million and a decrease in impairment of proved properties of $ 7.6 million . the decrease was partially offset by an increase in net income of $ 37.7 million . the increase in cash provided by operating activities in 2012 versus 2011 was primarily due to both an increase in non-cash adjustments to net income of $ 31.3 million and an $ 8.3 million positive variance in changes in operating assets and liabilities , partially offset by a $ 35.2 million reduction in net income . net cash used in investing activities in 2013 was $ 67.9 million , compared to net cash used in investing activities for 2012 of $ 71.8 million and net cash used in investing activities in 2011 of $ 28.4 million . in 2013 , the company paid $ 66.9 million for capital expenditures , and $ 1.1 million in restricted cash . in 2012 , the company paid $ 71.9 million for capital expenditures , partly offset by a $ 0.1 million release of restricted cash . the company paid $ 32.0 million for capital expenditures in 2011 , partially offset by a $ 3.6 million release of restricted cash . in 2013 , cash used in financing activities wa s $ 7.7 million consisting of repurchase of treasury stock for $ 11.5 million partially offset by proceeds from issuance of common stock upon exercise of options of $ 3.7 million . in 2012 , cash used in financing activities was $ 28.5 million consisting of an acquisition of a noncontrolling interest for $ 26.2 million and distributions to a noncontrolling interest owner of $ 5.6 million , partially offset by proceeds from the issuance of common stock upon the exercise of options of $ 3.3 million . in 2011 , cash used in financing activities was $ 5.3 million consisting of distributions to a noncontrolling interest owner of $ 7.2 million partially offset by proceeds from the issuance of common stock upon the exercise of options of $ 1.9 million . in recent history , the company 's primary source of capital resources has been from cash flows from operations .
| results of operations year ended december 31 , 2013 compared to years ended december 31 , 2012 and 2011 total revenues total oil and gas sales for 2013 were $ 169.3 million as compared to $ 195.3 million and $ 210.4 million for 2012 and 2011 , respectively . oil revenues gabon crude oil revenues for 2013 were $ 167.4 million , as compared to revenues of $ 192.5 million and $ 208.8 million for 2012 and 2011 respectively . in 2013 , the company sold approximately 1,544,000 net barrels of oil at an average price of $ 108.42/bbl . in 2012 , the company sold approximately 1,730,000 net barrels of oil at an average price of $ 111.24/bbl . in 2011 , the company sold approximately 1,864,000 net barrels of oil at an average price of $ 111.98. the decrease in barrels sold in 2013 compared to 2012 is due to a natural decline in production and the loss of two wells in july 2012 due to the presence of hydrogen sulfide ( h 2 s ) from two of the three producing wells in the ebouri field . the wells were shut-in for safety reasons resulting in a decrease of approximately 2,000 bopd or approximately 10 % of the gross daily production from the etame marin block . united states condensate sales from the granite wash formation wells , located in hemphill county , texas for the year 2013 were $ 0.4 million , resulting from the sale of approximately 5,000 net barrels of condensate at an average price of $ 85.67/bbl . condensate sales from the granite wash formation wells , located in hemphill county , texas for the year 2012 were $ 0.8 million , resulting from the sale of approximately 10,000 net barrels of condensate at an average price of $ 81.68/bbl .
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we have determined that revenue from contracts with customers would primarily consist of interchange revenues in our credit and other investments segment and servicing revenue and other customer-related fees in both our credit and other investments segment and our auto finance segment . servicing revenue is generated by meeting contractual performance obligations related to the collection of amounts due on receivables , and is settled with the customer net of our fee . revenue from these contracts with customers is included as story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and the related notes included therein , where certain terms have been defined . this management 's discussion and analysis of financial condition and results of operations includes forward-looking statements . we base these forward-looking statements on our current plans , expectations and beliefs about future events . there are risks , including the factors discussed in โ risk factors โ in item 1a and elsewhere in this report , that our actual experience will differ materially from these expectations . for more information , see โ cautionary notice regarding forward-looking statements โ at the beginning of this report . in this report , except as the context suggests otherwise , the words โ company , โ โ atlanticus holdings corporation , โ โ atlanticus , โ โ we , โ โ our , โ โ ours , โ and โ us โ refer to atlanticus holdings corporation and its subsidiaries and predecessors . overview we utilize proprietary analytics and a flexible technology platform to enable financial institutions to provide various credit and related financial services and products to or associated with the financially underserved consumer credit market . according to data published by experian , 41 % of americans had ficoยฎ scores of less than 700 as of the second quarter of 2019 , which represents a population in excess of 90 million consumers . a recent survey conducted by charles schwab further found that 59 % of americans lived `` paycheck to paycheck '' and only 38 % of people have an emergency fund . these consumers often have short-term , immediate credit needs that are often not effectively met by traditional financial institutions . by facilitating fairly priced consumer credit alternatives with value added features and benefits specifically curated for the unique needs of this financially underserved consumer , we endeavor to empower consumers on a path to improved financial well-being . currently , within our credit and other investments segment , we are applying the experiences gained and infrastructure built from servicing over $ 26 billion in consumer loans over our 23-year operating history to support lenders who originate a range of consumer loan products . these products include retail credit and credit cards originated by lenders through multiple channels , including retail point-of-sale , direct mail solicitation , and partnerships with third parties . in the point-of-sale channel , we partner with retailers and service providers in various industries across the u.s. to allow them to provide credit to their customers for the purchase of a variety of goods and services including consumer electronics , furniture , elective medical procedures , healthcare , educational services and home-improvements . the services of our lending partners are often extended to consumers who may not have access to traditional financing options . we specialize in supporting this โ second-look โ credit service . our flexible technology platform allows our lending partners to integrate our paperless process and instant decision-making platform with the technology infrastructure of participating retailers and service providers . additionally , we support lenders who market general purpose credit cards directly to consumers through additional channels , which enables them to reach consumers through a diverse origination platform that includes retail point-of-sale , direct mail and digital marketing solicitation and partnerships with third parties . our technology platform and proprietary analytics enable lenders to make instant credit decisions utilizing hundreds of inputs from multiple sources and thereby offer credit to consumers overlooked by traditional providers of financing . by supporting a range of products through a multitude of channels , we enable lenders to provide the right type of credit , whenever and wherever the consumer has a need . in most cases , we invest in the receivables originated by lenders who utilize our technology platform and other related services . from time to time , we also purchase receivables portfolios from third parties . in this report , `` receivables '' or `` loans '' typically refer to receivables we have purchased from our lending partners or from third parties . using our infrastructure and technology platform , we also provide loan servicing , including risk management and customer service outsourcing , for third parties . also through our credit and other investments segment , we engage in testing and limited investment in consumer finance technology platforms as we seek to capitalize on our expertise and infrastructure . additionally , we report within our credit and other investments segment : ( 1 ) the income earned from an investment in an equity-method investee that holds credit card receivables for which we are the servicer ; and ( 2 ) gains or losses associated with investments previously made in consumer finance technology platforms . these include investments in companies engaged in mobile technologies , marketplace lending and other financial technologies . these investments are carried at the lower of cost or market valuation . none of these companies are publicly-traded and there are no material pending liquidity events . the recurring cash flows we receive within our credit and other investments segment principally include those associated with ( 1 ) point-of-sale and direct-to-consumer receivables , ( 2 ) servicing compensation and ( 3 ) credit card receivables portfolios that are unencumbered or where we own a portion of the underlying structured financing facility . story_separator_special_tag the assumptions used in the accrual estimate were subjective , mainly due to uncertainty associated with future claims volumes and the resolution costs , if any , per claim . as of december 31 , 2019 , we had no further reserves associated with this matter . included within our other income category for the year ended december 31 , 2018 , is the receipt of ยฃ34 million ( approximately $ 42.9 million ) in settlement of previously-disclosed litigation , resulting in income recognition of approximately $ 36.2 million after adjusting for amounts previously recorded . 21 equity in income of equity-method investee . because our equity-method investee uses the fair value option to account for its financial assets and liabilities , changes in fair value estimates can cause some volatility in the earnings of this investee . because of continued liquidations in the credit card receivables portfolio of our equity-method investee , absent additional investments in our existing or in new equity-method investees in the future , we expect gradually declining effects from our equity-method investment on our operating results . net losses upon impairment of loans , interest and fees receivable recorded at fair value . this account reflects charge offs ( net of recoveries ) of the face amount of credit card receivables we record at fair value on our consolidated balance sheet . we have experienced a general trending decline in this category as our legacy credit card portfolios diminished . as discussed above , we expect future trending increases in the third and fourth quarter of 2020 due to our election of the fair value option to account for certain loans receivable that are acquired on or after january 1 , 2020. these increases will be abated somewhat as we continue to liquidate our historical credit card receivables . further . the unknown impacts of covid-19 could lead to increased variability in our expected charge-offs provision for losses on loans , interest and fees receivable recorded at net realizable value . our provision for losses on loans , interest and fees receivable recorded at net realizable value covers , with respect to such receivables , changes in estimates regarding our aggregate loss exposures on ( 1 ) principal receivable balances , ( 2 ) finance charges and late fees receivable underlying income amounts included within our total interest income category , and ( 3 ) other fees receivable . we have experienced a period-over-period increase in this category between the years ended december 31 , 2019 and 2018 primarily reflecting the effects of volume associated with point-of-sale and direct-to-consumer finance receivables ( i.e. , growth of new product receivables and their subsequent maturation ) , rather than specific credit quality changes or deterioration , which also impacted our provision for losses on loans , interest and fees receivable recorded at net realizable value to a lesser degree . partially offsetting this increase was a reduction in our provision for loan losses for unearned fees and discounts that may be applicable for outstanding loan receivables and which would serve to reduce the financial impact of an eventual charge-off . see note 2 , โ significant accounting policies and consolidated financial statement components , โ to our consolidated financial statements and the discussions of our credit and other investments and auto finance segments for further credit quality statistics and analysis . given the above referenced election of the fair value option to account for certain loans receivable that are acquired on or after january 1 , 2020 , and absent the unknown impacts covid-19 may have on our ability to acquire new receivables or the impact it may have on our customers ability to make payments on outstanding loans and fees receivable , we expect that our provision for losses on loans will diminish as the underlying receivables that continue to be recorded at net realizable value liquidate . total other operating expense . total other operating expense variances for the year ended december 31 , 2019 , relative to the year ended december 31 , 2018 , reflect the following : increases in salaries reflecting marginal growth in both the number of employees and increases in related benefit costs . we expect some marginal increase in this cost for 2020 when compared to 2019 as we expect our receivables to continue to grow ; increases in card and loan servicing expenses in the year ended december 31 , 2019 when compared to the year ended december 31 , 2018 due to growth in receivables associated with our investments in point-of-sale and direct-to-consumer receivables , which grew from $ 453.3 million outstanding to $ 908.4 million outstanding at december 31 , 2018 and december 31 , 2019 , respectively , offset by the continued net liquidations in our legacy credit card portfolios , the receivables of which declined from $ 9.6 million outstanding to $ 6.4 million outstanding at december 31 , 2018 and december 31 , 2019 , respectively ; increases in marketing and solicitation costs for the year ended december 31 , 2019 primarily due to volume-related increases in costs attributable to the growth in our direct-to-consumer and ( to a lesser extent ) retail point-of-sale portfolios . we expect that increased origination and brand marketing support will result in overall increases in year-over-year costs during 2020 although the frequency and timing of marketing efforts could result in reductions in quarter-over-quarter marketing costs ; and slight decreases in other expenses primarily related to realized translation gains and losses recognized during both periods . certain operating costs are variable based on the levels of accounts and receivables we service ( both for our own account and for others ) and the pace and breadth of our growth in receivables . however , a number of our operating costs are fixed and until recently have comprised a larger percentage of our total costs based on the ongoing contraction of our legacy credit card receivables .
| consolidated results of operations replace_table_token_2_th year ended december 31 , 2019 , compared to year ended december 31 , 2018 total interest income . total interest income consists primarily of finance charges and late fees earned on point-of-sale and direct-to-consumer receivables , credit card and auto finance receivables . period-over-period results primarily relate to growth in point-of-sale finance and direct-to-consumer products , the receivables of which increased from $ 453.3 million as of december 31 , 2018 to $ 908.4 million as of december 31 , 2019 . we are currently experiencing continued period-over-period growth in point-of-sale and direct-to-consumer receivables and to a lesser extent in our car receivablesโgrowth which we expect to result in net period-over-period growth in our total interest income for these operations throughout 2020. future periods ' growth is also dependent on the addition of new retail partners to expand the reach of point-of-sale operations as well as growth within existing partnerships and continued growth and marketing within the direct-to-consumer receivables . as discussed elsewhere in this report , we have elected the fair value option to account for certain loan receivables associated with our point-of-sale and direct-to-consumer platform that are originated on or after january 1 , 2020. as a result , merchant fees that are charged upon the acquisition of the receivable will no longer be deferred and will be recognized in the loan acquisition period . absent the unknown impacts covid-19 may have on our ability to acquire new receivables or the impact it may have on our customers ability to make payments on outstanding loans and fees receivable , the earlier recognition of these merchant fees is expected to further increase our period-over-period results in the near term . 20 interest expense .
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our evidence-based health , prevention and well-being services are made available to consumers via phone , mobile devices , direct mail , the internet , face-to-face consultations and venue-based interactions . in north america , our customers include health plans , employers , integrated healthcare systems , hospitals , physicians , and government entities in all 50 states , the district of columbia and puerto rico . we also provide health improvement programs and services in brazil , australia and france . we operate domestic and international care enhancement and coaching centers staffed with licensed health professionals . our fitness center network encompasses approximately 14,000 u.s. locations . we also maintain an extensive network of over 88,000 complementary , alternative and physical medicine practitioners , which offers convenient access to the significant number of individuals who seek health services outside of the traditional healthcare system . our guiding philosophy and approach to market is predicated on the fundamental belief that healthier people cost less and are more productive . as described more fully below , our programs are designed to improve well-being by helping people to adopt or maintain healthy behaviors , reduce health-related risk factors , and optimize care for identified health conditions . first , our programs are designed to help people adopt or maintain healthy behaviors by : ยท fostering wellness and disease prevention through total population screening , well-being assessments and supportive interventions ; and ยท providing access to health improvement programs , such as fitness solutions , weight management , chiropractic , and complementary and alternative medicine . our prevention programs focus on education , physical fitness , health coaching , and behavior change techniques and support . we believe this approach improves the well-being status of member populations and reduces the short- and long-term direct healthcare costs for participants , including associated costs from the loss of employee productivity . second , our programs are designed to help people reduce health-related risk factors by : ยท promoting the change and improvement of the lifestyle behaviors that lead to poor health or chronic conditions ; and ยท providing educational materials and personal interactions with highly trained nurses and other healthcare professionals to create and sustain healthier behaviors for those individuals at-risk or in the early stages of chronic conditions . 23 we enable our customers to engage everyone in their covered populations through specific interventions that are sensitive to each individual 's health risks and needs . our programs are designed to motivate people to make positive lifestyle changes and accomplish individual goals , such as increasing physical activity for seniors through the healthways silversneakers fitness solution or overcoming nicotine addiction through the quitnet on-line smoking cessation community . finally , our programs are designed to help people optimize care for identified health conditions by : ยท incorporating the latest , evidence-based clinical guidelines into interventions to optimize patient health outcomes ; ยท developing care support plans and motivating members to set attainable goals for themselves ; ยท providing local market resources to address acute episodic interventions ; ยท coordinating members ' care with their healthcare providers ; ยท providing software licensing and management consulting in support of well-being improvement services ; and ยท providing high-risk care management for members at risk for hospitalization due to complex conditions . our approach is to use proprietary , analytic models to identify individuals who are likely to incur future high costs , including those who have specific gaps in care , and through evidence-based interventions drive adherence to proven standards of care , medication regimens and physicians ' plans of care to reduce disease progression and related medical spending . we recognize that each individual plays a variety of roles in his or her pursuit of health , often simultaneously . by providing the full spectrum of services to meet each individual 's needs , we believe our interventions can be delivered at scale and in a manner that reflects those unique needs over time . we believe creating real and sustainable behavior change generates measurable , long-term cost savings and improved individual and business performance . business acquisition on august 31 , 2011 , we acquired navvis , a firm that provides strategic counsel and change management services to healthcare systems , for approximately $ 27.0 million , comprised of approximately $ 23.7 million in cash and $ 3.3 million in healthways common stock . forward-looking statements management 's discussion and analysis of financial condition and results of operations contains forward-looking statements , which are based upon current expectations , involve a number of risks and uncertainties , and are subject to the โ safe harbor โ provisions of the private securities litigation reform act of 1995. forward-looking statements include all statements that are not historical statements of fact and those regarding the intent , belief , or expectations of the company , including , without limitation , all statements regarding the company 's future earnings and results of operations , and can be identified by the use of words like โ may , โ โ believe , โ โ will , โ โ expect , โ โ project , โ โ estimate , โ โ anticipate , โ โ plan , โ or โ continue. โ those forward-looking statements may be affected by certain risks and uncertainties , including , but not limited to : ยท our ability to sign and implement new contracts for our solutions ; ยท our ability to accurately forecast the costs required to successfully implement new contracts ; ยท our ability to renew and or maintain contracts with our customers under existing terms or restructure these contracts on terms that would not have a material negative impact on our results of operations ; ยท our ability to effectively compete against other entities , whose financial , research , staff , and marketing resources may exceed our resources ; 24 ยท our ability to accurately forecast the company 's revenues , margins , earnings and net income , as well as any potential charges that we may incur as a result of story_separator_special_tag some of our contracts allow the customer to terminate early . some of our contracts place a portion of our fees at risk based on achieving certain performance metrics , cost savings , and or clinical outcomes improvements ( โ performance-based โ ) . approximately 5 % of revenues recorded during 2011 were performance-based and were subject to final reconciliation as of december 31 , 2011. we anticipate that this percentage will fluctuate due to the level of performance-based fees in new contracts and the timing and amount of revenue recognition associated with performance-based fees . we recognize revenue as follows : 1 ) we recognize the fixed portion of pmpm fees and fees for service as revenue during the period we perform our services ; and 2 ) we recognize performance-based revenue based on the most recent assessment of our performance , which represents the amount that the customer would legally be obligated to pay if the contract were terminated as of the latest balance sheet date . we generally bill our customers each month for the entire amount of the fees contractually due for the prior month 's enrollment , which typically includes the amount , if any , that is performance-based and may be subject to refund should we not meet performance targets . deferred revenues arise from contracts which permit upfront billing and collection of fees covering the entire contractual service period , generally 12 months . a limited number of our contracts provide for certain performance-based fees that can not be billed 26 until after they are reconciled with the customer . fees for service are typically billed in the month after the services are provided . we assess our level of performance for our contracts based on medical claims and other data that the customer is contractually required to supply . a minimum of four to nine months ' data is typically required for us to measure performance . in assessing our performance , we may include estimates such as medical claims incurred but not reported and a medical cost trend compared to a baseline year . in addition , we may also provide contractual allowances for billing adjustments ( such as data reconciliation differences ) as appropriate . if data is insufficient or incomplete to measure performance , or interim performance measures indicate that we are not meeting performance targets , we do not recognize performance-based fees subject to refund as revenues but instead record them in a current liability account entitled โ contract billings in excess of earned revenue. โ only in the event we do not meet performance levels by the end of the measurement period , typically one year , are we contractually obligated to refund some or all of the performance-based fees . we would only reverse revenues that we had already recognized if performance to date in the measurement period , previously above targeted levels , subsequently dropped below targeted levels . historically , any such adjustments have been immaterial to our financial condition and results of operations . during the settlement process under a contract , which generally occurs six to eight months after the end of a contract year , we settle any performance-based fees and reconcile healthcare claims and clinical data . as of december 31 , 2011 , cumulative performance-based revenues that have not yet been settled with our customers but that have been recognized in the current and prior years totaled approximately $ 48.7 million , all of which were based on actual data received from our customers . data reconciliation differences , for which we provide contractual allowances until we reach agreement with respect to identified issues , can arise between the customer and us due to customer data deficiencies , omissions , and or data discrepancies . performance-related adjustments ( including any amounts recorded as revenue that were ultimately refunded ) , changes in estimates , or data reconciliation differences may cause us to recognize or reverse revenue in a current fiscal year that pertains to services provided during a prior fiscal year . during 2011 , we recognized a net increase in revenue of $ 2.9 million that related to services provided prior to 2011. impairment of intangible assets and goodwill we review goodwill for impairment at the reporting unit level ( operating segment or one level below an operating segment ) on an annual basis ( during the fourth quarter ) or more frequently whenever events or circumstances indicate that the carrying value may not be recoverable . we estimate the fair value of each reporting unit using a combination of a discounted cash flow model and a market-based approach , and we reconcile the aggregate fair value of our reporting units to our consolidated market capitalization . estimating fair value requires significant judgments , including management 's estimate of future cash flows , which is dependent on internal forecasts , estimation of the long-term growth rate for our business , the useful life over which cash flows will occur , determination of our weighted average cost of capital , as well as relevant comparable company earnings multiples for the market-based approach . changes in these estimates and assumptions could materially affect the estimate of fair value and goodwill impairment for each reporting unit . if we determine that the carrying value of goodwill is impaired based upon an impairment review , we calculate any impairment using a fair-value-based goodwill impairment test as required by u.s. gaap . the fair value of a reporting unit is the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date . 27 as a result of changes in our long-term projections related to the wind-down of our contract with cigna , we performed a quantitative goodwill impairment review during the fourth quarter of 2011 and recorded a $ 182.4 million goodwill impairment loss .
| results of operations the following table shows the components of the statements of operations for the fiscal years ended december 31 , 2011 , 2010 and 2009 expressed as a percentage of revenues . replace_table_token_4_th ( 1 ) figures may not add due to rounding . revenues revenues for fiscal 2011 decreased $ 31.6 million , or 4.4 % , over fiscal 2010 , primarily due to the following : ยท the recognition of revenues in 2010 in connection with a final settlement with cms associated with our participation in two mhs programs ; and ยท contract and program terminations and restructurings with certain customers . these decreases were somewhat offset by revenue from new and expanded contracts and an increase in participation in our fitness center programs as well as in the number of members eligible to participate in such programs . revenues for fiscal 2010 increased $ 2.9 million , or 0.4 % , over fiscal 2009 , primarily due to the following : ยท the commencement of contracts with new customers ; ยท the recognition of revenues in connection with a final settlement with cms associated with our participation in two mhs programs ; and ยท an increase in participation in our fitness center programs as well as in the number of members eligible to participate in such programs .
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our portfolio is targeted to a range of market sizes and consumer tastes . each of our operating properties is considered a separate operating segment , as story_separator_special_tag all references to numbered notes are to specific footnotes to our consolidated financial statements included in this annual report and whose descriptions are incorporated into the applicable response by reference . the following discussion should be read in conjunction with such consolidated financial statements and related notes . capitalized terms used , but not defined , in this management 's discussion and analysis of financial condition and results of operations have the same meanings as in such notes . overviewโintroduction we own a property portfolio comprised primarily of class a retail properties ( defined primarily by sales per square foot ) . as of december 31 , 2019 , we owned , either entirely or with joint venture partners , 122 retail properties located throughout the united states comprising approximately 120 million square feet of gross leasable area or gla . our primary objective is to be an owner and operator of best-in-class retail properties that provide an outstanding environment and experience for our communities , retailers and consumers . our strategy includes : increasing the permanent occupancy of our regional mall portfolio by converting temporary leases to permanent leases and leasing vacant space ; renewing or replacing expiring leases at greater rental rates ; actively recycling capital through the disposition of assets ; investing in whole or partial interests in high-quality regional malls , anchor pads , and our development pipeline and repaying debt ; and continuing to execute on our existing redevelopment projects and seeking additional opportunities within our portfolio for redevelopment . as of december 31 , 2019 , the portfolio was 96.4 % leased , compared to 96.5 % leased at december 31 , 2018 . in 2019 , our retail properties reported an average of $ 798 in tenant sales per square foot ( weighted based on the operating income contribution of the properties ) . during this same period , the spread between the rent paid on expiring leases and the rent commencing under new leases on a suite-to-suite basis in our retail portfolio increased by 3.6 % ( weighted based on the operating income contribution of the properties ) . overview net income attributable to bpr decreased 89.4 % from $ 4.1 billion for the year ended december 31 , 2018 to $ 0.4 billion for the year ended december 31 , 2019 . this decline is primarily the result of the gains booked in the third quarter of 2018 related to the bpy transaction ( note 3 ) . operating metrics the following table summarizes selected operating metrics for our portfolio . replace_table_token_17_th ( 1 ) metrics exclude properties acquired in the year ended december 31 , 2019 and the december 31 , 2018 , reductions in ownership as a result of sales or other transactions , and certain redevelopments and other properties . ( 2 ) rent is presented on a cash basis and consists of base minimum rent and common area costs . 31 lease spread metrics the following tables summarize signed leases compared to expiring leases in the same suite , for leases where ( 1 ) the downtime between new and previous tenant was less than 24 months , ( 2 ) the occupied space between the previous tenant and new tenant did not change by more than 10,000 square feet and ( 3 ) the new lease term is at least a year . the metrics based on the operating income of the properties is the result of weighting each metric by the property 's net operating income contribution to the company 's total net operating income . metrics weighted based on the operating income contribution of the properties : replace_table_token_18_th metrics not weighted based on the operating income contribution of the properties : replace_table_token_19_th _ ( 1 ) represents initial annual rent over the lease consisting of base minimum rent and common area maintenance . ( 2 ) represents expiring rent at end of lease consisting of base minimum rent and common area maintenance . year ended december 31 , 2019 and 2018 rental revenues decreased $ 530.3 million , primarily due to the joint ventures formed in conjunction with the bpy transaction in the third quarter of 2018. the joint ventures resulted in a $ 503.2 million decrease in rental revenues during 2019 as compared to 2018 . in addition , the sale of our partial interest at one operating property in the fourth quarter of 2018 resulted in a $ 10.2 million decrease in rental revenues during 2019 as compared to 2018 as the property is now accounted for in unconsolidated real estate affiliates ( note 3 ) . management fees and other corporate revenues increased $ 40.7 million , primarily due to the joint ventures formed in conjunction with the bpy transaction in the third quarter of 2018. the joint ventures resulted in a $ 38.7 million increase in property management and leasing fees during 2019 compared to 2018 ( note 3 ) . real estate taxes decreased $ 50.1 million , primarily due to the joint ventures formed in conjunction with the bpy transaction in the third quarter of 2018. the joint ventures resulted in a $ 54.1 million decrease in real estate taxes during 2019 compared to 2018 ( note 3 ) . other property operating costs decreased $ 73.9 million , primarily due to the joint ventures formed in conjunction with the bpy transaction in the third quarter of 2018. the joint ventures resulted in a $ 78.2 million decrease in other property operating costs during 2019 compared to 2018 ( note 3 ) . property management and other costs increased $ 56.6 million primarily due to an increase in salaries and bonuses , corporate office rent and management fees . story_separator_special_tag 33 the gain from changes in control of investment properties and other , net of $ 3.1 billion during 2018 relates to the joint venture transactions related to the bpy transaction in the third quarter of 2018 , the sale of an anchor box at the oaks mall , the sale of commercial office unit at 685 fifth avenue , the sale of a 49 % interest in fashion place , and the sale of a 49.9 % joint venture interest in the sears box at oakbrook center ( note 3 ) . the gain on extinguishment of debt during 2018 relates to one property which was conveyed to the lender in full satisfaction of the debt ( note 3 ) . benefit from income taxes increased $ 583.3 million during 2018 primarily due to the recognition of deferred taxes related to certain transactions effectuated in the bpy transaction ( note 3 ) . equity in income of unconsolidated real estate affiliates decreased by $ 66.2 million primarily due to a decrease in income recognition on condominiums and income related to joint ventures formed in conjunction with the bpy transaction in the third quarter of 2018 ( note 3 ) . unconsolidated real estate affiliates - gain on investment of $ 487.2 million during 2018 is related to the joint ventures formed in conjunction with the bpy transaction in the third quarter of 2018 and the sale of a portion of our interest in aeropostale ( note 3 ) . liquidity and capital resources our primary source of cash is from the ownership and management of our properties and strategic dispositions . in addition , we will also use financings as a source of capital . we may generate cash from refinancings or borrowings under our revolving credit facility . our primary uses of cash include payment of operating expenses , debt service , reinvestment in and redevelopment of properties , tenant allowances , dividends , share repurchases and strategic acquisitions . we anticipate maintaining financial flexibility by managing our future maturities and amortization of debt . we believe that we currently have sufficient liquidity to satisfy all of our commitments in the form of $ 197.8 million of consolidated unrestricted cash and $ 0.8 billion of available credit under our revolving credit facility as of december 31 , 2019 , as well as anticipated cash provided by operations . our key financing objectives include : to obtain property-secured debt with laddered maturities ; and to minimize the amount of debt that is cross-collateralized and or recourse to us . we may raise capital through public or private issuances of debt securities , preferred stock , class a stock , common units of bprop , share repurchases or other capital raising activities . during the year ended december 31 , 2019 : on november 1 , 2019 the company closed a new mortgage loan at merrick park in amount of $ 390.0 million with a 5-year fixed interest rate at 3.90 % which matures november 1 , 2024. this loan replaced the previous debt of $ 161.0 million with a fixed rate at 5.73 % that was scheduled to mature on april 1 , 2021. the refinance incurred fees of $ 7.9 million for a prepayment penalty to the lender that was factored into the fair value of debt as of the consolidation date . the refinance occurred in conjunction with the jpm transaction in note 3 . on november 1 , 2019 , the company closed a new loan on natick mall for $ 505.0 million with a 5-year fixed interest rate at 3.72 % which matures on november 1 , 2024. this loan replaced the previous debt of $ 419.4 million with an interest rate of 4.60 % that matured on november 1 , 2019. on november 1 , 2019 the company closed a new mortgage loan and a mezzanine loan at park meadows in amount of $ 615.0 million with an interest rate of 3.18 % and in amount of $ 85.0 million with an interest rate of 6.25 % , respectively . both loans mature on november 1 , 2024. these loans replaced previous debt of $ 360.0 million and an interest rate of 4.60 % that was scheduled to mature on december 1 , 2023. in connection with the refinancing , the company incurred prepayment penalties of $ 35.6 million . as the refinancing plan was contemplated in connection with the acquisition , such fees were factored into the fair value of debt recognized on the consolidation date . the refinance occurred in conjunction with the jpm transaction in note 3 . 34 on october 25 , 2019 , the company closed a new loan on first colony mall for $ 220.0 million with a 10-year fixed interest rate at 3.55 % which matures on november 1 , 2029. this loan replaced the previous debt of $ 168.6 million with an interest rate of 4.50 % that matured on november 1 , 2019. on september 6 , 2019 , the company closed a new loan at park city center in the amount of $ 135.0 million with an interest rate of libor plus 3.00 % which matures on september 9 , 2021. this loan replaced the previous debt of $ 172.2 million that matured june 6 , 2019 and included a pay down of the existing mezzanine loan in the amount of $ 36.8 million . for the period between the maturity date of the previous debt and the effective date of the new loan , the company extended forbearance and paid forbearance fees in total amount of $ 0.5 million .
| summary of cash flows cash flows from operating activities net cash provided by operating activities was $ 428.1 million for the year ended december 31 , 2019 , $ 584.5 million for the year ended december 31 , 2018 , and $ 1.3 billion for the year ended december 31 , 2017 . significant components of net cash provided by operating activities include : in 2019 , a decrease of cash inflows was primarily due to the joint ventures formed in conjunction with the bpy transaction in the third quarter of 2018 ( note 3 ) ; and in 2019 , gain from change in control of investment properties and other , net of $ ( 720.7 ) million ; and in 2018 , gain from change in control of investment properties and other , net of $ ( 3.1 ) billion . cash flows from investing activities net cash ( used in ) provided by investing activities was $ ( 1.3 ) billion for the year ended december 31 , 2019 , $ 2.7 billion for the year ended december 31 , 2018 , and $ ( 855.3 ) million for the year ended december 31 , 2017 . significant components of net cash ( used in ) provided by investing activities include : 2019 activity acquisition of real estate and property additions , $ ( 877.1 ) million ; loans to joint venture and joint venture partners , $ ( 95.8 ) million ; proceeds from sales of investments properties and unconsolidated real estate affiliates , $ 185.2 million ; development of real estate and property improvements , $ ( 514.3 ) million ; net proceeds from distributions received from unconsolidated real estate affiliates in excess of income , $ 363.2 million ; contributions to unconsolidated real estate affiliates , $ ( 239.4 ) million ; proceeds from loan to affiliates of $ 330.0 million ; and loans to affiliates of $ ( 330.0 ) million .
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through december 31 , 2012 , a total of 1,412 series a preferred shares have been converted into 1,882,667 shares of our common stock . as of december 31 , 2012 , there were 788 shares of series a preferred shares outstanding , convertible into 1,050,667 shares of our common stock . pursuant to the terms of the spa , we issued to each purchaser series a , b and c warrants ( collectively , the โ warrants โ ) , each to purchase up to a number of shares of our common stock equal to 100 % of the conversion shares underlying the series a preferred shares ( up to 2,933,333 shares in the aggregate for each of the three series of warrants , or 8,799,999 shares in total ) ( โ warrant shares โ ) . the series a warrants have an exercise price of $ 1.00 per share , are exercisable immediately , and expire on march 21 , 2017. the series b warrants have an exercise price of $ 0.75 per share , are exercisable immediately , and expire on march 21 , 2013. the series c warrants have an exercise price of $ 1.00 per share and expire on march 21 , 2017 , but only vest and become exercisable upon , and in proportion to , the exercise of the one-year series b warrants . the warrants contain anti-dilution provisions , which may , under certain circumstances , reduce the exercise price ( but have no effect on the number of shares subject to the warrants ) if we sell or grant options to purchase , including rights to reprice , our common stock or common stock equivalents at a price lower than the exercise price of the warrants , or if we announce plans to do so . in connection with the sale of the series a preferred shares , we entered into a registration rights agreement ( โ rra โ ) with the purchasers , pursuant to which we filed a registration statement with the securities and exchange commission ( โ sec โ ) on april 3 , 2012 covering resale of the conversion shares and the warrant shares . it was declared effective by the sec on april 13 , 2012 accounting treatment and allocation of proceeds . we first assessed the series a preferred shares under asc topic 480 , โ distinguishing liabilities from equity โ ( โ asc 480 โ ) and determined such preferred stock not to be a liability under asc 480. we next assessed the preferred stock under asc topic 815 . โ derivatives and hedging โ ( โ asc 815 โ ) . the preferred stock contains an embedded feature allowing an story_separator_special_tag and results of operations the following discussion and analysis of our financial condition and results of operations should be read together with the discussion under โ selected financial data โ and our consolidated financial statements included in this annual report . this discussion contains forward-looking statements that involve risks and uncertainties because they are based on current expectations and relate to future events and our future financial performance . our actual results may differ materially from those anticipated in these forward-looking statements as a result of many important factors , including those set forth under โ risk factors โ and elsewhere in this annual report . overview geovax is a biotechnology company developing vaccines that prevent and fight hiv/aids . we have exclusively licensed from emory university vaccine technology which was developed in collaboration with the nih and the cdc . our current vaccines under development address the clade b subtype of the hiv virus that is most prevalent in the united states and the developed world . our vaccines are being evaluated to determine their potential to ( a ) prevent hiv infection and ( b ) to serve as a therapy for individuals who are already infected with hiv . these vaccines are currently being evaluated in human clinical trials -- both in those infected with hiv and those who are not . we have neither received regulatory approval for any of our vaccine candidates , nor do we have any commercialization capabilities ; therefore , it is possible that we may never successfully derive significant product revenues from any of our existing or future development programs or product candidates . we expect for the foreseeable future our operations will result in a net loss on a quarterly and annual basis . as of december 31 , 2012 , we had an accumulated deficit of $ 24.8 million . critical accounting policies and estimates this discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . on an ongoing basis , management evaluates its estimates and adjusts the estimates as necessary . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ materially from these estimates under different assumptions or conditions . story_separator_special_tag the project period of this grant covers a one year period ending in august 2013. there is approximately $ 1.4 million from this grant remaining and available for use as of december 31 , 2012. we are pursuing additional grants from the federal government . however , as we progress to the later stages of our vaccine development activities , government financial support may be more difficult to obtain , or may not be available at all . therefore , it will be necessary for us to look to other sources of funding in order to finance our clinical trials and other vaccine development activities . cash flows from investing activities our investing activities have consisted predominantly of capital expenditures . capital expenditures for the years ended december 31 , 2012 , 2011 and 2010 , were $ -0- , $ 11,896 , and $ 4,706 , respectively , and during 2010 , we received $ 5,580 in proceeds from the sale of equipment . cash flows from financing activities net cash provided by financing activities was $ 2,309,192 , $ 404,410 , and $ -0- for the years ended december 31 , 2012 , 2011 and 2010 , respectively . in march 2012 , we sold 2,200 shares of series a convertible preferred stock to a group of institutional investors for an aggregate purchase price of $ 2.2 million , and five-year class a warrants to purchase an aggregate of 2,933,333 shares of our common stock at $ 1.00 per share . the preferred stock is convertible at any time into shares of our common stock at $ 0.75 per share ( originally 2,933,333 shares in the aggregate ) . we also granted to the investors one-year class b warrants to purchase up to 2,933,333 of our common stock with an exercise price of $ 0.75 per share , and five-year class c warrants to purchase up to 2,933,333 shares of our common stock at $ 1.00 per share . the class b warrants were immediately exercisable upon issuance ; the class c warrants only become exercisable at the time , and to the extent , that the class b warrants are exercised . during 2012 a total of 1,412 preferred shares were converted into 1,882,667 shares of common stock ; as of december 21 , 2012 , there were 788 shares of preferred stock outstanding , convertible into 1,050,667 shares of common stock . in january 2013 , we reduced the exercise price of our then-outstanding series b common stock purchase warrants . the exercise price for all the series b warrants was reduced from $ 0.75 to $ 0.60 per share . the exercise price for the series a warrants and series c warrants that were issued concurrently with the series b warrants did not change . in consideration for the reduction of the exercise price , the holders of the series b warrants immediately exercised 1,766,667 of the series b warrants for cash , resulting in total proceeds to the company of $ 1,060,000. the expiration date of the remaining series b warrants with respect to 1,166,667 shares was extended from march 21 , 2013 to may 21 , 2013. the cash generated by our financing activities during 2011 relates to the sale of our common stock to individual accredited investors in a private placement offering initiated during december 2011. during january 2012 , we received an additional $ 310,160 from stock sales pursuant to this offering ( including $ 36,800 received in payment of a stock subscription receivable from december 2011 ) . our capital requirements , particularly as they relate to product research and development , have been and will continue to be significant . we anticipate incurring additional losses for several years as we expand our drug development and clinical programs and proceed into higher cost human clinical trials . conducting clinical trials for our vaccine candidates in development is a lengthy , time-consuming and expensive process . we will not generate revenues from the sale of our technology or products for at least several years , if at all . for the foreseeable future , we will be dependent on obtaining financing from third parties in order to maintain our operations , including our clinical program . due to the existing uncertainty in the capital and credit markets , and adverse regional and national economic conditions that may persist or worsen , capital may not be available on terms acceptable to the company or at all . if we fail to obtain additional funding when needed , we would be forced to scale back or terminate our operations , or to seek to merge with or to be acquired by another company . 26 we expect that our current working capital combined with the remaining available funds from the nih grants will be sufficient to support our planned level of operations into the first quarter of 2014. we anticipate raising additional capital during 2013 , although there can be no assurance that we will be able to do so . while we believe that we will be successful in obtaining the necessary financing to fund our operations through grants , exercise of options and warrants , and or other sources , there can be no assurances that such additional funding will be available to us on reasonable terms or at all . should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it , the consequences could have a material adverse effect on our business , operating results , financial condition and prospects . we have no off-balance sheet arrangements that are likely or reasonably likely to have a material effect on our financial condition or results of operations .
| results of operations net loss we recorded net losses of $ 2,135,140 , $ 2,346,826 , and $ 2,747,328 for the years ended december 31 , 2012 , 2011 and 2010 , respectively . our operating results typically fluctuate due to the timing of activities and related costs associated with our vaccine research and development activities and our general and administrative costs , as described in more detail below . grant revenue we recorded grant revenues of $ 2,657,327 , $ 4,899,885 , and $ 5,185,257 for the years ended december 31 , 2012 , 2011 and 2010 , respectively . grant revenues for all three years relate to grants from the nih for our vaccine development activities , except that 2010 includes $ 244,479 related to our receipt of a qualified therapeutic discover program ( qtdp ) grant . in september 2007 , the nih awarded us an ipcavd grant to support our hiv/aids vaccine development , optimization and production . the original project period for the grant covered a five year period ending in august 2012 , but was extended for an additional one year period . the aggregate award totaled $ 20.4 million and there is approximately $ 1.6 million remaining and available for use as of december 31 , 2012. in september 2012 , the nih awarded us an additional grant of $ 1.9 million to support development of versions of our hiv/aids vaccines for the clade c subtype of the hiv virus prevalent in the developing world . the project period of this grant covers a one year period ending in august 2013. there is approximately $ 1.4 million from this grant remaining and available for use as of december 31 , 2012. research and development our research and development expenses were $ 3,043,522 , $ 4,276,375 , and $ 4,793,956 for the years ended december 31 , 2012 , 2011 and 2010 , respectively .
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such statements may relate , but are not limited , to projections of revenues , income or loss , development expenditures , plans for growth and future operations , competition and regulation , as well as assumptions relating to the foregoing . such forward-looking statements are made pursuant to the safe-harbor provisions of the private securities litigation reform act of 1995. forward-looking statements are inherently subject to risks and uncertainties , many of which can not be predicted or quantified . when used in this report , the words โ will , โ โ could , โ โ estimates , โ โ expects , โ โ anticipates , โ โ believes , โ โ plans , โ โ intends โ and variations of such words and similar expressions are intended to identify forward-looking statements that involve risks and uncertainties . future events and actual results could differ materially from those set forth in , contemplated by or underlying the forward-looking statements . factors that could cause actual results to differ materially from any results projected , forecasted , estimated or budgeted or may materially and adversely affect our actual results include , but are not limited to , those set forth in item 1a . risk factors and elsewhere in this report and in our other public filings with the sec . undue reliance should not be placed on these forward-looking statements , which are applicable only as of the date hereof . we undertake no obligation to revise or update these forward-looking statements to reflect events or circumstances that arise after the date of this report or to reflect the occurrence of unanticipated events . liquidity and capital resources jefferies acquisition on march 1 , 2013 , jefferies became one of our wholly-owned subsidiaries . jefferies shareholders received 0.81 of a share of our common shares for each share of jefferies common stock they held ( the `` exchange ratio '' ) , an aggregate of approximately 119,363,000 of our common shares , and we issued a new series of our 3.25 % cumulative convertible preferred shares ( $ 125.0 million at mandatory redemption value ) in exchange for jefferies outstanding 3.25 % series a-1 cumulative convertible preferred stock . in addition , each restricted share of jefferies common stock and each restricted stock unit of jefferies common stock was converted at the exchange ratio into an award of restricted shares or restricted stock units of leucadia , with all such awards subject to the same terms and conditions , including , without limitation , vesting and , in the case of performance-based restricted stock units , performance being measured at existing targets . we did not assume or guarantee any of jefferies outstanding debt securities , but jefferies 3.875 % convertible senior debentures due 2029 ( $ 345.0 million principal amount outstanding ) now will convert into our common shares . as specified in the indenture governing such debentures , the debentures are not currently convertible ; if the debentures were currently convertible , the conversion price would be $ 45.51 per common share . the jefferies acquisition was accounted for using the acquisition method of accounting . the aggregate purchase price ( $ 4,770.6 million ) equaled the sum of the fair value of our common shares issued at closing , the fair value of employee stock based awards attributable to periods prior to closing , the fair value of the jefferies common stock owned by us and the redemption value of the new series of preferred shares issued at closing , which represents its fair value . the fair values of the jefferies common stock owned by us and the common shares and employee stock based awards issued were determined by using market prices at closing . jefferies has historically reported its statement of financial condition on an unclassified basis , while we have historically reported a classified statement of financial condition , with assets and liabilities separated between current and non-current . however , after giving consideration to the nature of jefferies business and its impact on our consolidated statement of financial condition , upon completion of the acquisition we believe it is preferable to report our consolidated statement of financial condition on an unclassified basis . accordingly , certain amounts for prior periods have been reclassified to be consistent with the 2013 presentation . we have also reclassified certain amounts on our consolidated statements of operations , resulting from the reduced significance of certain businesses , to reclassify amounts accounted for at fair value from income related to associated companies to principal transactions , and have revised the classification of income related to associated companies to show such amounts before income taxes . in addition , jefferies has a fiscal year ended november 30 th , which it will retain for standalone reporting purposes . accordingly , we reflect jefferies in our consolidated financial statements and throughout this report utilizing a one month lag . 27 corporate liquidity we are a holding company whose assets principally consist of the stock of direct subsidiaries , cash and cash equivalents and other non-controlling investments in debt and equity securities . we continuously evaluate the retention and disposition of our existing operations and investments and investigate possible acquisitions of new businesses in order to maximize shareholder value . accordingly , further acquisitions , divestitures , investments and changes in capital structure are possible . our principal sources of funds are available cash resources , liquid investments , public and private capital market transactions , repayment of subsidiary advances , funds distributed from subsidiaries as tax sharing payments , management and other fees , and borrowings and dividends from subsidiaries , as well as dispositions of existing businesses and investments . in addition to cash and cash equivalents , we consider investments classified as available for sale securities as being generally available to meet our liquidity needs . securities classified as available for sale securities are not as liquid as cash and cash equivalents , but they are generally easily convertible into cash within a relatively short period of time . story_separator_special_tag if converted , we would own approximately 53 % of linkem 's common equity . we and certain of our subsidiaries have federal income tax net operating loss carryforwards ( โ nols โ ) of approximately $ 3.4 billion at december 31 , 2013 and other tax attributes . the amount and availability of the nols and other tax attributes are subject to certain qualifications , limitations and uncertainties . in order to reduce the possibility that certain changes in ownership could impose limitations on the use of the nols , our certificate of incorporation contains provisions which generally restrict the ability of a person or entity from acquiring ownership ( including through attribution under the tax law ) of five percent or more of the common shares and the ability of persons or entities now owning five percent or more of the common shares from acquiring additional common shares . the restrictions will remain in effect until the earliest of ( a ) december 31 , 2024 , ( b ) the repeal of section 382 of the internal revenue code ( or any comparable successor provision ) or ( c ) the beginning of a taxable year to which certain tax benefits may no longer be carried forward . for more information about the nols and other tax attributes , see note 23 to our consolidated financial statements . in connection with presentations made to credit rating agencies with respect to the jefferies acquisition , we advised the agencies that we would target specific concentration , leverage and liquidity principles in the future , expressed in the form of certain ratios and percentages , although there is no legal requirement to do so . these thresholds and calculations of the actual ratios and percentages are detailed below at december 31 , 2013 ( dollars in thousands ) : 29 total equity $ 10,102,462 less , investment in jefferies ( 5,305,300 ) equity excluding jefferies 4,797,162 less , our two largest investments : national beef ( 793,656 ) premier entertainment ( 234,732 ) equity in a stressed scenario 3,768,774 less , net deferred tax asset excluding jefferies amount ( 1,285,160 ) equity in a stressed scenario less net deferred tax asset $ 2,483,614 balance sheet amounts : available liquidity , per above $ 3,061,103 parent company debt ( see note 18 to our consolidated financial statements ) $ 1,541,014 ratio of parent company debt to stressed equity : maximum .50 x actual , equity in a stressed scenario .41 x actual , equity in a stressed scenario excluding net deferred tax asset .62 x ratio of available liquidity to parent company debt : minimum 1.0 x actual 2.0 x in addition , management has indicated that our largest single investment will be not more than 20 % of equity excluding jefferies ( currently national beef ) , and that the next largest investment will be no more than 10 % of equity excluding jefferies , in each case measured at the time such investment was made . the ratio of parent company debt to stressed equity excluding the net deferred tax asset exceeded the maximum due to the senior notes sold in october 2013. however , as these notes were issued , in part , to provide funds for notes maturing over the next two years it is considered to be a temporary situation that will not impact our credit ratings . jefferies liquidity general the chief financial officer and global treasurer of jefferies are responsible for developing and implementing liquidity , funding and capital management strategies for the jefferies businesses . these policies are determined by the nature and needs of day to day business operations , business opportunities , regulatory obligations , and liquidity requirements . the actual levels of capital , total assets , and financial leverage are a function of a number of factors , including asset composition , business initiatives and opportunities , regulatory requirements and cost and availability of both long term and short term funding . jefferies has historically maintained a balance sheet consisting of a large portion of total assets in cash and liquid marketable securities , arising principally from traditional securities brokerage activity . the liquid nature of these assets provides flexibility in financing and managing jefferies business . a business unit level balance sheet and cash capital analysis is prepared and reviewed with senior management on a weekly basis . as a part of this balance sheet review process , capital is allocated to all assets and gross and adjusted balance sheet limits are established . this process ensures that the allocation of capital and costs of capital are incorporated into business decisions . the goals of this process are to protect the jefferies platform , enable the businesses to remain competitive , maintain the ability to manage capital proactively and hold businesses accountable for both balance sheet and capital usage . jefferies bache , llc ( jefferies u.s. futures commission merchant ) and jefferies bache limited ( jefferies u.k. commodities and financial futures broker-dealer ) , receive cash or securities as margin to secure customer futures trades . jefferies llc ( a u.s. broker-dealer ) , under sec rule 15c3-3 , and jefferies bache , llc , under cftc regulation 1.25 , are required to maintain customer cash or qualified securities in a segregated reserve account for the exclusive benefit of our clients . jefferies is required to conduct customer segregation calculations to ensure the appropriate amounts of funds are segregated and that no customer funds are used to finance firm activity . similar requirements exist with respect to jefferies u.k.-based activities conducted through jefferies bache limited and jefferies europe ( a u.k. broker-dealer ) . customer funds received are separately segregated and โ locked-up โ apart from jefferies funds . if jefferies rehypothecates customer securities , that activity is conducted only to finance customer activity . additionally , jefferies does not lend customer cash to counterparties to conduct securities financing activity ( i.e. , jefferies does not lend customer cash to reverse in securities ) .
| results of operations substantially all of our operating businesses sell products or services that are impacted by general economic conditions in the u.s. and to a lesser extent internationally . in recent years general economic conditions reduced the demand for products or services sold by our operating subsidiaries and or resulted in reduced pricing for products or services . the discussions below concerning revenue and profitability by segment consider current economic conditions and the impact such conditions have had and may continue to have on each segment ; however , should general economic conditions worsen we believe that all of our businesses would be adversely impacted . historically , our pre-tax operating results have not been predictable from period to period , principally as a result of significant gains or losses from strategic transactions that will not recur in future periods , or from investments that are accounted for under the fair value option . the income or loss recorded on these transactions or investments are typically reflected as part of the corporate segment , and as discussed below we had significant gains from certain investments during 2012 and one during 2013. jefferies results are being reflected since its acquisition on march 1 , 2013. the nature of jefferies business does not produce predictable or necessarily recurring earnings . we also are expensing all costs related to our investigation and evaluation of our energy industry projects , included in the other operations segment , and these costs increased during 2013 for a specific project nearing the end of its evaluation period . while our beef processing segment and manufacturing businesses ( part of our other operations segment ) tend to have more predictable or regular earnings , on a consolidated basis the results of these businesses are often less significant and apparent due to the impact of these other transactions and fair value accounting .
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effectiveness of our efforts to successfully manage transitions to new business models and markets , our expectations regarding the continued transition of our business model , our ability to increase our subscription base , expected market trends , including the growth of cloud , mobile , and social computing , the effect of unemployment and availability of credit , our expectations for our restructuring , the effects of mixed global economic conditions , the effects of revenue recognition , our backlog , expected trends in certain financial metrics , including expenses , the impact of acquisitions and investment activities , expectations regarding our cash needs , the effects of fluctuations in exchange rates and our hedging activities on our financial results , our ability to successfully expand adoption of our products , our ability to gain market acceptance of new businesses and sales initiatives , our ability to successfully increase sales of product suites as part of our overall sales strategy , the impact of economic volatility and geopolitical activities in certain countries , particularly emerging economy countries , and the effects of potential non-cash charges on our financial results and the resulting effect on our financial results . in addition , forward-looking statements also consist of statements involving expectations regarding product capability and acceptance , continuation of our stock repurchase program , remediations to our controls environment , statements regarding our liquidity and short-term and long-term cash requirements , as well as statements involving trend analyses and statements including such words as โ may , โ โ believe , โ โ could , โ โ anticipate , โ โ would , โ โ might , โ โ plan , โ โ expect , โ and similar expressions or the negative of these terms or other comparable terminology . these forward-looking statements speak only as of the date of this annual report on form 10-k and are subject to business and economic risks . as such , our actual results could differ materially from those set forth in the forward-looking statements as a result of the factors set forth above in item 1a , โ risk factors , โ and in our other reports filed with the u.s. securities and exchange commission . we assume no obligation to update the forward-looking statements to reflect events that occur or circumstances that exist after the date on which they were made , except as required by law . strategy autodesk 's vision is to help people imagine , design , and create a better world . we do this by developing software and services for the world 's designers , architects , engineers , digital artists , professionals , and non-professionals alikeโthe people who imagine , design , and create the world 's products , buildings , infrastructure , films , and games . autodesk serves professional customers in three primary markets : architecture , engineering , and construction ; manufacturing ; and digital media and entertainment . our goal is to provide our customers with the world 's most innovative , and engaging design software and services . our product and services portfolio allows our customers to digitally visualize , simulate , and analyze their projects , helping them to better understand the consequences of their design decisions ; save time , money , and resources ; and become more innovative . autodesk was founded during the platform transition from mainframes and engineering workstations to personal computers . we developed and sustained a compelling value proposition based upon desktop software for the personal computer . just as the transition from mainframes to personal computers transformed the industry over 30 years ago , we believe our industry is undergoing a similar transition from the personal computer to cloud , mobile , and social computing . to address this transition we have accelerated our move to the cloud and mobile devices and are offering more flexible licensing . for example , autodesk bim 360 , plm 360 , fusion 360 , and autocad360 pro , some of our cloud based offerings , provide tools , including mobile and social capabilities , to help streamline design , collaboration , and data management processes . we believe that customer adoption of these new offerings will continue to grow as customers across a range of industries begin to take advantage of the scalable computing power and flexibility provided through these new services . our strategy is to lead the industries we serve to cloud based technologies and business models . this entails both a technological shift and a business model shift . we now have term-based license offerings , including desktop subscriptions , for certain products and flexible enterprise offerings . these offerings are designed to give our customers even more flexibility with how they use our products and service offerings and to address new types of customers such as project-based users and small businesses . as part of this transition , we discontinued licensing upgrades effective march 6 , 2015 , discontinued selling new 2016 form 10-k 37 perpetual licenses of most individual software products effective february 1 , 2016 , and plan to discontinue selling new perpetual licenses of suites effective august 1 , 2016. with the discontinuation of the sale of most perpetual licenses , we are accelerating our transition away from selling a hybrid of perpetual licenses and term-based offerings toward a single subscription model . during the transition , billings , revenue , gross margin , operating margin , earnings ( loss ) per share , deferred revenue , and cash flow from operations will be impacted as more revenue is recognized ratably rather than up front and as new offerings bring a wider variety of price points . as we progress through the business model transition , billings and reported revenue will become less relevant to measure the success of the business as perpetual license sales are discontinued in favor of subscription offerings , which have considerably lower up-front prices . annualized recurring revenue ( `` arr '' ) and subscription additions will better reflect business momentum and provide additional transparency into the transition . story_separator_special_tag โ critical accounting policies and estimates our consolidated financial statements are prepared in conformity with u.s. generally accepted accounting principles . in preparing our consolidated financial statements , we make assumptions , judgments , and estimates that can have a significant impact on amounts reported in our consolidated financial statements . we base our assumptions , judgments , and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances . actual results could differ materially from these estimates under different assumptions or conditions . we regularly reevaluate our assumptions , judgments , and estimates . our significant accounting policies are described in note 1 , โ business and summary of significant accounting policies , โ in the notes to consolidated financial statements . we believe that of all our significant accounting policies , the following policies involve a higher degree of judgment and complexity . accordingly , these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations . revenue recognition . we recognize revenue when persuasive evidence of an arrangement exists , delivery has occurred or services have been rendered , the price is fixed or determinable , and collection is probable . however , determining whether and when some of these criteria have been satisfied often involves assumptions and judgments that can have a significant impact on the timing and amount of revenue we report . for multiple element arrangements containing only software and software-related elements , we allocate the sales price among each of the deliverables using the residual method , under which revenue is allocated to undelivered elements based on our vendor-specific objective evidence ( โ vsoe โ ) of fair value . vsoe is the price charged when an element is sold separately or a price set by management with the relevant authority . if we do not have vsoe of an undelivered software license , we defer revenue recognition on the entire sales arrangement until all elements for which we do not have vsoe are delivered . if we do not have vsoe for undelivered maintenance or services , the revenue for the arrangement is recognized over the longest contractual service period in the arrangement . we are required to exercise judgment in determining whether vsoe exists for each undelivered element based on whether our pricing for these elements is sufficiently consistent . for multiple elements arrangements involving non-software elements , including cloud subscription services , our revenue recognition policy is based upon the accounting guidance contained in asc 605 , revenue recognition . for these arrangements , we first allocate the total arrangement consideration based on the relative selling prices of the software group of elements as a whole and to the non-software elements . we then further allocate consideration within the software group to the respective elements within that group using the residual method as described above . we exercise judgment and use estimates in connection with the determination of the amount of revenue to be recognized in each accounting period . we allocate the total arrangement consideration among the various elements based on a selling price hierarchy . the selling price for a deliverable is based on its vsoe if available , third-party evidence ( `` tpe '' ) if vsoe is not available , or the best estimated selling price ( `` besp '' ) if neither vsoe nor tpe is available . besp represents the price at which autodesk would transact for the deliverable if it were sold regularly on a standalone basis . to establish besp for those elements for which neither vsoe nor tpe are available , we perform a quantitative analysis of pricing data points for historical standalone transactions involving such elements for a twelve-month period . as part of this analysis , we monitor and evaluate the besp against actual pricing to ensure that it continues to represent a reasonable estimate of the standalone selling price , considering several other external and internal factors including , but not limited to , pricing and discounting practices , contractually stated prices , the geographies in which we offer our products and services , and the type of customer ( i.e . distributor , value-added 2016 form 10-k 39 reseller , and direct end user , among others ) . we analyze besp at least annually or on a more frequent basis if a significant change in our business necessitates a more timely analysis or if we experience significant variances in our selling prices . in situations when we have multiple contracts with a single counterparty , we use the guidance in asc 985-605 to evaluate both the form and the substance of the arrangements to determine if they should be combined and accounted for as one arrangement or as separate arrangements . our assessment of the likelihood of collection is also a critical factor in determining the timing of revenue recognition . if we do not believe that collection is probable , the revenue will be deferred until the earlier of when collection is deemed probable or payment is received . our indirect channel model includes both a two-tiered distribution structure , where distributors sell to resellers , and a one-tiered structure where autodesk sells directly to resellers . our product license revenue from distributors and resellers are generally recognized at the time title to our product passes to the distributor , in a two-tiered structure , or reseller , in a one-tiered structure , provided all other criteria for revenue recognition are met . this policy is predicated on our ability to estimate sales returns , among other criteria . we are also required to evaluate whether our distributors and resellers have the ability to honor their commitment to make fixed or determinable payments , regardless of whether they collect payment from their customers . our policy also presumes that we have no significant performance obligations in connection with the sale of our product licenses by our distributors and resellers to their customers .
| results of operations replace_table_token_6_th fiscal 2016 net revenue compared to fiscal 2015 net revenue license and other revenue license and other revenue consists of two components : ( 1 ) all forms of product license revenue and ( 2 ) other revenue . product license revenue includes software license revenue from the sale of perpetual licenses , term-based licenses from our desktop subscription and enterprise offerings , and product revenue for creative finishing . other revenue includes revenue from consulting , training , autodesk developers network , and creative finishing customer support , and is recognized as the services are performed . 2016 form 10-k 47 total license and other revenue decreased 9 % during fiscal 2016 as compared to fiscal 2015 . this decrease was primarily due to an 11 % decrease in product license revenue as compared to the same period in the prior fiscal year . the decrease in product license revenue was primarily due to a 14 % decrease in revenue from our flagship products and a 12 % decrease in our suites revenue . product license revenue , as a percentage of license and other revenue , was 88 % and 89 % for fiscal 2016 and fiscal 2015 , respectively . during fiscal 2016 , the 11 % decrease in product license revenue was due to an 18 % decrease in the average net revenue per seat while the number of seats sold increased by 7 % compared to the prior fiscal year . starting in the first quarter of fiscal 2017 , and in connection with the discontinuation of sales of individual perpetual licenses , we will stop reporting changes in revenue attributable to average net revenue per seat and number of seats sold . we are replacing these disclosures with disclosure regarding changes in arps disclosed within overview above . arps is more relevant to determine whether changes in net revenues are attributable to increases in price or volume .
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included in the computation of such fees or commissions shall be the equipment acquisition fee and any commission , selection fee , construction supervision fee , financing fee , non-recurring management fee or any fee of a similar nature , however designated . โ adjusted capital contributions โ means capital contributions of the limited partners reduced by any cash distribution received by the limited partners pursuant to sections 4.1 or 8.1 of the partnership agreement , to the extent such distributions exceed any unpaid priority return as of the date such distributions were made . โ affiliate โ means , when used with reference to a specified person , ( i ) any person , that directly or indirectly through one or more intermediaries controls or is controlled by or is under common control with the specified person , ( ii ) any person that is a director or an executive officer of , partner in , or serves in a similar capacity to , the specified person , or any person of which the specified person is an executive officer or partner or with respect to which the specified person serves in a similar capacity , ( iii ) any person owning or controlling 10 % or more of the outstanding voting securities of such specified person , or ( iv ) if such person is an officer , director or partner , any entity for which such person acts in such capacity . โ capital account โ means the separate account established for each partner pursuant to section 4.1 of the partnership agreement . โ capital contributions โ means in the case of the general partner , the total amount of money contributed to the partnership by the general partner , and in the case of limited partners , $ 20 for each unit , or where the context requires , the total capital contributions of all the partners . โ cash available for distribution โ means cash flow plus net disposition proceeds plus cash funds available for distribution from partnership reserves , less such amounts as the general partner , in accordance with the partnership agreement , causes the partnership to reinvest in equipment or interests therein , and less such amounts as the general partner , in its sole discretion , determines should be set aside for the restoration or enhancement of partnership reserves . 32 โ cash flow โ for any fiscal period means the sum of ( i ) cash receipts from operations , including , but not limited to , rents or revenues arising from the leasing or operation of the equipment and interest , if any , earned on funds on deposit for the partnership , but story_separator_special_tag the following is a discussion of our current financial position and results of operations . this discussion should be read together with the partnership 's financial statements contained under item 8 of this annual report on form 10-k. this discussion should also be read in conjunction with the disclosures above regarding โ forward-looking statements. โ 15 introduction we were formed for the purpose of acquiring various types of business-essential technology equipment , including computer information technology , telecommunications , medical technology and other similar capital equipment . we offered for sale up to 2,500,000 units of the limited partnership at the purchase price of $ 20 per unit in a public offering that commenced on november 13 , 2009 ( the โ offering โ ) . we reached the minimum offering amount , broke escrow and commenced operations on march 31 , 2010. a total of 1,572,900 units were sold in the offering , for a total of approximately $ 31,432,000 in limited partner contributions . our management team consists of the officers of our corporate general partner , commonwealth income & growth fund , inc. we have utilized the net proceeds of our public offering to purchase equipment that is subject to leases with businesses throughout the united states . we have also utilized debt financing ( not in excess of 30 % of the aggregate cost of the equipment owned or subject to conditional sales contracts at the time the debt is incurred ) to purchase additional equipment . we acquire and lease equipment principally to u.s. corporations and other institutions pursuant to operating and finance leases . we retain the flexibility to enter into full payout net leases and conditional sales contracts , but have not done so . competitive outlook as discussed in โ competition โ in item 1 above , the commercial leasing and financing industry is highly competitive and is characterized by competitive factors that vary based upon product and geographic region . we compete primarily on the basis of pricing , terms and structure , particularly on structuring flexible , responsive , and customized financing solutions for our customers . our investments are often made directly rather than through competition in the open market . this approach limits the competition for our typical investment , which is intended to enhance returns . we believe our investment model will represent the best way for individual investors to participate in investing in business-essential equipment . nevertheless , to the extent that our competitors compete aggressively on any combination of the foregoing factors , our results could be adversely impacted . principal investment objectives our principal investment objectives are to : a ) acquire , lease and sell equipment to generate revenues from operations sufficient to provide annual cash distributions to our limited partners ; b ) preserve and protect limited partners ' capital ; c ) use a portion of cash flow and net disposition proceeds derived from the sale , refinancing or other disposition of equipment to purchase additional equipment ; and d ) refinance , sell or otherwise dispose of equipment in a manner that will maximize proceeds . story_separator_special_tag ancillary to the partnership 's principal equipment leasing business , the partnership also sells certain equipment and may offer certain services to support its customers . the partnership 's lease transactions are principally accounted for under topic 842 on january 1 , 2019. prior to topic 842 , the partnership accounted for these transactions under topic 840 , leases ( โ topic 840 โ ) . lease revenue includes revenue generated from leasing equipment to customers , including re-rent revenue , and is recognized as either on a straight line basis or using the effective interest method over the length of the lease contract , if such lease is either an operating lease or finance lease , respectively . the partnership 's sale of equipment along with certain services provided to customers is recognized under asc topic 606 , revenue from contracts with customers , ( โ topic 606 โ ) , which was adopted on january 1 , 2018. prior to adoption of topic 606 , the partnership recognized these transactions under asc topic 605 , revenue recognized , and ( โ topic 605 โ ) . the partnership recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer . the amount of revenue recognized reflects the consideration the partnership expects to be entitled to in exchange for such products or services . for the year ended december 31 , 2019 , the partnership 's lease portfolio consisted of operating leases and finance leases . for operating leases , lease revenue is recognized on a straight-line basis in accordance with the terms of the lease agreement . finance lease interest income is recorded over the term of the lease using the effective interest method . upon the end of the lease term , if the lessee has not met the return conditions as set out in the lease , the partnership is entitled in certain cases to additional compensation from the lessee . the partnership 's accounting policy for recording such payments is to treat them as revenue . gains or losses from sales of leased and off-lease equipment are recorded on a net basis in the partnership 's statement of operations . gains from the termination of leases are recognized when the lease is modified and terminated concurrently . our leases do not contain any step-rent provisions or escalation clauses nor are lease revenues adjusted based on any index . partnership 's accounting policy for sales and property taxes collected from the lessees are presented in the current period as gross revenues and expenses . long-lived assets depreciation on technology and inventory management equipment for financial statement purposes is based on the straight-line method estimated generally over useful lives of two to five years . once an asset comes off lease or is released , the partnership reassesses the useful life of an asset . the partnership evaluates its long-lived assets when events or circumstances indicate that the value of the asset may not be recoverable . the partnership determines whether impairment exists by estimating the undiscounted cash flows to be generated by each asset . if the estimated undiscounted cash flows are less than the carrying value of the asset then impairment exists . the amount of the impairment is determined based on the difference between the carrying value and the fair value . fair value is determined based on estimated discounted cash flows to be generated by the asset , third party appraisals or comparable sales of similar assets , as applicable , based on asset type . residual values are determined by management and are calculated using information from both internal and external sources , as well as other economic indicators . reimbursable expenses reimbursable expenses are comprised of both ongoing operational expenses and fees associated with the allocation of salaries and benefits , referred to as other lp expenses . reimbursable expenses , which are charged to the partnership by ccc in connection with the administration and operation of the partnership , are allocated to the partnership based upon several factors including , but not limited to , the number of investors , compliance issues , and the number of existing leases . for example , if a partnership has more investors than another program sponsored by ccc , then higher amounts of expenses related to investor services , including mailing and printing costs will be allocated to that partnership . also , while a partnership is in its offering stage , higher compliance costs are allocated to it than to a program not in its offering stage , as compliance resources are utilized to review incoming investor suitability and proper documentation . finally , lease related expenses , such as due diligence , correspondence , collection efforts and analysis and staff costs , increase as programs purchase more leases , and decrease as leases terminate and equipment is sold . all of these factors contribute to ccc 's determination as to the amount of expenses to allocate to the partnership or to other sponsored programs . ccc is not reimbursed for salary and benefit costs of control persons . for the partnership , all reimbursable items are expensed as they are incurred . lease income receivable lease income receivable includes current lease income receivable net of allowances for uncollectible amounts , if any . the partnership monitors lease income receivable to ensure timely and accurate payment by lessees . the partnership 's lease relations department is responsible for monitoring lease income receivable and , as necessary , resolving outstanding invoices . the partnership reviews a customer 's credit history before extending credit . when the analysis indicates that the probability of full collection is unlikely , the partnership may establish an allowance for uncollectible lease income receivable based upon the credit risk of specific customers , historical trends and other information .
| results from operations for the year ended december 31 , 2019 , we recognized revenue of approximately $ 2,281,000 , expenses of approximately $ 2,798,000 and other loss of approximately $ 184,000 , resulted in a net loss of approximately $ 701,000 . for the year ended december 31 , 2018 , we recognized revenue of approximately $ 2,548,000 , expenses of approximately $ 3,183,000 and other loss of approximately $ 122,000 , resulted in a net loss of approximately $ 757,000 . the reduction in net loss is primarily due to more leases were expiring than new leases acquiring as well as an overall reduction in expenses including but not limited to , depreciation and amortization expense , equipment management fees and legal fees , partially offset by a decline in overall revenue . the partnership had 68 active operating leases that generated lease revenue of approximately $ 2,006,000 for the year ended december 31 , 2019 and had 108 active operating leases that generated lease revenue of approximately $ 2,393,000 for the year ended december 31 , 2018. management expects to add new leases to the partnership 's portfolio throughout 2020 , primarily through debt refinancing . we expect increases in portfolio size to increase both aggregate lease income and depreciation expense as new equipment depreciates . the partnership is continuously monitoring its lessee concentration to potentially reduce the risk associated with a high concentration of activity in a few lessees . the partnership 's equipment portfolio consists of approximately 36 % high end servers , 29 % desk and lap tops , 11 % digital storage , 5 % multifunction centers , 13 % servers\other and 6 % inventory control systems\printers . the general partner continuously monitors and seeks to decrease the concentration of equipment by type to diversify the equipment portfolio and potentially reduce the overall risk to the investor .
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4.11 form of 5.09 % senior notes , series 2010-a , due december 15 , 2017 ( incorporated by reference to exhibit 4.2 to the company 's current report on form 8-k filed on october 8 , 2010 ( sec file no . 001-13455 ) ) . 4.12 form of 5.67 % senior notes , series 2010-b , due december 15 , 2020 ( incorporated by reference to exhibit 4.3 to the company 's current report on form 8-k filed on october 8 , 2010 ( sec file no . 001-13455 ) ) . 10.1 * * * 1990 stock option plan , as amended through january 5 , 2001 ( story_separator_special_tag the following discussion is intended to analyze major elements of our consolidated financial statements and provide insight into important areas of management 's focus . this section should be read in conjunction with the consolidated financial statements and the accompanying notes included elsewhere in this annual report . we have accounted for the discontinuance or disposal of certain businesses as discontinued operations and have adjusted prior period financial information to exclude these businesses from continuing operations . statements in the following discussion may include forward-looking statements . these forward-looking statements involve risks and uncertainties . see โ item 1a . risk factors , โ for additional discussion of these factors and risks . 32 business overview during the past two year period , a significant portion of the growth in the u.s. oil and gas industry activity has shifted from offshore operations to onshore . led by the dramatic increase in activity in unconventional shale reservoirs throughout the united states , domestic onshore rig counts have increased significantly during this period . this trend has coincided with the continuing impact from the 2010 macondo well accident in the u.s. gulf of mexico , which resulted in increased government regulation over offshore oil and gas operations . while the permitting delays affecting offshore drilling operations have been easing , offshore drilling activity levels in the gulf of mexico have been slow to recover and have only recently begun to trend toward pre-macondo levels . these industry trends have significantly impacted our businesses . as evidenced by the unprecedented activity and revenue levels of our production testing segment , our u.s. onshore businesses have capitalized on the increased demand for domestic services , particularly in the most significant shale reservoirs , including the haynesville , eagle ford , marcellus , and others . our fluids division segment has capitalized on the increased domestic onshore demand for its products and services , particularly water transfer and treatment services for fracturing operations . our compressco segment has also targeted these domestic growth regions for its compression-based production enhancement services . the continuing slow recovery of domestic offshore operations has affected our fluids and offshore services businesses , but activity levels are increasing . however , the significant drilling activity for onshore shale gas reservoirs during the past two years , along with other demand factors , has resulted in declining prices for natural gas , particularly during the last half of 2011 and early 2012. following the sale of substantially all of our maritech segment 's oil and gas producing properties during 2011 , the most significant direct impact on our revenues and operating cash flows resulting from decreased natural gas prices has been removed . however , the current low natural gas pricing environment , plus the continuing strength of crude oil prices , has resulted in a new trend by the industry toward oil drilling , which could once again impact certain of our businesses . the strong performance by our production testing and fluids segments contributed to our overall operating results for 2011. production testing segment revenues and profitability increased significantly compared to the prior year due to the increased domestic demand discussed above , although international activity increased as well . fluids division revenues and profitability also grew primarily due to increased domestic onshore product and service demand , although this segment also saw growth internationally . our offshore services segment reported increased revenues during 2011 despite a soft pricing environment in the u.s. gulf of mexico . the july 2011 purchase of a new heavy lift derrick barge enables the offshore services segment to have increased capacity to serve the sustained long-term demand for heavy lift services , which we anticipate will continue due to the increased government regulation of offshore well abandonment and platform decommissioning that was enacted during 2010. compressco also reported increased revenues primarily due to increased sales of compressor units compared to 2010. the compressco segment 's profitability was negatively impacted , however , by increased operating expenses during 2011 and by increased public company costs associated with compressco partners following its initial public offering during june 2011. increased corporate overhead costs were caused primarily by the recognized loss from liquidating our hedge derivative contracts , which we had used to hedge maritech 's production cash flows . maritech recognized significant gains on the sales of its oil and gas producing properties during 2011 , but generated a significant loss for the year due to excess decommissioning costs associated with its remaining well abandonment and decommissioning obligations . our strong balance sheet was further enhanced during 2011 , particularly as a result of the sale of maritech 's oil and gas producing properties as these sales generated approximately $ 181.4 million of cash , net of adjustments . this strategic disposition has also allowed us to focus our capital expenditure priorities on our core service businesses , including the purchase of the above mentioned heavy lift barge by our offshore services segment and to fund the capital needs of our growing production testing segment . despite the sale of the maritech properties , we continue to utilize a significant portion of our operating cash flows to extinguish maritech 's remaining decommissioning liabilities . we expended approximately $ 101.9 million on decommissioning work performed during 2011 , and a significant portion of the remaining decommissioning liability is anticipated to be extinguished during 2012. story_separator_special_tag offshore services generates revenues and cash flows by performing ( 1 ) downhole and subsea oil and gas services such as well plugging and abandonment , workover , and wireline services , ( 2 ) decommissioning and certain construction services , including utilizing heavy lift barges and various cutting technologies with regard to offshore oil and gas production platforms and pipelines , and ( 3 ) conventional and saturated air diving services . the services provided by the offshore services segment are marketed to offshore operators primarily in the u.s. gulf coast region . gulf of mexico platform decommissioning and well abandonment activity levels are driven primarily by bsee regulations ; the age of producing fields ; production platforms and other structures ; oil and natural gas commodity prices ; sales activity of mature oil and gas producing properties ; and overall oil and gas company activity levels . regulations enacted during 2010 by the boemre governing the timing of abandonment and decommissioning of nonproductive wells and unused offshore platforms are expected to increase the demand for the offshore services segment over the next several years . given the increased cost to insure offshore properties for windstorm damage coverage and to reduce the risk from future storms , some oil and gas operators , including maritech , are accelerating their plans to abandon and decommission their offshore wells and platforms . offshore services revenues increased by 4.8 % during 2011 compared to 2010 , primarily due to increased abandonment and decommissioning work performed . in july 2011 , the offshore services segment purchased a new 1,600-metric-ton heavy lift derrick barge , which we have named the tetra hedron . this vessel was placed into service during the fourth quarter of 2011 and significantly increases the offshore services segment 's heavy lift capacity to serve customers with heavier structures . the sales of almost all of maritech 's oil and gas producing properties during 2011 have essentially removed us from the oil and gas exploration and production business . during late 2010 , we elected to explore strategic alternatives to our ownership of maritech in order to conserve and reallocate capital to , and allow us to focus on , our remaining core businesses . as part of this strategic decision , beginning in february 2011 , maritech began selling oil and gas property packages to industry participants and other third parties . maritech is continuing to seek the sale of its remaining oil and gas producing properties during 2012. as a result of these sales of oil and gas properties , maritech 's revenues during 2011 decreased by 58.7 % compared to 2010 and are expected to be minimal going forward . maritech continues to perform a significant amount of plugging , abandonment , and decommissioning efforts on its remaining offshore wells , facilities and production platforms . critical accounting policies and estimates this discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements . we prepared these financial statements in conformity with united states generally accepted accounting principles . in preparing our consolidated financial statements , we make assumptions , estimates , and judgments that affect the amounts reported . we base these estimates on historical experience , available information , and various other assumptions that we believe are reasonable . we periodically evaluate these estimates and judgments , including those related to potential impairments of long-lived assets ( including goodwill ) , the collectability of accounts receivable , and the current cost of future abandonment and decommissioning obligations . โ note b โ summary of significant accounting policies โ to the consolidated financial statements contains the accounting policies governing each of these matters . the fair values of portions of our total assets and liabilities are measured using significant unobservable inputs . the combination of these factors forms the basis for our judgments made about the carrying values of assets and liabilities that are not readily apparent from other sources . these judgments and estimates may change as new events occur , as new information is acquired , and as changes in our operating environment are encountered . actual results are likely to differ from our current estimates , and those differences may be material . the following critical accounting policies reflect the most significant judgments and estimates used in the preparation of our financial statements . impairment of long-lived assets the determination of impairment of long-lived assets is conducted periodically whenever indicators of impairment are present . if such indicators are present , the determination of the amount of impairment is 35 based on our judgments as to the future operating cash flows to be generated from these assets throughout their estimated useful lives . if an impairment of a long-lived asset is warranted , we estimate the fair value of the asset based on a present value of these cash flows or the value that could be realized from disposing of the asset in a transaction between market participants . the oil and gas industry is cyclical , and our estimates of the amount of future cash flows , the period over which these estimated future cash flows will be generated , as well as the fair value of an impaired asset , are imprecise . our failure to accurately estimate these future operating cash flows or fair values could result in certain long-lived assets being overstated , which could result in impairment charges in periods subsequent to the time in which the impairment indicators were first present . alternatively , if our estimates of future operating cash flows or fair values are understated , impairments might be recognized unnecessarily or in excess of the appropriate amounts . although the majority of our impairments of long-lived assets have typically related to oil and gas properties , during 2010 we recorded other long-lived asset impairments of $ 25.1 million .
| results of operations the following data should be read in conjunction with the consolidated financial statements and the associated notes contained elsewhere in this report . 2011 compared to 2010 consolidated comparisons replace_table_token_9_th consolidated revenues during 2011 decreased compared to the prior year , as the decrease in maritech revenues resulting from sales of almost all of its oil and gas producing properties during the year more than offset the growth in revenues from each of our other segments . in particular , revenues from our production testing segment increased significantly due to increased domestic demand and higher activity in mexico . in addition , fluids segment revenues increased due to cbf sales activity in the regions we serve as well as increased calcium chloride sales activity , primarily domestically . our compressco segment reported increased revenues , due largely to increased sales of compressor units during the year , but also due to increased international and domestic demand for its compression based services . our offshore services segment also reported increased revenues due to increased well abandonment and decommissioning service activity during 2011 compared to the prior year . overall gross profit increased primarily due to higher profitability from our production testing and fluids segments , both of which reflect the increased demand for their domestic onshore products and services . our offshore services segment also reflected increased gross profit , primarily due to the impairment of one of its dive service vessels during 2010. consolidated general and administrative expenses increased during 2011 compared to the prior year due to approximately $ 6.9 million of increased salaries , benefits , and other employee-related costs , partially due to increased headcount . this increase was despite a $ 0.9 million decrease in equity-based compensation .
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story_separator_special_tag the following discussion and analysis of the company 's consolidated financial condition and results of operations should be read along with the consolidated financial statements and the accompanying notes thereto included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that involve numerous risks and uncertainties , including , but not limited to , those described in item 1a , โ risk factors โ and the โ cautionary statements โ section of this item 7 below . you should review item 1a โ risk factors โ 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 . cautionary statements this annual report on form 10-k and the portions of the company 's definitive proxy statement incorporated by reference in this annual report on form 10-k contain โ forward-looking statements. โ the words โ believe , โ โ expect , โ โ anticipate , โ โ intend , โ โ estimate , โ โ forecast , โ โ project , โ โ should , โ โ may , โ โ will , โ โ would โ or the negative thereof and similar expressions are intended to identify such forward-looking statements . these forward-looking statements may include statements about the impact of the covid-19 pandemic on the company 's operations and markets ; future period guidance or projections ; the company 's performance relative to its markets , including the drivers of such performance ; market and technology trends , including the duration and drivers of any growth trends and the impact of the covid-19 pandemic on such trends ; the development of new products and the success of their introductions ; the focus of the company 's engineering , research and development projects ; the company 's ability to execute on its business strategies , including with respect to the company 's expansion of its manufacturing presence in taiwan ; the company 's capital allocation strategy , which may be modified at any time for any reason , including share repurchases , dividends , debt repayments and potential acquisitions ; the impact of the acquisitions the company has made and commercial relationships the company has established ; future capital and other expenditures , including estimates thereof ; the company 's expected tax rate ; the impact , financial or otherwise , of any organizational changes ; the impact of accounting pronouncements ; quantitative and qualitative disclosures about market risk ; and other matters . these forward-looking statements are based on current management expectations and assumptions only as of the date of this annual report on form 10-k , are not guarantees of future performance and involve substantial risks and uncertainties that are difficult to predict and that could cause actual results to differ materially from the results expressed in , or implied by , these forward-looking statements . these risks and uncertainties include , but are not limited to , the risk factors and additional information described in this annual report on form 10-k under the caption โ risk factors , โ elsewhere in this annual report on form 10-k and in the company 's other periodic filings . except as required under the federal securities laws and the rules and regulations of the sec , the company undertakes no obligation to update publicly any forward-looking statements or information contained herein , which speak as of their respective dates . overview this overview is not a complete discussion of the company 's financial condition , changes in financial condition and results of operations ; it is intended merely to facilitate an understanding of the most salient aspects of its financial condition and operating performance and to provide a context for the detailed discussion and analysis that follows , and must be read in its entirety in order to fully understand the company 's financial condition and results of operations . the company is a leading supplier of advanced materials and process solutions for the semiconductor and other high-technology industries . our mission is to help our customers improve their productivity , performance and technology by providing solutions for the most advanced manufacturing environments . we leverage our unique breadth of capabilities to create mission-critical microcontamination control products , specialty chemicals and advanced materials handling solutions that maximize manufacturing yields , reduce manufacturing costs and enable higher device performance for our customers . our customized materials solutions enable the highest levels of performance essential to the manufacture of semiconductors . as our customers introduce more complex architectures and search for new materials with better electrical and structural properties to improve the performance of their devices , they rely on entegris as a trusted partner to address these challenges . we understand these challenges and have solutions to address them , such as our advanced deposition materials , implant gases , formulated cleaning chemistries and selective etch chemistries . our customers also require greater end-to-end materials purity and integrity in their manufacturing process that , when combined with smaller dimensions and more complex architectures , can be challenging to achieve . to enable the use of new metals and the further miniaturization of chips , and to maximize yield and increase long-term device reliability , we provide products such as our advanced liquid and gas filtration and purification products that help to selectively remove new classes of contaminants throughout the semiconductor supply chain . in addition , to ensure purity levels are maintained across the entire supply chain , from bulk manufacturing , to transportation to and delivery through a fab , to application onto the wafer , we provide high-purity packaging and materials handling products . our business is organized and operated in three operating segments , which align with the key elements of the advanced semiconductor manufacturing ecosystem . story_separator_special_tag while all of our facilities currently remain operational , these measures have impacted and may further impact our workforce and operations , as well as those of our customers , suppliers and other third parties with which we do business . for example , in march 2020 the government of malaysia issued an order that significantly reduced the number of employees who could be physically present to operate our malaysian plant , which temporarily reduced the productivity of that plant . the government of malaysia issued a similar order restricting movement throughout that country in january 2021 , which has not impacted our operations as of the date of this filing but may do so in the future . our malaysian plant is operating at full capacity as of the date of this filing . in addition to reduced productivity , constraints and limits imposed on our operations may slow or diminish our research and development and customer qualification activities . during 2020 , we experienced brief interruptions in operations at our sites in hangzhou , china , san luis obispo , california and bedford , massachusetts and so far during 2021 we have experienced minor interruptions in operations at our site in san luis obispo , california and a brief construction delay to an expansion of our facility in toronto , canada . while governmental measures may be modified , extended or reimposed , we expect that , absent a significant surge in infections in the relevant local area or within our workforce or those of our suppliers , our manufacturing and research and development facilities will remain operational , largely at or near full capacity . in connection with the covid-19 pandemic , we have experienced limited absenteeism from employees who are required to be on-site to perform their jobs . we do not currently expect that our operations will be materially adversely affected by significant absenteeism . in addition , we have incurred incremental employee compensation related to the covid-19 pandemic . for example , since april 2020 , we have awarded certain of our employees who are required to physically report to a manufacturing facility in order to perform their jobs during the covid-19 crisis with a special appreciation bonus for their efforts in sustaining our production continuity . supply we have not yet experienced any significant impacts or interruptions to our supply chain as a result of the covid-19 pandemic . however , certain of our suppliers have faced difficulties maintaining operations in light of government-ordered restrictions , shelter-in-place mandates and outbreaks of infection within their workforces . as the pandemic continues , our suppliers may face challenges in maintaining their level of supply as a result of these or other factors . for example , as a result of the covid-19 pandemic , during the first half of 2020 , one of our critical valve suppliers was shut down and was unable to supply us with valves for certain of our gas purification products . in this instance we were able to procure this critical part from a second , pre-qualified source . although we regularly monitor the financial health of companies in our supply chain , financial hardship on our suppliers or sub-suppliers caused by the covid-19 pandemic could cause a disruption in our ability to obtain raw materials or components required to manufacture our products and thus require us to increase our safety stocks of certain raw materials or components , adversely affecting our operations . to mitigate the risk of potential supply interruptions from the covid-19 pandemic , during 2020 and into 2021 , we chose to increase certain inventory levels , causing us to hold more inventory than we might have otherwise maintained . we may decide to take similar actions going forward , which may result in increased charges for excess or obsolete inventory , which would have the effect of reducing our profitability . additionally , restrictions or disruptions of transportation , such as reduced availability of air transport , port closures and increased border controls or closures , have resulted , in certain instances , in higher costs and delays , both on obtaining materials and shipping finished goods to customers . if these restrictions and disruptions continue , they could harm our profitability , make our products less competitive or cause our customers to seek alternative suppliers . demand the covid-19 pandemic has significantly increased economic and demand uncertainty . during 2020 , we saw strong demand from leading-edge customers associated with end-uses in servers and other data center applications . we believe that a portion of the orders that we received in 2020 may have been a result of customers increasing their inventory to reduce their exposure to risks of future supply disruptions , which could offset demand for our products in the future . we anticipate that the pandemic will continue to contribute to the current global economic slowdown , and it is possible that it could cause a global recession . in the event of a recession , demand for our products would decline and our business would be adversely affected . liquidity although there is uncertainty related to the anticipated impact of the covid-19 pandemic on our future results , we believe our business model , our current cash reserves and our balance sheet leave us well-positioned to manage our business through this crisis as we expect it to unfold . we have taken recent steps to strengthen our balance sheet . on april 30 , 2020 , we issued $ 400 million aggregate principal amount of 4.375 % senior unsecured notes due april 15 , 2028. we used a portion of the net proceeds of the offering to repay approximately $ 142 million of borrowings under our senior secured revolving facility due 2023 , or the revolving facility , representing the entire aggregate principal amount outstanding thereunder . we also used a portion of the net proceeds of the offering to repay approximately $ 251 million of outstanding borrowings under our senior secured term loan facility , or the term loan facility .
| results of operations year ended december 31 , 2020 compared to year ended december 31 , 2019 the following table sets forth the results of operations and the relationship between various components of operations , stated as a percent of net sales , for 2020 and 2019. replace_table_token_3_th net sales for 2020 , net sales were $ 1,859.3 million , up $ 268.2 million , or 17 % , from sales for 2019. an analysis of the factors underlying the increase in net sales is presented in the following table : ( in thousands ) net sales in 2019 $ 1,591,066 increase associated with volume , pricing and mix 217,106 increase associated with acquired businesses 43,092 increase associated with effect of foreign currency translation 8,049 net sales in 2020 $ 1,859,313 38 the company 's net sales reflected an increase in overall demand for the company 's products from semiconductor industry customers , particularly in the sale of liquid filtration , advanced deposition materials and other areas of increasing importance to our customers . total net sales also reflected net sales associated with acquisitions of $ 43.1 million favorable foreign currency translation effects of $ 8.0 million , mainly due to the strengthening of the japanese yen and taiwanese dollar relative to the u.s. dollar . sales percentage on a geographic basis for 2020 and 2019 and the percentage increase ( decrease ) in sales for 2020 compared to sales for 2019 were as follows : replace_table_token_4_th the increase in sales for north america and taiwan was primarily driven by a general increase in demand for products in all three of the company 's segments . the increase in sales from south korea relates to higher sales of advanced materials handling products of 10 % and specialty chemicals and engineered materials products of 5 % . the increase in sales from japan relates to higher sales of microcontamination control products of 10 % and specialty chemicals and engineered materials products of 8 % .
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in addition , the company issued an aggregate of 83,333 shares of common stock to a related party as an introduction fee for the investment . as of the balance sheet date , no warrants have been exercised . ( b ) in february 2010 , the company issued an aggregate of 399,999 shares of common stock to three investors ( 133,333 to each investor ) and warrants to purchase an aggregate of 199,998 shares of common stock ( 66,666 to each investor ) with an exercise price of $ 7.50 per share for aggregate proceeds of $ 1,500 ( $ 500 from each investor ) . 65 brainstorm cell therapeutics inc. and subsidiaries u.s. dollars in thousands ( except share data and exercise prices ) notes to consolidated financial statements note 8 - stock capital ( cont . ) : b. issuance of shares , warrants and options : ( cont . ) : 1. private placements and public offering : ( cont . ) : ( c ) on july 17 , 2012 , the company raised $ 5,700 in gross proceeds through a public offering ( โ 2012 public offering โ ) of its common stock . the company issued a total of 1,321,265 shares of common stock , ( $ 4.35 per share ) and 990,949 warrants to purchase 0.75 shares of common stock for every share purchased in the 2012 public offering , at an exercise price of $ 4.35 per share . the warrants are exercisable until the 30 month anniversary of the date of issuance . after deducting closing costs and fees , the company received net proceeds of approximately $ 4,900 . the company paid to the placement agency , maxim group llc ( the โ placement agent โ ) , a cash fee and a corporate finance fee equal to 7 % of the gross proceeds of the 2012 public offering . in addition , the company issued to the placement agent a two year warrant to purchase up to 32,931 shares of common stock ( equal to 3 % of the number of shares sold in the 2012 public offering ) , with an exercise price equal to $ 5.22 ( 120 % of the 2012 public offering price ) . the warrants are exercisable until the 30 month anniversary of the date of issuance . in addition , the company issued to leader underwriters ( 1993 ) ltd , warrants to purchase 15,517 shares of common stock , at an exercise price of $ 4.35 per share . the warrants are exercisable until the 30 month anniversary of the date of issuance . ( d ) on february 4 , 2013 , the company issued 8,408 shares of common stock to an investor , according to a settlement agreement , for the correction of the conversion rate of a $ 200 convertible loan . the convertible loan was issued in 2006 and converted in 2010 . ( e ) on february 7 , 2013 , the company issued 55,556 units to a private investor for total proceeds of $ 250 . each unit consisted of one share of common stock and a warrant to purchase one share of common stock at $ 7.50 per share exercisable for 32 months . ( f ) on august 16 , 2013 , the company raised $ 4,000 ( gross ) through a registered public offering ( โ 2013 public offering โ ) of its common stock . the company issued a total of 1,568,628 shares of common stock , ( $ 2.55 per share ) and 1,176,471 warrants ( the โ 2013 warrants โ ) to purchase 0.75 shares of common stock for every share purchased in the 2013 public offering , at an exercise price of $ 3.75 per share . the warrants are exercisable until the 36 month anniversary of the date of issuance . the warrants also include , subject to certain exceptions , full ratchet anti-dilution protection in the event of the issuance of any common stock , securities convertible into common stock , or certain other issuances at a price below the then-current exercise price of the warrants , which would result in an adjustment to the exercise price of the warrants . in the event of a sale of the company , each holder of warrants has the right , exercisable at its option , to require the company to purchase such holder 's warrants at a price determined using a black-scholes option pricing model as described in the warrants . after deducting closing costs and fees , the company received net proceeds of approximately $ 3.3 million . in accordance with the provisions of asc 815 ( formerly fas 133 ) the proceeds related to the warrants at the amount of $ 829 were recorded to liabilities at the fair value of such warrants as of the date of issuance , and the proceeds related to common stock of 2,496 were recorded to equity . 66 brainstorm cell therapeutics inc. and subsidiaries u.s. dollars in thousands ( except share data and exercise prices ) notes to consolidated financial statements note 8 - stock capital ( cont . ) : b. issuance of shares , warrants and options : ( cont . ) : 1. private placements and public offering : ( cont . ) : on april 25 , 2014 , the company entered into agreements with certain holders of warrants originally issued in the company 's august 16 , 2013 public offering ( the โ 2013 warrants โ ) to exchange outstanding 2013 warrants entitling the holders to purchase an aggregate of 777,471 shares of company common stock for an aggregate of 388,735unregistered shares of common stock . story_separator_special_tag after the exchange , the 2013 warrants were cancelled and of no further force and effect . on story_separator_special_tag company overview we are a biotechnology company developing novel adult stem cell therapies for debilitating neurodegenerative disorders such as als , ms , and pd among others . these diseases for the most part have no or limited treatment options and as such represent unmet medical needs . we believe that nurownยฎ , our proprietary process for the propagation of msc and their differentiation into neurotrophic factor-secreting cells , and their transplantation at , or near , the site of damage , offers the hope of more effectively treating neurodegenerative diseases . our core technology was developed in collaboration with prof. eldad melamed , former head of neurology of the rabin medical center and member of the scientific committee of the michael j. fox foundation for parkinson 's research and prof. daniel offen of the felsenstein medical research center of tel aviv university . our wholly-owned israeli subsidiary holds rights to commercialize the technology , through a licensing agreement with ramot . we currently employ 16 employees in israel and 2 in the united states . 42 story_separator_special_tag the progress of clinical trials conducted in gmp facilities in hadassah and the u.s. clinical trial , and ( ii ) an increase in payroll costs , and ( iii ) an increase in stock-based compensation expenses . this increase was partially offset by an increase in ocs grants . the weighted average number of shares of common stock used in computing basic and diluted net loss per share for the year ended december 31 , 2014 was $ 13,662,758 , compared to $ 10,738,131 for the year ended december 31 , 2013. the increase in the weighted average number of shares of common stock used in computing basic loss per share for the year ended december 31 , 2014 was due to : ( i ) the issuance of shares of common stock in a private placement in june 2014 , as described in more detail below and in a public offering in august 2013 , ( ii ) the exercise of options and warrants , and ( iii ) the issuance of shares to service providers . liquidity and capital resources we have financed our operations since inception primarily through public and private sales of our common stock and warrants and the issuance of convertible promissory notes . as of december 31 , 2014 , we had $ 9,578,000 in total current assets and $ 3,113,000 in total current liabilities . 44 net cash used in operating activities was $ 4,487,000 for the year ended december 31 , 2014. cash used for operating activities in the year ended december 31 , 2014 was primarily attributed to cost of clinical trials , rent of clean rooms and materials for clinical trials , payroll costs , rent , outside legal fee expenses and public relations expenses . net cash used in investing activities was $ 4,450,000 for the year ended december 31 , 2014. net cash provided by financing activities was $ 9,685,000 for the year ended december 31 , 2014 and is primarily attributable to the 2014 private placement , as discussed below . on june 13 , 2014 , we entered into a securities purchase agreement with a group of investors , including several healthcare-focused funds ( the โ investors โ ) to effect a private placement ( the โ 2014 private placement โ ) of the company 's common stock and warrants to purchase common stock . on june 19 , 2014 , upon the closing of the 2014 private placement , we received gross proceeds of $ 10.5 million , resulting from the issuance and sale of 2.8 million shares of common stock at a price per share of $ 3.75 , a 15 % discount to the 30 day volume-weighted average price of $ 4.41. the investors also received warrants to purchase up to 2.8 million shares of common stock at an exercise price of $ 5.22 per share ( the โ 2014 warrants โ ) . the 2014 warrants were exercisable immediately upon closing of the 2014 private placement and have a term of three ( 3 ) years . on january 8 , 2015 , the company signed an agreement according to which the company issued 2.5 million shares of common stock , pursuant to the exercise of the 2014 warrants for consideration of $ 13.3 million dollars . in addition , the company granted new warrants to the warrant holders to purchase up to an aggregate of approximately 3.8 million unregistered shares of common stock at an exercise price of $ 6.50. maxim group llc ( โ maxim โ ) acted as solicitation agent for the exercise of the 2014 warrants on january 8 , 2015 , for a cash fee equal to 6.0 % of the exercise proceeds , as well as fees and expenses of maxim of $ 20,000. in addition , the company will issue maxim a warrant to purchase up to approximately 38,000 shares of common stock ( equal to 1.5 % of the exercised 2014 warrants ) upon substantially the same terms as the new warrants . our material cash needs for the next 12 months will include payments of ( i ) costs of the clinical trial in the u.s. , ( ii ) employee salaries , ( iii ) payments expected for the upcoming multi-dose clinical trial , ( iv ) $ 31,250 per month to hadassah for rent and operation of the gmp facilities , and ( v ) fees to our consultants and legal advisors , patents , and fees for facilities to be used in our research and development . future operations are expected to be highly capital intensive and will require substantial capital raisings . we expect that the net proceeds of the 2014 private placement and the proceeds from exercise of warrants on
| results of operations for the period from inception ( september 22 , 2000 ) until december 31 , 2014 , the company did not generate any revenues from operations . the company does not expect to earn revenues from operations until at least 2018 , if ever . in addition , the company incurred operating costs and expenses of approximately $ 7,419,000 during the year ended december 31 , 2014. research and development , net our business model calls for significant investments in research and development . our research and development expenditures ( i ) in 2014 ( before participation by the ocs ) were $ 6,116,000 , which included $ 69,000 in stock-based compensation and ( ii ) in 2013 ( before participation by the ocs ) were $ 4,030,000 , which included $ 51,000 in stock-based compensation . research and development expenses , net for the year ended december 31 , 2014 and 2013 were $ 4,772,000 and $ 2,917,000 , respectively . in addition , our grant from the ocs increased by $ 231,000 to $ 1,344,000 for the year ended december 31 , 2014 from $ 1,113,000 for the year ended december 31 , 2013. the increase in research and development expenses is primarily due to ( i ) an increase of $ 2,877,000 to $ 3,854,000 for the year ended december 31 , 2014 , from $ 977,000 for the year ended december 31 , 2013 for costs of activities related to commencement of the u.s. clinical trial including ind submission , fees to prc clinical and fda consultant , purchase and validation of cleanroom equipment at dfci and mayo clinic , adaptation of cleanroom facility at dfci , and on-site technology transfer training to dfci cleanroom personnel ; and ( ii ) an increase in stock-based compensation expenses of $ 18,000 in the year ended december 31 , 2014 to $ 69,000 , compared to $ 51,000 for the year ended december 31 , 2013. this increase was offset by : ( i ) a decrease of $ 538,000 in
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the deferred amounts are included as a direct deduction from the carrying amount of each debt issue in mortgage bonds , notes , and other and junior subordinated debentures on dte energy 's consolidated statements of financial position and in mortgage bonds , notes , and other on dte electric 's consolidated statements of financial position . in accordance with mpsc regulations applicable to dte energy 's electric and gas utilities , the story_separator_special_tag the following combined discussion is separately filed by dte energy and dte electric . however , dte electric does not make any representations as to information related solely to dte energy or the subsidiaries of dte energy other than itself . executive overview dte energy is a diversified energy company with 2016 operating revenues of approximately $ 10.6 billion and total assets of approximately $ 32.0 billion . dte energy is the parent company of dte electric and dte gas , regulated electric and natural gas utilities engaged primarily in the business of providing electricity and natural gas sales , distribution , and storage services throughout michigan . dte energy operates three energy-related non-utility segments with operations throughout the united states . 27 the following table summarizes dte energy 's financial results : replace_table_token_14_th the increase in 2016 net income attributable to dte energy company is primarily due to higher earnings in the electric and power and industrial projects segments . the decrease in 2015 net income attributable to dte energy company is primarily due to lower earnings in the energy trading and power and industrial projects segments . please see detailed explanations of segment performance in the following `` results of operations '' section . dte energy 's strategy is to achieve long-term earnings growth , a strong balance sheet , and an attractive dividend yield . dte energy 's utilities are investing capital to improve customer reliability through investments in base infrastructure and new generation , and to comply with environmental requirements . dte energy expects that planned significant capital investments will result in earnings growth . dte energy is focused on executing plans to achieve operational excellence and customer satisfaction with a focus on customer affordability . dte energy operates in a constructive regulatory environment and has solid relationships with its regulators . dte energy has significant investments in non-utility businesses . dte energy employs disciplined investment criteria when assessing growth opportunities that leverage its assets , skills , and expertise , and provides diversity in earnings and geography . specifically , dte energy invests in targeted energy markets with attractive competitive dynamics where meaningful scale is in alignment with its risk profile . dte energy expects growth opportunities in the gas storage and pipelines and power and industrial projects segments . a key priority for dte energy is to maintain a strong balance sheet which facilitates access to capital markets and reasonably priced short-term and long-term financing . near-term growth will be funded through internally generated cash flows and the issuance of debt and equity . dte energy has an enterprise risk management program that , among other things , is designed to monitor and manage exposure to earnings and cash flow volatility related to commodity price changes , interest rates , and counterparty credit risk . energy legislation on december 21 , 2016 , the governor of michigan signed michigan senate bills 437-438 into law . senate bills 437-438 set out to address michigan 's electric supply reliability , protect retail open access , support the transition to cleaner energy , and ensure the cost competitiveness of michigan 's infrastructure transformation . the legislation will be effective on april 20 , 2017 , and involves a number of regulatory proceedings and processes that will be implemented over a period of years . the following are key provisions of the law : retail open access provisions โ the legislation maintains the current 10 % availability for retail access and continues the queue for utility customers who wish to switch from utility service to retail access . current retail access customers have the right to expand their energy usage at existing facilities beyond the 10 % cap . the bill also provides the potential for periodic downward adjustments to the 10 % cap where the mpsc determines that retail open access load dropped below the 10 % cap . cap reductions would go into effect in the year of the mpsc determination and for 5 years thereafter . the cap may return to 10 % if not adjusted for 6 consecutive calendar years . resource adequacy requirements and establishment of a capacity charge โ the mpsc will implement a process to address adequacy of electric supply , that will consider a variety of mechanisms , including capacity forward auctions , a prevailing state compensation mechanism , a state reliability mechanism and a state capacity charge . the process is designed to require timely demonstration that sufficient capacity will be secured for all customers to facilitate resource adequacy . 28 integrated resource planning process ( irp ) and certificate of necessity ( con ) โ utilities are required to file an irp no later than 2 years after the effective date of the act to plan for a range of cost factors , including fuel costs , demand forecasts , resource adequacy , competitive pricing , environmental regulations , and transmission options before constructing major projects . the irp , a comprehensive planning process , will be coordinated with the current con process . new base load generation facilities with 225mw of capacity or higher must use the con process . the voluntary threshold for use of the con process will be reduced from $ 500 million to $ 100 million . regulatory reform โ the legislation requires the mpsc to review its policies on a regular basis for qualifying facilities under the public utilities regulatory policies act ( purpa ) . the current twelve-month deadline for the mpsc to complete a base rate case will be reduced to 10 months after a rate filing . story_separator_special_tag the carbon standards for new sources are not expected to have a material impact on dte electric , since dte electric has no plans to build new coal-fired generation and any potential new gas generation will be able to comply with the standards . in february 2016 , the u.s. supreme court granted petitioners ' requests for a stay of the carbon rules for existing egus ( also known as the epa clean power plan ) pending final review by the courts . the clean power plan has no legal effect while the stay is in place . it is not possible to determine the potential impact of the epa clean power plan on existing sources at this time . pending or future legislation or other regulatory actions could have a material impact on dte electric 's operations and financial position and the rates charged to its customers . impacts include expenditures for environmental equipment beyond what is currently planned , financing costs related to additional capital expenditures , the purchase of emission credits from market sources , higher costs of purchased power , and the retirement of facilities where control equipment is not economical . dte electric would seek to recover these incremental costs through increased rates charged to its utility customers , as authorized by the mpsc . increased costs for energy produced from traditional coal-based sources due to recent , pending , and future regulatory initiatives , could also increase the economic viability of energy produced from renewable , natural gas-fired generation , and or nuclear sources , energy efficiency initiatives , and the potential development of market-based trading of carbon instruments which could provide new business opportunities for dte energy 's utility and non-utility segments . at the present time , it is not possible to quantify the financial impacts of these climate related regulatory initiatives on the registrants or their customers . see items 1. and 2. business and properties and note 18 to the consolidated financial statements in item 8 of this report , `` commitments and contingencies , '' for further discussion of environmental matters . 30 outlook the next few years will be a period of rapid change for dte energy and for the energy industry . dte energy 's strong utility base , combined with its integrated non-utility operations , position it well for long-term growth . looking forward , dte energy will focus on several areas that are expected to improve future performance : electric and gas customer satisfaction ; electric distribution system reliability ; new electric generation ; gas distribution system renewal ; rate competitiveness and affordability ; regulatory stability and investment recovery for the electric and gas utilities ; employee safety and engagement ; cost structure optimization across all business segments ; cash , capital , and liquidity to maintain or improve financial strength ; and investments that integrate assets and leverage skills and expertise . dte energy will continue to pursue opportunities to grow its businesses in a disciplined manner if it can secure opportunities that meet its strategic , financial , and risk criteria . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > in 2016 was primarily due to decreased uncollectible expenses of $ 14 million and decreased transmission expenses of $ 8 million . the decreased uncollectible expenses and transmission expenses in 2016 were primarily the result of weather-related impacts of warmer weather in 2016. additionally , dte gas took actions to reduce costs to partially offset the negative impacts to revenue and gross margin resulting from the warmer weather in 2016. the decrease in 2015 was primarily due to decreased gas operations expenses of $ 12 million , decreased employee benefits expenses of $ 10 million , decreased transmission expenses of $ 3 million , and decreased uncollectible expenses of $ 3 million . other ( income ) and deductions increased $ 20 million in 2016 and decreased $ 27 million in 2015 . the increase in 2016 was primarily due to contributions to the dte energy foundation and other not-for-profit organizations . the decrease in 2015 was primarily due to the 2014 contributions to the dte energy foundation and other not-for-profit organizations . outlook โ dte gas will continue to move forward in its efforts to achieve operational excellence , sustained strong cash flows , and earn its authorized return on equity . dte gas expects that planned significant infrastructure capital investments will result in earnings growth . looking forward , additional factors may impact earnings such as weather , the outcome of regulatory proceedings , benefit plan design changes , and investment returns and changes in discount rate assumptions in benefit plans and health care costs . dte gas expects to continue its efforts to improve productivity and decrease costs while improving customer satisfaction with consideration of customer rate affordability . dte gas filed a rate case with the mpsc on december 18 , 2015 , requesting an increase in base rates of $ 183 million , inclusive of $ 41 million of existing irm surcharges which are expected to be converted into base rates , based on a projected twelve-month period ending october 31 , 2017. concurrent with the mpsc order in this rate case , the existing irm surcharge being billed was to be terminated . dte gas requested to implement a new irm surcharge of approximately $ 9 million to become effective in january 2017. on november 1 , 2016 , dte gas self-implemented a base rate increase of $ 103 million . on december 9 , 2016 , the mpsc issued an order approving an annual revenue increase of $ 122 million for service rendered on or after december 16 , 2016. the rate order also provided for a return on equity of 10.1 % and authorized dte gas to implement a new irm surcharge of approximately $ 8 million that became effective in january 2017. gas storage and pipelines the gas storage and pipelines segment consists of the non-utility gas pipelines and storage businesses .
| results of operations the following sections provide a detailed discussion of the operating performance and future outlook of dte energy 's segments . segment information , described below , includes intercompany revenues and expenses , and other income and deductions that are eliminated in the consolidated financial statements . replace_table_token_15_th electric the management 's narrative analysis of results of operations discussion for dte electric is presented in a reduced disclosure format in accordance with general instruction i ( 2 ) ( a ) of form 10-k for wholly-owned subsidiaries . 31 the electric segment consists principally of dte electric . results for electric segment with a reconciliation to dte electric are discussed below : replace_table_token_16_th see dte electric 's consolidated statements of operations in item 8 of this report for a complete view of its results . gross margin increased $ 365 million in 2016 and decreased $ 250 million in 2015 . revenues associated with certain mechanisms and surcharges are offset by related expenses elsewhere in the registrants ' consolidated statements of operations . the following table details changes in various gross margin components relative to the comparable prior period : replace_table_token_17_th 32 replace_table_token_18_th ( a ) represents power that is not distributed by dte electric . ( b ) represents deliveries for self generators that have purchased power from alternative energy suppliers to supplement their power requirements . dte electric residential and commercial sales increased in 2016 due primarily to favorable weather . industrial sales increased due to a customer settlement adjustment in 2015. operation and maintenance expense increased $ 111 million in 2016 and increased $ 12 million in 2015 .
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in addition , as of december 31 , 2011 , usec has finalized and submitted to doe the billable incurred costs for contract work for the six months ended december 31 , 2002 and story_separator_special_tag the following discussion should be read in conjunction with , and is qualified in its entirety by reference to , the consolidated financial statements and related notes appearing elsewhere in this report . usec , a global energy company , is a leading supplier of low enriched uranium ( โ leu โ ) for commercial nuclear power plants . leu is a critical component in the production of nuclear fuel for reactors to produce electricity . we : ยท supply leu to both domestic and international utilities for use in about 150 nuclear reactors worldwide ; ยท enrich uranium at the paducah gaseous diffusion plant ( โ gdp โ ) that we lease from the u.s. department of energy ( โ doe โ ) ; ยท are the exclusive executive agent for the u.s. government under a nuclear nonproliferation program with russia , known as megatons to megawatts ; ยท are working to deploy what we believe is the world 's most advanced uranium enrichment technology , known as the american centrifuge ; ยท provide transportation and storage systems for spent nuclear fuel and provide nuclear and energy consulting services ; and ยท perform limited contract work for doe and its contractors at the paducah and portsmouth sites . leu consists of two components : separative work units ( โ swu โ ) and uranium . swu is a standard unit of measurement that represents the effort required to transform a given amount of natural uranium into two components : enriched uranium having a higher percentage of u 235 and depleted uranium having a lower percentage of u 235 . the swu contained in leu is calculated using an industry standard formula based on the physics of enrichment . the amount of enrichment deemed to be contained in leu under this formula is commonly referred to as its swu component and the quantity of natural uranium used in the production of leu under this formula is referred to as its uranium component . we currently produce or acquire leu from two principal sources . we produce about half of our supply of leu at the paducah gdp in paducah , kentucky , and we acquire the other portion under a contract with russia ( the โ russian contract โ ) under the megatons to megawatts program . under the russian contract , we purchase the swu component of leu derived from dismantled nuclear weapons from the former soviet union for use as fuel in commercial nuclear power plants . our business is in a state of significant transition . managing this transition has been made more challenging by the events of 2011. in march 2011 , an earthquake , tsunami and its aftermath caused irreparable damage to four reactors in japan and subsequently resulted in more than 50 reactors in japan and germany being off-line at the start of 2012. the shutdown of these reactors has affected supply and demand for leu and this impact could grow more significant over time depending on the length and severity of delays or cancellations of deliveries . in particular , based on current market conditions , we do not see any significant uncommitted demand for leu over the next two to four years . during 2011 , we also experienced further delays in our efforts to finance a next generation uranium enrichment plant , the american centrifuge project . as described below , we have significant decisions to make in 2012 regarding major aspects of our business . we also must continue to manage events that occur that are outside of our control , including actions that may be taken by vendors , customers and other third parties in response to our decisions or based on their view of our financial strength and future business prospects . events that unfold in 2012 will define our business into the future . for a discussion of the potential risks and uncertainties facing our business , see item 1a , risk factors . 77 during 2011 we completed the transition of our portsmouth contract services business . in september 2011 we transitioned facilities at the former portsmouth gaseous diffusion plant that we were maintaining for doe to the doe decontamination and decommissioning ( โ d & d โ ) contractor for the site . this was work we had been doing since the portsmouth gdp ceased enrichment operations in 2001 and represented the bulk of our contract services work . going forward , revenue from this segment will be substantially lower and will be derived primarily from our wholly owned subsidiary , nac international . we believe nac is well positioned to participate in the growing spent fuel market worldwide . . in early 2012 , we expect to make an important decision regarding the continued operation of the paducah gdp , which could result in our ceasing , for at least a period of time , to commercially enrich uranium . although we are working hard to identify a way to keep this plant open , we do not currently believe the factors are in place to support continued operation . in order to continue to operate beyond may 2012 , we will need a combination of additional demand for leu , an agreement with doe for programs such as enriching a portion of doe 's depleted uranium ( โ tails โ ) stockpile , and an acceptable power supply arrangement to support the plant production needed to operate the plant in an economic manner . we have viewed continued paducah operations as a bridge to our ultimate deployment of the american centrifuge technology , and a decision to shut down the paducah gdp before we have established a definitive timeline for future deployment of the american centrifuge plant could significantly impact our competitive position . story_separator_special_tag nuclear outlook we believe the economic fundamentals for building additional u.s.-based uranium enrichment capacity are still in place : the successful megatons to megawatts program will come to an end in 2013 ; the gaseous diffusion plants operating in the united states and france will likely be closed in the near term ; and new reactors are being built to meet growing demand for electricity . western uranium enrichers have been entering into contract terms of a decade or longer with utility customers , assuring that uranium enrichment capacity expansion is tied directly to existing reactors or ones under construction . however , all of our competitors are owned or controlled , in whole or in part , by foreign governments . these competitors may make business decisions in both domestic and international markets that are influenced by political or economic policy considerations rather than exclusively by commercial considerations . 79 balanced against this positive outlook is a slower growth forecast for electric power demand due to worldwide recessionary conditions and lower prices for alternative fuels , specifically natural gas in the united states , which is at its lowest price levels in a decade due to new supplies . this could slow the need for new base load nuclear power capacity . in addition , cost estimates for building new reactors have increased substantially over the last several years . nonetheless , population growth , increasing per capita demand for electric power , particularly in emerging markets , and government actions to reduce carbon emissions provide a strong foundation for a strengthening in demand for nuclear fuel . our competitors are building new or expanded facilities in the united states and their home countries . urenco is expanding its european capacity and is increasing capacity of its gas centrifuge enrichment plant in new mexico , although it has not yet shipped product from that facility . areva , the french-government owned enricher , has commenced commercial operations of a centrifuge plant in france that it is building to replace its gaseous diffusion plant . areva also received a construction and operating license from the nrc in 2011 for a centrifuge enrichment plant in idaho , but subsequently announced a delay in starting construction due to a need to reduce capital spending under a new strategic plan . furthermore , under this strategic plan , areva has suspended any planned capacity expansions for georges besse ii plant located in france beyond 7.5 million swu . russia has the largest enrichment capacity and plans to expand that capacity . rosatom/tenex also uses centrifuge technology . although the announced enrichment capacity additions by the world 's four major uranium enrichers are not sufficient to meet the expected demand for leu by 2030 , centrifuge enrichment technology used by the industry is modular and can be expanded to meet emerging demand . in addition , china is emerging as a growing producer of low enriched uranium and has begun to supply a limited foreign market . russian supply transition the 20-year russian contract implementing the megatons to megawatts program is expected to be completed in 2013. after that time , the limited quotas imposed under terms of a treaty and law will increase so that russia will be able to sell leu directly into the united states equal to approximately 20 % of the u.s. demand , or about 3 million swu per year , from 2014 through 2020 , with additional quantities eligible to be imported for use in the initial fueling of new u.s. reactors . on march 23 , 2011 , usec signed an agreement with tenex for the 10-year supply of russian leu , which became effective in december 2011. unlike the megatons to megawatts program , the quantities supplied under the new agreement will come from russia 's commercial enrichment activities rather than from downblending of excess russian weapons material . under the terms of the new agreement , the supply of leu to usec will begin in 2013 and increase until it reaches a level in 2015 that includes a quantity of swu equal to approximately one-half the level currently supplied by tenex to usec under the megatons to megawatts program . beginning in 2015 , tenex and usec also may mutually agree to increase the purchases and sales of swu by certain additional optional quantities of swu up to an amount equal to the amount usec now purchases each year under the megatons to megawatts program . the leu that usec obtains from tenex under the new agreement will be subject to quotas and other restrictions applicable to commercial russian leu that do not apply to leu supplied to usec under the megatons to megawatts program , which could adversely affect our ability to sell the commercial russian leu that we purchase under the new agreement . deliveries under the new supply agreement are expected to continue through 2022. usec will purchase the swu component of the leu and deliver natural uranium to tenex for the leu 's uranium component . the pricing terms for swu under the agreement are based on a mix of market-related price points and other factors . 80 the new supply agreement provides usec continued access to an important part of its existing supply mix . as we continue to work towards building an american centrifuge plant , we continue to review structuring options and strategic alternatives to realize long-term shareholder value . in that context , usec and tenex have agreed to conduct a feasibility study to explore the possible deployment of an enrichment plant in the united states employing russian centrifuge technology . any decision to proceed with such a project would depend on the results of the feasibility study and would be subject to further agreement between the parties and their respective governments .
| results of operations we have two reportable segments measured and presented through the gross profit line of our income statement : the low enriched uranium ( โ leu โ ) segment with two components , separative work units ( โ swu โ ) and uranium , and the contract services segment . the leu segment is our primary business focus and includes sales of the swu component of leu , sales of both swu and uranium components of leu , and sales of uranium . the contract services segment includes work performed for doe and its contractors at portsmouth and paducah as well as nuclear energy services and technologies provided by nac . intersegment sales between our reportable segments were less than $ 0.1 million in each year presented below and have been eliminated in consolidation . 2011 compared to 2010 replace_table_token_9_th revenue the volume of swu sold declined 15 % in 2011 compared to 2010 reflecting the variability in timing of utility customer orders . the average price billed to customers for sales of swu increased 3 % reflecting the particular contracts under which swu were sold during the periods as well as the general trend of higher prices under contracts signed in recent years . the volume of uranium sold declined 53 % in 2011 compared to 2010 and the average price increased 20 % . sales volumes reflect the timing of customer orders and average prices reflect the particular price mix of contracts under which uranium was sold .
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please see โ business , โ โ disclosure regarding forwardโlooking statements โ and โ risk factors โ elsewhere in this form 10โk . you should read this discussion in conjunction with the financial statements and notes thereto included elsewhere in this form 10โk . unless the context requires otherwise , all references in this item 7 to the โ company , โ โ we , โ โ us โ or โ our โ refer to dawson geophysical company and its consolidated subsidiaries . overview we are a leading provider of north american onshore seismic data acquisition services with operations throughout the continental u.s. and canada . substantially all of our revenues are derived from the seismic data acquisition services we provide to our clients , mainly oil and natural gas companies of all sizes . our clients consist of major oil and gas companies , independent oil and gas operators , and providers of multi-client data libraries . demand for our services depends upon the level of spending by these companies for exploration , production , development and field management activities , which depends , in a large part , on oil and natural gas prices . significant fluctuations in domestic oil and natural gas exploration activities and commodity prices , as we have recently experienced , have affected , and will continue to affect , demand for our services and our results of operations , and such fluctuations continue to be the single most important factor affecting our business and results of operations . during the fourth quarter of 2018 , we operated a peak of four crews in the u.s. and a peak of three crews in canada with varying utilization of the active crews during the quarter in both areas of operation . the fourth quarter in the u.s. historically has been challenging due to shorter work days and the holiday season . based on currently available information , we anticipate operating up to a peak of five crews in the u.s. and up to a peak of four crews in canada in the first quarter of 2019 , with varying utilization of the active crews during the quarter in both areas of operation . the winter season in canada concludes at the end of the first quarter of 2019 with no further seismic activities anticipated thereafter and until the next winter season . in addition , we anticipate that we will conduct one microseismic project in the u.s. during the first quarter of 2019. based on currently available information , we anticipate operating up to a peak of four crews in the u.s. with varying utilization during the second quarter of 201 9. despite the challenging fourth quarter market conditions , for the twelve month period ending december 31 , 2018 , while revenues remained consistent with 2017 levels , we delivered a 140 % increase in ebitda and a significant reduction in net loss compared to the twelve month period ended december 31 , 2017. our ongoing emphasis on cost reduction and enhanced efficiencies contributed to these improvements . while our twelve month results improved compared to the twelve month period ended december 31 , 2017 , market conditions continue to remain challenging in both the u.s. and canada . the increase in demand we anticipated for the second half of 2018 did not materialize as oil prices softened , and the canadian market was unfavorably impacted by the large differential between canadian oil prices and west texas intermediate ( โ wti โ ) prices . in the permian and delaware basins , takeaway capacity constraints resulted in a pricing differential to wti throughout the year , further reducing effective oil prices . many industry professionals believe the permian and delaware pricing differential will further ease as additional takeaway capacity is added in 2019 and 2020. that said , we are encouraged by an emerging trend related to areas of activity by exploration and production companies and multi-client data companies . for much of 2018 , seismic projects in the u.s. have been concentrated in the permian and delaware basins with little activity occurring outside of those basins . in recent months , we have seen a slight increase in interest in projects located outside of the permian and delaware basins . we have recently bid projects in the niobrara and powder river , scoop/stack , eagle ford , and austin chalk basins . while our revenues are mainly affected by the level of client demand for our services , our revenues are also affected by the pricing for our services that we negotiate with our clients and the productivity and utilization level of our data acquisition crews . factors impacting productivity and utilization levels include client demand , commodity prices , whether we enter into turnkey or dayrate contracts with our clients , the number and size of crews , the number of recording channels per crew , crew downtime related to inclement weather , delays in acquiring land access permits , agricultural or 20 hunting activity , holiday schedules , short winter days , crew repositioning and equipment failure . to the extent we experience these factors , our operating results may be affected from quarter to quarter . consequently , our efforts to negotiate more favorable contract terms in our supplemental service agreements , mitigate permit access delays and improve overall crew productivity may contribute to growth in our revenues . the majority of our revenues were derived from turnkey contracts for the years ending december 31 , 2018 and 2017. while turnkey contracts allow us to capitalize on improved crew productivity , we also bear more risks related to weather and crew downtime . we expect the majority of our contracts to be turnkey as we continue our operations in the mid-continent , western and southwestern regions of the u.s. in which turnkey contracts are more common . over time , we have experienced continued increases in recording channel capacity on a per-crew or project basis and high utilization of cable-less and multicomponent equipment . story_separator_special_tag the following table shows our sources and uses of cash ( in thousands ) for the years ended december 31 , 2018 , 2017 and 2016 : replace_table_token_5_th year ended december 31 , 2018 versus year ended december 31 , 2017 ( as adjusted ) net cash provided by operating activities was $ 12,871,000 for the year ended december 31 , 2018 compared to cash used in operating activities of $ 6,703,000 for the same period in 2017. cash reductions were primarily due to a decrease in our net loss and a decrease in our operating level of accounts receivable as of december 31 , 2018. net cash used in investing activities was $ 8,596,000 for the year ended december 31 , 2018 and includes $ 6,000,000 of proceeds from maturities of short-term investments that were not reinvested offset by cash capital expenditures of $ 15,745,000. net cash provided by investing activities was $ 16,788,000 for the year ended december 31 , 2017 and included $ 23,667,000 of proceeds from maturities of short-term investments that were not reinvested offset by cash capital expenditures of $ 8,675,000. cash provided by investing activities for the year ended december 31 , 2017 was aided by $ 1,325,000 of proceeds from disposal of assets . net cash provided by financing activities was $ 2,517,000 for the year ended december 31 , 2018 and includes proceeds from notes payable used to purchase seismic data acquisition equipment of $ 6,518,000 offset by principal payments of $ 1,180,000 on our notes , payments of $ 2,699,000 under our capital leases , and outflows of $ 121,000 associated with taxes related to stock vesting . net cash used in financing activities was $ 3,420,000 for the year ended december 31 , 2017 and included principal payments of $ 2,186,000 on our notes , payments of $ 1,076,000 under our capital leases , and outflows of $ 158,000 associated with taxes related to stock vesting . year ended december 31 , 2017 ( as adjusted ) versus year ended december 31 , 2016 ( as adjusted ) net cash used in operating activities was $ 6,703,000 for the year ended december 31 , 2017 compared to cash provided by operating activities of $ 8,742,000 for the same period in 2016. cash reductions were primarily due to an increase in our operating level of accounts receivable as of december 31 , 2017. net cash provided by investing activities was $ 16,788,000 for the year ended december 31 , 2017 and includes $ 23,667,000 of proceeds from maturities of short-term investments that were not reinvested offset by cash capital expenditures of $ 8,675,000. the increase in cash provided by investing activities was aided by $ 1,325,000 of proceeds from disposal of assets . net cash used in investing activities was $ 22,729,000 for the year ended december 31 , 2016 and included $ 19,250,000 of cash reserves that were invested and cash capital expenditures of $ 8,251,000. these increases in cash used in investing activities were offset by $ 1,922,000 of proceeds from disposal of assets and $ 2,850,000 of proceeds on flood insurance claims . net cash used in financing activities was $ 3,420,000 for the year ended december 31 , 2017 and includes principal payments of $ 2,186,000 on our notes , payments of $ 1,076,000 under our capital leases , and outflows of $ 158,000 associated with taxes related to stock vesting . net cash used in financing activities was $ 8,483,000 for the year ended december 31 , 2016 and included principal payments of $ 7,554,000 on our notes , payments of $ 780,000 under our capital leases , and outflows of $ 149,000 associated with taxes related to stock vesting . we continually strive to supply our clients with technologically advanced 3-d data acquisition recording services and data processing capabilities . we maintain equipment in and out of service in anticipation of increased future demand for our services . 24 capital resources . historically , we have primarily relied on cash generated from operations , cash reserves and borrowings from commercial banks to fund our working capital requirements and , to some extent , our capital expenditures . recently , we have funded some of our capital expenditures through capital leases and equipment term loans . from time to time in the past , we have also funded our capital expenditures and other financing needs through public equity offerings . indebtedness . on june 30 , 2015 , we entered into an amendment to our credit agreement with our lender veritex bank ( as amended from time to time , the โ credit agreement โ ) for the purpose of renewing , extending and increasing our line of credit under such agreement . the credit agreement was renewed on june 30 , 2018. credit agreement . our credit agreement with veritex bank includes term loan and revolving loan features , and also allows for the issuance of letters of credit and other promissory notes . we can borrow up to a maximum of $ 20.0 million pursuant to the credit agreement , subject to the terms and limitations discussed below . the credit agreement provides for a revolving loan feature ( the โ line of credit โ ) , that permits us to borrow , repay and re-borrow , from time to time until june 30 , 2019 , up to the lesser of ( i ) $ 20.0 million or ( ii ) a sum equal to ( a ) 80 % of our eligible accounts receivable ( less the outstanding principal balance of term loans and letters of credit under the credit agreement ) and ( b ) the lesser of ( i ) 50 % of the value of certain of our core equipment or ( ii ) $ 12,500,000. we have not utilized the line of credit since its inception .
| results of operations year ended december 31 , 2018 versus year ended december 31 , 2017 ( as adjusted ) operating revenues . operating revenues for the year ended december 31 , 2018 were $ 154,156,000 compared to $ 156,532,000 for the same period of 2017. the comparable revenue totals for the years ended december 31 , 2018 and 2017 was a result of similar crew utilization rates over those periods . operating expenses . operating expenses for the year ended december 31 , 2018 decreased to $ 132,937,000 compared to $ 139,072,000 for the same period of 2017. the decrease in operating expenses was mainly due to decreased reimbursable charges for the year ended december 31 , 2018 compared to the same period in 2017. general and administrative expenses . general and administrative expenses were 10.6 % of revenues in the year ended december 31 , 2018 compared to 10.3 % of revenues in the same period of 2017. general and administrative expenses increased to $ 16,287,000 during the year ended december 31 , 2018 from $ 16,189,000 during the same period of 2017 . 21 the primary factor for general and administrative expenses remaining flat year to year is the result of multiple years of initiatives to control administrative costs required to support our operations . depreciation expense . depreciation for the year ended december 31 , 2018 totaled $ 29,959,000 compared to $ 39,235,000 for the same period of 2017. the decrease in depreciation expense is a result of limiting capital expenditures to necessary maintenance capital requirements in recent years . our depreciation expense is expected to remain flat during 2019 primarily due to limited capital expenditures to maintain our existing asset base .
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62 generac holdings inc. notes to consolidated financial statements years ended december 31 , 2011 , 2010 , and 2009 2. significant accounting policies ( continued ) the company 's product offerings story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with โ item 6 - selected financial data โ and the consolidated financial statements and the related notes included 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 28 overview we are a leading designer and manufacturer of a wide range of generators and other engine powered products for the residential , light commercial , industrial and commercial markets . 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 the united states and canada . we design , manufacture , source and modify engines , alternators , automatic transfer switches and other components necessary for our products . our generators and other products are fueled by natural gas , liquid propane , gasoline , diesel and bi-fuel and are available through a broad network of independent dealers , retailers and wholesalers and equipment rental companies . business drivers and measures in operating our business and monitoring its performance , we pay attention to a number of industry trends , performance measures and operational factors . the statements in this section are based on our current expectations . industry trends our performance is affected by the demand for reliable power solutions by our customer base . this demand is influenced by several important trends affecting our industry , including the following : increasing penetration opportunity . although there have been recent increases in product costs for installed standby generators in the residential and light-commercial markets ( driven in the last two years by raw material costs ) , these costs have declined overall over the last decade , and many potential customers are not aware of the costs and benefits of backup power solutions . we estimate that penetration rates for residential products are approximately 2.5 % 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 2009 american housing survey for the united states , and penetration rates of many light-commercial outlets such as restaurants , drug stores , and gas stations are significantly lower than penetration of hospitals and industrial locations . we believe that 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 . impact of residential investment cycle . the market for residential generators is affected by the residential investment cycle and overall consumer sentiment . when homeowners are confident of their household income or net worth , they are more likely to invest in their home . these trends can have a material impact on demand for residential generators . effect of large scale power disruptions . power disruptions are an important driver of consumer awareness and have historically influenced demand for generators . disruptions in the aging u.s. power grid and other outage activity increase 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 for standby generators . while there are power outages every year across all regions of the country , major outage activity is unpredictable by nature and , as a result , our sales levels and profitability may fluctuate from period to period . impact of business capital investment cycle . the market for commercial and industrial stationary and mobile generators and other power equipment is affected by the capital investment cycle and overall non-residential construction and durable goods spending , as businesses either add new locations or make investments to upgrade existing locations or equipment . these trends can have a material impact on demand for these products . the capital investment cycle may differ for the various industrial and commercial end markets that we serve ( industrial , telecommunications , distribution , retail , health care facilities , construction , energy and municipal infrastructure , among others ) . the market for these products is also affected by general economic conditions , credit availability and trends in durable goods spending by businesses . 29 operational factors we are subject to various factors that can affect our results of operations , which we attempt to mitigate through factors we can control , including continued product development , expanded distribution , pricing and cost control . the operational factors that affect our business include the following : new product start-up costs . when we launch new products , we generally experience an increase in start-up costs , including engineering expenses , expediting costs , testing expenses , marketing expenses and warranty costs , resulting in lower gross margins after the initial launch of a new product . margins on new product introductions generally increase over the life of the product as these start-up costs decline and we focus our engineering efforts on product cost reduction . effect of commodity , currency and component price fluctuations . industry-wide price fluctuations of key commodities , such as steel , copper and aluminum and other components we use in our products , together with foreign currency fluctuations , can have a material impact on our results of operations . story_separator_special_tag consequently , we recorded a gain on extinguishment of debt of $ 18.8 million , which includes the write-off of deferred financing fees and other closing costs , in the consolidated statement of operations for the year ended december 31 , 2007. during 2008 , affiliates of ccmp acquired $ 148.9 million principal amount of second lien term loans for approximately $ 81.1 million . ccmp 's affiliates exchanged $ 24.0 million principal amount of this debt for additional shares of class b common stock and $ 124.9 million principal amount of this debt for shares of our series a preferred stock . the fair value of the shares of our class b common stock and series a preferred stock so exchanged was $ 18.2 million and $ 62.9 million , respectively . we recorded this transaction as series a preferred stock of $ 62.9 million and class b common stock of $ 18.2 million based on the fair value of the debt contributed by ccmp 's affiliates , which approximated the fair value of shares exchanged . the debt was held in treasury at face value . consequently , we recorded a gain on extinguishment of debt of $ 65.4 million , which includes the write-off of deferred financing fees and other closing costs , in the consolidated statement of operations for the year ended december 31 , 2008. as of september 30 , 2008 , we failed to satisfy the leverage ratio in our senior secured credit facilities . as permitted by the credit agreement , in november , 2008 , this violation was remedied by an equity contribution of $ 15,500,000 from affiliates of ccmp , in exchange for 1,550 shares of series a preferred stock . during 2009 , affiliates of ccmp acquired $ 9.9 million principal amount of first lien term loans and $ 20.0 million principal amount of second lien term loans for approximately $ 14.8 million . ccmp 's affiliates exchanged this debt for 1,475.4596 shares of series a preferred stock . the fair value of the shares exchanged was $ 14.8 million . we recorded this transaction as additional series a preferred stock of $ 14.8 million based on the fair value of the debt contributed by ccmp 's affiliates , which approximated the fair value of shares exchanged . the debt was held in treasury at face value . consequently , we recorded a gain on extinguishment of debt of $ 14.7 million , which includes a write-off of deferred financing fees and other closing costs , in the consolidated statement of operations for the year ended december 31 , 2009. in connection with such issuances of our class b common stock to affiliates of ccmp in connection with debt exchanges in 2007 and 2008 and the satisfaction of preemptive rights under the shareholders ' agreement that arose from such issuances , affiliates of ccmp sold some of the shares of our class b common stock they were issued in connection with such debt exchanges to an entity affiliated with ccmp , certain other investors and certain members of our management and board of directors . in addition , in connection with such issuances of our series a preferred stock to affiliates and ccmp in connection with debt exchanges in 2008 and 2009 and the satisfaction of preemptive rights under the shareholders ' agreement that arose from such issuances , during the year ended december 31 , 2009 , we issued 2,000 shares of series a preferred stock for an aggregate purchase price of $ 20.0 million in cash to an entity affiliated with ccmp and certain members of management and our board of directors , and affiliates of ccmp sold some of the shares of series a preferred stock they were previously issued in connection with such debt exchanges to an entity affiliated with ccmp and a member of the board of directors at the same price . corporate reorganization our capitalization prior to the initial public offering consisted of series a preferred stock , class b common stock and class a common stock . our series a preferred stock was entitled to a priority return preference equal to a 14 % annual return on the amount originally paid for such shares and equity participation equal to 24.3 % of the remaining equity value of the company . our class b common stock was entitled to a priority return preference equal to a 10 % annual return on the amount originally paid for such shares . in connection with the initial public offering , we undertook a corporate reorganization which gave effect to the conversion of our series a preferred stock and class b common stock into the same class of our common stock that was sold in our initial public offering while taking into account the rights and preference of those shares , including the priority returns of our series a preferred stock and our class b common stock and the equity participation rights of the series a preferred stock . a reverse stock split was needed to reduce the number of shares to be issued to holders of our class a and class b common stock to the number that correctly reflected the proportionate interest of such stockholders in our company , taking into account the number of shares of common stock to be issued upon the conversion of our series a preferred stock and the number and value of shares of common stock to be issued and sold to new investors in the initial public offering . we refer to these transactions as the โ corporate reorganization.
| results of operations year ended december 31 , 2011 compared to year ended december 31 , 2010 the following table sets forth our consolidated statement of operations data for the periods indicated : replace_table_token_8_th replace_table_token_9_th net sales . net sales increased $ 199.1 million , or 33.6 % , to $ 792.0 million for the year ended december 31 , 2011 from $ 592.9 million for the year ended december 31 , 2010. this increase was driven by a $ 118.2 million , or a 31.7 % , increase in residential product sales largely driven by demand created by the major power outages in the third and fourth quarters of 2011. the frequency and duration of these major outages in certain regions of the country led to a surge in demand for portable generators as well as increased awareness and accelerated adoption of home standby generators . commercial and industrial product sales increased $ 66.7 million , or 36.3 % . magnum products contributed $ 36.5 million during the fourth quarter of 2011. in addition , overall capital spending from our national account customers and strong demand for our large industrial systems also contributed to increased commercial and industrial sales . other product sales increased $ 14.1 million mainly due to stronger service parts sales as a result of the major power outage events during the second half of 2011. magnum products also contributed $ 2.3 million to service parts sales during the fourth quarter of 2011 . 35 costs of goods sold . costs of goods sold increased $ 141.8 million , or 39.9 % , to $ 497.3 million for the year ended december 31 , 2011 from $ 355.5 million for the year ended december 31 , 2010. this increase was mainly driven by the increase in sales volume and the addition of magnum products during the fourth quarter . gross profit .
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not necessarily indicative of trends in operating results for any future period . unless otherwise noted herein , all amounts are in thousands , except per share numbers . overview and management focus our strategy and management focus is based upon the following long-term objectives organic and acquisitive growth within all our segments ; sales growth in adjacent markets ; sales growth through acquisitions ; and global expansion of our manufacturing base to better address the global requirements of our customers . management generally focuses on these trends and relevant market indicators global industrial growth and economics ; global automotive production rates ; costs subject to the global inflationary environment , including , but not limited to : raw material ; wages and benefits , including health care costs ; regulatory compliance ; and energy ; trends related to the geographic migration of competitive manufacturing ; regulatory environment for united states public companies and manufacturing companies ; currency and exchange rate movements and trends ; and interest rate levels and expectations . management generally focuses on the following key indicators of operating performance sales growth ; cost of products sold ; selling , general and administrative expense ; earnings before interest , taxes , depreciation and amortization ; income from operations and adjusted income from operations ; net income and adjusted net income ; cash flow from operations and capital spending ; customer service reliability ; external and internal quality indicators ; and employee development . 23 critical accounting policies our significant accounting policies , including the assumptions and judgment underlying them , are disclosed in note 1 of the notes to consolidated financial statements . these policies have been consistently applied in all material respects and address such matters as revenue recognition , inventory valuation and asset impairment recognition . due to the estimation processes involved , management considers the following summarized accounting policies and their application to be critical to understanding our business operations , financial condition and results of operations . we can not assure you that actual results will not significantly differ from the estimates used in these critical accounting policies . business combinations . we allocate the total purchase price of the acquired tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the business combination date , with the excess purchase price recorded as goodwill . the purchase price allocation process required us to use significant estimates and assumptions , including fair value estimates , as of the business combination date . although we believe the assumptions and estimates we have made are reasonable and appropriate , they are based in part on historical experience and information obtained from management of the acquired company , in part based on valuation models that incorporate projections of expected future cash flows and operating plans and are inherently uncertain . valuations are performed by management or third party valuation specialists under management 's supervision . in determining the fair value of assets acquired and liabilities assumed in business combinations , as appropriate , we may use one of the following recognized valuation methods : the income approach ( including discounted cash flows from relief from royalty and excess earnings model ) , the market approach and or the replacement cost approach . examples of significant estimates used to value certain intangible assets acquired include but are not limited to : sales volume , pricing and future cash flows of the business overall ; future expected cash flows from customer relationships , and other identifiable intangible assets , including future price levels , rates of increase in revenue and appropriate attrition rate ; the acquired company 's brand and competitive position , royalty rate quantum , as well as assumptions about the period of time the acquired brand will continue to benefit to the combined company 's product portfolio ; and cost of capital , risk-adjusted discount rates and income tax rates . however , different assumptions regarding projected performance and other factors associated with the acquired assets may affect the amount recorded under each type of assets and liabilities , mainly between property plant and equipment , intangibles assets , goodwill and deferred income tax liabilities and subsequent assessment could result in future impairment charges . the purchase price allocation process also entails us to refine these estimates over a measurement period not to exceed one year to reflect new information obtained surrounding facts and circumstances existing at acquisition date . goodwill and acquired intangibles . for new acquisitions , we use estimates , assumptions and appraisals to allocate the purchase price to the assets acquired and to determine the amount of goodwill . these estimates are based on market analyses and comparisons to similar assets . annual procedures are required to be performed to assess whether recorded goodwill is impaired . the annual tests require management to make estimates and assumptions with regard to the future operations of its reporting units , and the expected cash flows that they will generate . these estimates and assumptions could impact the recorded value of assets acquired in a business combination , including goodwill , and whether or not there is any subsequent impairment of the recorded goodwill and the amount of such impairment . goodwill is tested for impairment on an annual basis as of october 1 and between annual tests if a triggering event occurs . the impairment procedures are performed at the reporting unit level . in testing goodwill , we have the option to first assess qualitative factors to determine whether it is necessary to perform a two-step test . if an entity believes , as a result of its qualitative assessment , that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount including goodwill , the quantitative impairment test is required . otherwise , no further testing is required . story_separator_special_tag first , our intention to invest in foreign countries that are strategically important to our precision bearing components group , autocam precision components group and customers . with the acquisitions completed in 2015 and 2014 , we have expanded our domestic and international base of operations adding subsidiaries in mexico and china , which will require more foreign investment . second , we have sufficient access to funds in the u.s. through projected free cash flows and the availability of our credit facilities to fund currently anticipated domestic operational and investment needs . as such , we do not expect unrepatriated foreign earnings to become subject to u.s. taxation . impairment of long-lived assets . our long-lived assets include property , plant and equipment . the recoverability of the long-term assets is dependent on the performance of the companies which we have acquired or built , as well as the performance of the markets in which these companies operate . in assessing potential impairment for these assets , we will consider these factors as well as forecasted financial performance based , in large part , on management business plans and projected financial information which are subject to a high degree of management judgment and complexity . future adverse changes in market conditions or adverse operating results of the underlying assets could result in having to record additional impairment charges not previously recognized . 25 results of operations during the year ended december 31 , 2014 , we completed the acquisition of four companies : v-s , rfk , chelsea and autocam . the acquisitions of v-s , rfk , chelsea and autocam occurred on january 20 , 2014 , june 20 , 2014 , july 15 , 2014 and august 29 , 2014 , respectively . as such , only eleven , six , five , and four months of operations were included in the year ended december 31 , 2014 with respect to v-s , rfk , chelsea and autocam , respectively . during the year ended december 31 , 2015 , we completed the acquisition of two companies : caprock and pep . we acquired caprock on may 29 , 2015 and pep on october 19 , 2015. as such , seven and two months of operations were included in the year ended december 31 , 2015 with respect to caprock and pep . in an effort to enhance the comparability of the current and prior year periods , we have aggregated into ยacquisitionsย within each financial line item comparison for the years ended december 31 , 2016 , 2015 and 2014 that were not included in the comparative prior year period . the remaining changes related to our legacy business . devaluation of the euro against the u.s. dollar the euro devalued against the u.s. dollar beginning in the latter part of the third quarter of 2014 and accelerated during the fourth quarter of 2014 and into the first quarter of 2015. during these periods , the euro to u.s. dollar dropped from approximately $ 1.36 in june 2014 to $ 1.08 in march 2015 , representing an approximate 21 % decline in value . the exchange rate ranged between $ 1.08 and $ 1.12 for the remainder of the 2015. the exchange rates ranged between $ 1.05 and $ 1.09 during 2016 , with $ 1.05 being the exchange rate at december 31 , 2016. the devaluation of the euro significantly impacted the translation of our euro denominated sales and costs when comparing year over year activity . the euro translation impact , and the translation impact of other currencies , is highlighted below in the overall results as ยforeign exchange effectsย . in addition to translation effects , the devaluation of the euro impacted the value of certain intercompany loan receivables denominated in euros . the following table shows fluctuations in exchange rates in 2016 , 2015 and 2014. the following table sets forth for the periods indicated selected financial data and the percentage of our net sales represented by each income statement line item presented . 26 as a percentage of net sales for the year ended december 31 , replace_table_token_5_th sales concentration sales to various u.s. and foreign divisions of skf , one of the largest bearing manufacturers in the world , accounted for approximately 13 % of consolidated net sales in 2016. during 2016 , sales to various u.s. and foreign divisions of our ten largest customers accounted for approximately 48 % of our consolidated net sales . none of our other customers individually accounted for more than 10 % of our consolidated net sales for 2016. the loss of all or a substantial portion of sales to these customers would cause us to lose a substantial portion of our revenue and have a corresponding negative impact on our operating profit margin due to the operational leverage these customers provide . this could lead to sales volumes not being high enough to cover our current cost structure or to provide adequate operating cash flows or cause us to incur additional restructuring and or impairment costs . due to a limit on the amount of excess bearing component production capacity in the markets we serve , we believe it would be difficult for any of our top ten customers to take a significant portion of our business away in the short term . year ended december 31 , 2016 compared to the year ended december 31 , 2015. the year ended december 31 , 2016 was significantly impacted by certain costs related to past acquisitions and higher debt levels . the net of tax impact of these costs was $ 31.5 million .
| results by segment precision bearing components group replace_table_token_11_th net sales decreased from 2014 to 2015 principally due to the impact of devaluation of the euro on euro denominated sales , as discussed above . partially offsetting the unfavorable foreign exchange effects was greater demand for our products in the north american , asian and european automotive and general industrial markets . this greater demand was from market share gains with our customers and from winning business with new customers . additionally , sales increased with the addition of the companies the segment acquired subsequent to the first half of 2014. segment income from operations was unfavorably impacted by $ 3.3 million due to the depreciation in value of euro denominated income from operations relative to the u.s. dollar . additionally , the segment incurred $ 1.8 million in restructuring costs related to reduce headcount at certain european plants . precision engineered products group replace_table_token_12_th the precision engineered products group includes the plastic and rubber components segment as presented in previous filings . the name of this segment was changed during 2015 after the pep acquisition and disposal of delta rubber . the increase in sales was primarily due to the acquisition of caprock during the second quarter of 2015 and the pep acquisition in the fourth quarter of 2015. loss from operations was primarily due to increased depreciation and amortization related to the pep acquisition . specifically included in income from operations was $ 4.3 million related to a step-up in value of inventory of an acquired company , a charge of $ 5.2 million related to amortizing a large portion of a backlog intangible asset of an acquired company and $ 1.6 million of acquisition and integration costs directly attributable to acquisitions within the segment . 32 autocam precision components group replace_table_token_13_th the increased sales from 2014 to 2015 were due to sales added with the acquisition during 2014.
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timber carrying costs , such as real estate taxes story_separator_special_tag the following discussion and analysis should be read in conjunction with the selected financial data in item 6 โ selected financial data above and our accompanying consolidated financial statements and notes thereto in item 8 โ financial statement and supplementary data . see also โ cautionary note regarding forward-looking statements โ preceding part i. overview 34 our business strategy , built on investments in prime timberlands in high-demand mill markets and superior management , served us well during the unprecedented economic volatility of 2020 caused by the covid-19 pandemic . during the year , we exceeded performance targets , maintained healthy liquidity and stable leverage and effectively managed our debt capital , all while making significant progress in furthering our long-term strategic objectives . our fiber supply agreements , delivered wood model and opportunistic stumpage sales were primary performance drivers , generating stable and predictable cash flows from sustainable harvests that , combined with revenues from opportunistic land sales and active investment management , provided recurring dividends to our stockholders funded from cash from operations . our total harvest volume increased from the prior year , driven by higher stumpage sales volume in the u.s. south region and increased volume in the pacific northwest . demand for pulp-related products remained strong and increased housing starts and robust repair and remodeling activity improved demand patterns for sawtimber products since the onset of the covid-19 pandemic , supporting steady harvest volume flow to our mill customers . we actively managed our log merchandising efforts together with delivered and stumpage sales to achieve the highest available price for our timber products . our realized stumpage prices continued to hold a significant premium over south-wide averages as a result of the strong micro-markets where we have selectively assembled our prime timberlands portfolio . asset management fee revenues increased as a result of the asset management agreement amendment with the triple t joint venture during the second quarter of 2020. our capital recycling program , employing targeted large dispositions , continues to improve the quality of our timberland portfolio and strengthen our balance sheet through disciplined capital allocation to enable future investments in prime timberlands , furthering our growth strategy . joint ventures in june 2020 , we invested an additional $ 5.0 million in the triple t joint venture on the same terms and conditions as our original investment in connection with amendments to the joint venture agreement and asset management agreement . the proceeds of our additional $ 5.0 million investment , along with the proceeds from $ 140.0 million of borrowings under the triple t joint venture 's secured , non-recourse credit facility , were used to make a payment of $ 145.0 million to gp in connection with an amendment to a wood supply agreement between the triple t joint venture and gp . this amendment is intended to achieve market-based pricing on timber sales , increase reimbursement for extended haul distances , provide the ability for the triple t joint venture to sell sawtimber to other third parties , and expand the triple t joint venture 's ability to sell large timberland parcels to third-party buyers . the successful renegotiation of the gp wood supply agreement paves the way for generating improved joint venture performance going forward as well as enhancing long-term asset value . the supply agreement between the triple t joint venture and gp was also extended by two years from 2029 to 2031 , allowing for the triple t joint venture 's harvest volume obligations to be further optimized to enhance and preserve long-term asset value . the dawsonville bluffs joint venture completed the disposition of its timberlands during 2019. life-to-date through december 31 , 2020 , we have recognized $ 5.0 million of income and received cash distributions of $ 14.1 million from the dawsonville bluffs joint venture , representing a return of our $ 10.5 million investment and cumulative preferred return of $ 3.6 million . in addition , we have earned $ 1.2 million in asset management fees from the dawsonville bluffs joint venture , including $ 0.9 million of incentive-based promotes for exceeding investment hurdles . as of december 31 , 2020 , the dawsonville bluffs joint venture had a mitigation bank with a book basis of $ 2.3 million . see note 4 โ unconsolidated joint ventures to our accompanying consolidated financial statements for further details . large dispositions over the last three years , we have undertaken a capital recycling program whereby we sell blocks of timberland properties to generate proceeds to fund capital allocation priorities , including , but not limited to redeployment into more desirable timberland investments , paying down outstanding debt , or repurchasing shares of our common stock . during 2020 , we completed large dispositions totaling 14,400 acres for $ 21.3 million , recognizing a gain of $ 1.3 million , and used the net proceeds to pay down our outstanding deb t by $ 20.9 million . capital activities we reduced our outstanding debt balance by $ 15.8 million from the end of 2019 as a result of repaying $ 20.9 million with net proceeds from large dispositions , offset by borrowing $ 5.0 million to fund our additional equity investment in the triple t joint venture . 35 during the second quarter of 2020 , we entered into an amendment to the amended credit agreement to reduce or remove certain restrictive financial covenants providing increased capacity for working capital or other purposes , if needed , under our revolving credit facility , provide the ability to make additional investments in joint ventures during the year and to lower unused commitment fees ( see liquidity and capital resources โ amendment to amended credit agreement below for additional information ) . during 2020 , we paid $ 26.3 million of dividends to our stockholders and repurchased $ 2.0 million of shares of common stock under our srp at an average price of $ 6.53 per share . story_separator_special_tag it continues to pose a material risk to our business , results of operations and financial condition , including as a result of ( 1 ) declines in our harvest volumes due to ( i ) a deterioration in the housing market and a resulting decrease in demand for our sawtimber , ( ii ) a decline in production level at our customers ' mills due to instances of covid-19 among their employees or decreased demand for their products and ( iii ) the effects of covid-19 on contract logging operations , transportation and other critical third-party providers ; ( 2 ) the inability to complete timberland sales due to the inability of potential buyers to complete title searches and other customary due diligence , including as a result of state and local government office closures ; ( 3 ) effects on key employees , including operational management personnel and those charged with preparing , monitoring and evaluating the company 's financial reporting and internal controls ; and ( 4 ) market volatility and market downturns negatively impacting the trading of our common stock . the longer-term consequences of the covid-19 pandemic to the economy and our customers continue to be unknown ; however , the approval and distribution of vaccines create a belief that the economy will begin to return to normal over the course of 2021. w e are monitoring the progression of the pandemic and its potential effect on our financial position , results of operations , and cash flows . we will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal , state or local authorities or that we determine are in the best interests of our employees , customers , suppliers and shareholders . we are bolstered by our delivered wood model and fiber supply agreements , which provide a steady source of demand from reliable counterparties . with respect to liquidity , we believe we have access to adequate liquidity and capital resources , including cash flow generated from operations , cash on-hand and borrowing capacity , necessary to meet our current and future obligations that become due over the next 12 months . after our deleveraging initiatives and other balance sheet strengthening in 2019 and 2020 , we believe we are well positioned to weather the economic turmoil . liquidity and capital resources overview cash flows generated from our operations are primarily used to fund recurring expenditures and distributions to our stockholders . the amount of distributions to common stockholders is authorized by our board of directors and is dependent upon a number of factors , including funds deemed available for distribution based principally on our current and future projected operating cash flows , less capital requirements necessary to maintain our existing timberland portfolio . in determining the amount of distributions to common stockholders , we also consider our financial condition , our expectations of future sources of liquidity , current and future economic conditions , market demand for timber and timberlands , and tax considerations , including the annual distribution requirements necessary to maintain our status as a reit under the code . in determining how to allocate cash resources in the future , we will initially consider the source of the cash . we anticipate using a portion of cash generated from operations , after payments of periodic operating expenses and interest expense , to fund certain capital expenditures required for our timberlands . any remaining cash generated from operations may be used to pay distributions to stockholders and partially fund timberland acquisitions . therefore , to the extent that cash flows from operations are lower , timberland acquisitions and stockholder distributions are anticipated to be lower as well . capital expenditures , including new timberland acquisitions , are generally funded with cash flow from operations or existing debt availability ; however , proceeds from future debt 37 financings , and equity and debt offerings may be used to fund capital expenditures , acquire new timberland properties , invest in joint ventures , and pay down existing and future borrowings . from time to time , we also sell certain large timberland properties in order to generate capital to fund capital allocation priorities , including but not limited to redeployment into more desirable timberland investments , pay down of outstanding debt or repurchase of shares of our common stock . such large dispositions are typically larger in size and more infrequent than sales under our normal land sales program . shelf registration statement and equity offering on february 28 , 2020 , we filed a shelf registration statement on form s-3 ( file no . 333-236793 ) with the sec , which was declared effective on may 7 , 2020. our shelf registration statement provides us with future flexibility to offer , from time to time and in one or more offerings , up to $ 600 million in an undefined combination of debt securities , common stock , preferred stock , depositary shares , or warrants . the terms of any such future offerings would be established at the time of an offering . on may 7 , 2020 , we entered into a distribution agreement with a group of sales agents relating to the sale from time to time of up to $ 75 million in shares of our common stock in at-the-market offerings or as otherwise agreed with the applicable sales agent , including in block transactions . these shares are registered with the sec under our shelf registration statement . as of december 31 , 2020 , we have not sold any shares of common stock under the distribution agreement .
| results of operations overview for the years ended december 31 , 2020 and 2019 , we generated total revenues of $ 104.3 million and $ 106.7 million , respectively . we improved our net loss by 81 % to $ 17.5 million , primarily due to lower losses from the triple t joint venture . we generated adjusted ebitda of $ 52.1 million as our business strategy of investing in prime timberlands and principally utilizing delivered wood sales as well as opportunistic stumpage sales helped navigate pandemic-related economic volatility . our results of operations are materially impacted by the fluctuating nature of timber prices , changes in the levels and mix of our harvest volumes and associated depletion expense , changes to associated depletion rates , the level of timberland sales , management fees earned , large dispositions , varying 40 interest expense based on the amount and cost of outstanding borrowings , and performance of our unconsolidated joint ventures . selected operational results for each of the years ended december 31 , 2020 and 2019 are shown in the following table ( in thousands , except for per-acre amounts ) : replace_table_token_11_th 41 replace_table_token_12_th ( 1 ) includes chip-n-saw and sawtimber . ( 2 ) prices per ton are rounded to the nearest dollar . ( 3 ) excludes value of timber reservations , which retained 132,200 tons and 14,700 tons of merchantable inventory , respectively , with a sawtimber mix of 49 % and 12 % , respectively , for 2020 and 2019 . ( 4 ) large dispositions are sales of blocks of timberland properties in one or several trans actions with the objective to generate proceeds to fund capital allocation priorities . large dispositions are typically larger transactions in acreage and gross sales price than recurring hbu sales and are not part of core operations , are infrequent in nature and would cause material variances in comparative results if not reported separately .
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in response to these events , a number of coal companies reduced their production over the course of the year , which has resulted in lower production from our properties . looking ahead to 2013 , the production cutbacks by a number of our lessees , coupled with the continued soft demand for both steam and metallurgical coal , will likely result in lower coal royalty revenues for nrp . however , the reduced coal royalty revenues will be offset in part by revenues from our newly acquired interest in oci wyoming 's soda ash operations . growth through acquisitions in 2012 , we spent approximately $ 240 million to acquire additional assets that will help secure the future growth of the partnership . included in these acquisitions were additional steam coal reserves and transportation infrastructure in illinois , metallurgical coal reserves in virginia , oil and gas mineral rights in oklahoma , an overriding royalty on oil and gas reserves in the liquids-rich portion of the marcellus shale play , and an overriding royalty on frac sand reserves in wisconsin . these efforts are reflective of nrp management 's desire to continue to grow and diversify the assets of the partnership and attempt to ensure the stability of future revenues and distributions to our unitholders . political , legal and regulatory environment the political , legal and regulatory environment continues to be difficult for the coal industry . the environmental protection agency , or epa , has used its authority to create significant delays in the issuance of new permits and the modification of existing permits , which has led to substantial delays and increased costs for coal operators . in addition to its involvement in the permitting process , in december 2009 , the epa determined that six greenhouse gases , including carbon dioxide and methane , endanger the public health and welfare of current and future generations . in coalition for responsible regulation v. epa , several petitioners challenged the epa 's findings , but in june 2012 the d.c. circuit court upheld all of the regulations promulgated by the epa . the petitioners have appealed the ruling and have requested to have several issues in the case heard en banc , but the ruling was a significant victory for the epa . 38 over the past year , the industry has successfully challenged epa policy , regulations and guidance in several other court decisions , including mingo logan coal co. v. epa , national mining association v. jackson , and eme homer city generation , l.p. v. epa . while each of these cases has unique facts and circumstances , the general theme in these cases is that the epa has overreached its authority in a number of instances . however , the epa has continued to promulgate regulations that will negatively affect the viability of coal-fired generation , which will ultimately reduce coal consumption and the production of coal from our properties . additionally , citizens ' groups have continued to be active in bringing lawsuits against operators , as well as challenging permits issued by the army corps of engineers . in addition to the increased oversight of the epa , the mine safety and health administration , or msha , has increased its involvement in the approval of plans and enforcement of safety issues in connection with mining . msha 's involvement has increased the cost of mining due to more frequent citations and much higher fines imposed on our lessees as well as the overall cost of regulatory compliance . combined with the difficult economic environment and the higher costs of mining in general , msha 's recent increased participation in the mine development process has reduced production from mines , caused some mines to be idled and has delayed the opening of new mines . distributable cash flow under our partnership agreement , we are required to distribute all of our available cash each quarter . because distributable cash flow is a significant liquidity metric that is an indicator of our ability to generate cash flows at a level that can sustain or support an increase in quarterly cash distributions paid to our partners , we view it as the most important measure of our success as a company . distributable cash flow is also the quantitative standard used in the investment community with respect to publicly traded partnerships . our historical distributable cash flow represents cash flow from operations , proceeds from sale of assets and return on direct financing lease and contractual override less actual principal payments and cash reserves set aside for scheduled principal payments on our senior notes . although distributable cash flow is a ยnon-gaap financial measure , ย we believe it is a useful adjunct to net cash provided by operating activities under gaap . distributable cash flow is not a measure of financial performance under gaap and should not be considered as an alternative to cash flows from operating , investing or financing activities . distributable cash flow may not be calculated the same for nrp as for other companies . a reconciliation of distributable cash flow to net cash provided by operating activities is set forth below . we have historically reduced our distributable cash flow by the amount of cash we have reserved for principal payments due on our senior notes in the next calendar year . however , to present our distributable cash flow more in line with mlp practice and because we intend to refinance some or all of the principal payments that are due in 2013 and 2014 , we are no longer going to reduce distributable cash flow by reserves for future principal payments . story_separator_special_tag the deferred revenue attributable to the minimum payment is recognized as revenues either when the lessee recoups the minimum payment through production or immediately following the period during which the lessee is allowed to recoup the minimum payment . lessee audits and inspections . we periodically audit lessee information by examining certain records and internal reports of our lessees . our regional managers also perform periodic mine inspections to verify that the information that has been submitted to us is accurate . our audit and inspection processes are designed to identify material variances from lease terms as well as differences between the information reported to us and the actual results from each property . our audits and inspections , however , are in periods subsequent to when the revenue is reported and any adjustment identified by these processes might be in a reporting period different from when the revenue was initially recorded . depreciation , depletion and amortization . we depreciate our plant and equipment on a straight line basis over the estimated useful life of the asset . we deplete mineral properties on a units-of-production basis by lease , based upon minerals mined in relation to the net cost of the mineral properties and estimated proven and probable tonnage in those properties . we amortize intangible assets on a units-of-production basis , unless classified as a temporarily idled asset then a minimum amortization is applied . oil and gas mineral rights are depleted over the units of production . we estimate proven and probable reserves with the assistance of third-party consultants , as well as estimation techniques and recoverability assumptions . we update our estimates of reserves periodically and this may result in material adjustments to reserves and depletion rates that we recognize prospectively . historical revisions have not been material . asset impairment . if facts and circumstances suggest that a long-lived asset or an intangible asset may be impaired , the carrying value is reviewed . if this review indicates that the value of the asset will not be recoverable , as determined based on projected undiscounted cash flows related to the asset over its remaining life , then the carrying value of the asset is reduced to its estimated fair value . share-based payments . we account for our long-term incentive plan awards under financial accounting standards board 's ( fasb ) stock compensation authoritative guidance . this authoritative guidance provides that grants must be accounted for using the fair value method , which requires us to estimate the fair value of the grant and charge or credit the estimated fair value to expense over the service or vesting period of the grant based on fluctuations in value . in addition , this authoritative guidance requires that estimated forfeitures be included in the periodic computation of the fair value of the liability and that the fair value be recalculated at each reporting date over the service or vesting period of the grant . recent accounting pronouncements in june 2011 , the fasb amended the presentation of comprehensive income . the amendments in this update give us the option to present the total comprehensive income , the components of net income , and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements . we adopted this amendment on january 1 , 2012 and elected to 41 present other comprehensive income in a single continuous statement , consolidated statements of comprehensive income . we also elected to present changes in accumulated other comprehensive income in the consolidated statements of partners ' capital . in may 2011 , the fasb amended fair value measurement and disclosure requirements . the amendments result in common fair value measurement and disclosure requirements in u.s. gaap and international financial reporting standards ( ifrss ) . some of the amendments clarify the fasb 's intent about the application of existing fair value measurement requirements . other amendments change a particular principal or requirement for measuring fair value or for disclosing information about fair value measurements . we adopted this amendment on january 1 , 2012. the amendment did not have a material impact on our financial position , results of operations , cash flows or notes to the financial statements . other accounting standards that have been issued or proposed by the fasb or other standards-setting bodies are not expected to have a material impact on our financial position , results of operations and cash flows . 42 results of operations summary of 2012 and 2011 royalties and production ( in thousands , except percent and per ton data ) replace_table_token_8_th 43 coal royalty revenues and production coal royalty revenues comprised approximately 69 % of our total revenue for the year ended december 31 , 2012 and 74 % of our total revenue in 2011. the following is a discussion of the coal royalty revenues and production derived from our major coal producing regions : appalachia . the combination of lower production and lower prices in central appalachia , together with a lower royalty rate in northern appalachia , were the primary reasons coal royalty revenues decreased by $ 27.6 million in 2012. the 3.5 million ton decrease in production in central appalachia was the result of our lessees reducing production in response to the weaker coal market and the effect of some lessees having a lower proportion of production on our properties . production in northern appalachia increased by 5.2 million tons , but these increases were mainly on leases with a lower revenue per ton , and therefore still resulted in reduced revenue of $ 4.8 million . the decreases are partially offset by an increase in production and revenue in southern appalachia , due primarily to one of our lessees resuming production for the entire year after it completed repairs to its preparation plant that was damaged by a tornado in 2011. illinois basin . coal royalty revenues
| other operating results processing and transportation revenues . we generated $ 8.3 million , $ 13.5 million and $ 9.6 million in processing revenues for the years ended december 31 , 2012 , 2011 and 2010 , respectively . our processing revenues are derived primarily from our ownership of coal preparation plants . we do not operate the preparation plants , but receive a fee for material processed through them . similar to our coal royalty structure , the throughput fees are based on a percentage of the ultimate sales price for the material that is processed through the facilities . during 2012 , lower volumes and prices at our plants in appalachia coupled with the sale of a preparation plant contributed to lower processing revenues when compared to 2011. the increase in processing revenues for the year ended december 31 , 2011 over 2010 is primarily due to higher volumes at higher prices . the increase in 2011 also reflects the addition of the loadout facility at macoupin being online for a full year . in addition to our preparation plants , we own coal handling and transportation infrastructure in illinois . in contrast to our typical royalty structure , we receive a fixed rate per ton for coal transported over these facilities . at the williamson mine in illinois , we operate the coal handling and transportation infrastructure and have subcontracted out that responsibility to a third party . we generated transportation fees from these assets of 46 approximately $ 19.5 million , $ 16.7 million and $ 14.6 million for the years ended december 31 , 2012 , 2011 and 2010 , respectively . the steady increase in transportation fees from 2010 to 2012 is due to increased volumes from our lessee operations in the illinois basin . additional revenues .
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the loan bears interest at a fixed rate of 3.6 % per annum , provides for monthly payments of interest only until the maturity date of january 1 , 2025 when the principal balance , accrued interest and all other amounts due under the loan become due . on november 24 , 2014 in connection with the acquisition of bennington pond , we entered into a loan agreement for a $ 11,375 loan secured by a first mortgage on the property . the loan bears interest at a fixed rate of 3.7 % per annum , provides for monthly payments of interest only until the maturity date of december 1 , 2024 when the principal balance , accrued interest and all other amounts due under the loan become due . on october 24 , 2014 we entered into a loan agreement for a $ 15,991 loan secured by a first mortgage on our lenoxplace property . the loan bears interest at a fixed rate of 3.7 % per annum , provides story_separator_special_tag overview we were formed on march 26 , 2009 as a maryland corporation and elected to be taxed as a reit for u.s. federal income tax purposes commencing with our taxable year ended december 31 , 2011. we are externally managed by our advisor , an indirect , wholly owned subsidiary of rait . we conduct our operations through our operating partnership , of which we are the sole general partner . we own and operate a portfolio of apartment properties located throughout the united states . our primary business objective is to maximize stockholder value by increasing cash flows at our existing apartment properties and acquiring additional properties either with strong and stable occupancies and the ability to raise rental rates or potential for repositioning through capital expenditures . during the year ended december 31 , 2014 we completed three underwritten public offerings of our common stock raising gross proceeds of $ 200.9 million , in the aggregate . we deployed a portion of these proceeds during 2014 to acquire twenty properties with 6,029 units for aggregate purchase prices totaling $ 497.1 million , including the issuance of 1,282,449 limited partnership units in our operating partnership , or lp units , valued at $ 12.0 million , in the aggregate . these acquisitions contributed to our substantial growth in a number of key financial measures in 2014 when compared to 2013 as follows : investments in real estate at cost increased 262 % to $ 689.1 million from $ 190.1 million ; operating income increased 73 % to $ 8.5 million from $ 4.9 million ; and total revenues grew 147 % to $ 49.2 million from $ 19.9 million . key statistics ( dollars in thousands , except per share and per unit information ) replace_table_token_10_th ( 1 ) average monthly effective rent per occupied unit represents the average monthly rent collected for all occupied units after giving effect to tenant concessions . we do not report average monthly effective rent per unit in the month of acquisition as it is not representative of a full month of operations . ( 2 ) leverage ratio is the percentage of total indebtedness to investments in real estate at cost and cash . 35 trends that may affect our business the following trends may affect our business : growing rental households . we believe there are several trends that may support additional rental rate increases while keeping occupancies stable in 2015. first there are increasing numbers of 20 to 34 year old persons in the united states and job growth for this demographic which we believe will create increasing numbers of rental households . in addition , the u.s. homeownership rate dropped to a twenty year low which also indicates growth in the number of rental households . capitalization rate compression . we have seen modest reductions in the capitalization rates for apartment properties in the relevant markets where we own properties or are interested in acquiring properties . the capitalization rate is a measure of return on a real estate property based on the expected income the property will generate . a capitalization rate is generally determined by dividing the net operating income of a property by the total value of the property . however , this reduction or compression has been more than offset by the lower financing rates discussed below in ยinterest rate environment.ย interest rate environment . interest rates for commercial real estate financing remained at historically low levels during 2014. during 2014 , we were able to reduce the cost of our floating rate line of credit and reduced our weighted average effective interest rate of our other outstanding indebtedness . property acquisition , occupancy and rental trends . we plan to continue to opportunistically acquire properties in markets that we believe meet our investment strategy both in markets where we currently have properties and in new markets . we believe we will be able to keep occupancies stable over time and increase rents over time on average 3 % to 4 % through 2015. non-gaap financial measures funds from operations and core funds from operations we believe that ffo and core ffo , each of which is a non-gaap financial measure , are additional appropriate measures of the operating performance of a reit and us in particular . we compute ffo in accordance with the standards established by the national association of real estate investment trusts , or nareit , as net income or loss allocated to common shares ( computed in accordance with gaap ) , excluding real estate-related depreciation and amortization expense , gains or losses on sales of real estate and the cumulative effect of changes in accounting principles . core ffo is a computation made by analysts and investors to measure a real estate company 's operating performance by removing the effect of items that do not reflect ongoing property operations , including acquisition expenses , expensed costs related to the issuance of shares of our common stock and equity-based compensation expenses , from the determination of ffo . story_separator_special_tag on november 25 , 2014 , we completed an underwritten public offering selling 6,000,000 shares of our common stock for $ 9.60 per share raising gross and estimated net proceeds of $ 57.6 million and $ 54.7 million , respectively . on july 21 , 2014 , we completed an underwritten public offering selling 8,050,000 shares of our common stock for $ 9.50 per share raising gross and net proceeds of $ 76.5 million and $ 72.0 million , respectively . on january 29 , 2014 , we completed an underwritten public offering selling 8,050,000 shares of our common stock for $ 8.30 per share raising gross and net proceeds of $ 66.8 million and $ 62.7 million , respectively . rait has purchased in the aggregate 1,974,819 shares for $ 17.3 million in four underwritten public offerings to date , paying the public offering price without any underwritten discount . rait did not buy any shares in our last underwritten public offering . 39 on october 25 , 2013 , we entered into a $ 20 million secured revolving credit agreement with the huntington national bank to be used to acquire properties , for capital expenditures and for general corporate purposes . on september 9 , 2014 we amended this agreement increasing the facility to $ 30 million . the facility has a 3-year term , bears interest at libor plus 2.50 % and contains customary financial covenants for this type of revolving credit agreement . as of december 31 , 2014 , there was $ 11.6 million of availability under this facility . cash flows as of december 31 , 2014 and 2013 , we maintained cash and cash equivalents of approximately $ 14.8 million and $ 3.3 million , respectively . our cash and cash equivalents were generated from the following activities ( dollars in thousands ) : replace_table_token_12_th our increased cash inflow from operating activities during the year ended december 31 , 2014 resulted from the expansion of our investments through the acquisition of 20 properties in 2014 , as well as those properties present for a full year of operations and improved occupancy and rental rates from our historical portfolio . our increased cash outflow from investing activities during the year ended december 31 , 2014 is due to the acquisition of 20 properties in 2014 as compared to two properties during the year ended december 31 , 2013. the increased cash flow from our financing activities during the year ended december 31 , 2014 is substantially due to the completion of our three underwritten public offerings as well as $ 116 million of new mortgage debt origination following property acquisitions . 40 outstanding indebtedness the following table contains summary information concerning the indebtedness that encumbered our properties as of december 31 , 2014 ( dollars in thousands ) : replace_table_token_13_th ( 1 ) floating rate at 225 basis points over the 30-day london interbank offered rate , or libor . as of december 31 , 2014 , 30-day libor was 0.17 % . interest only payments are due monthly . these mortgages are held by rait . ( 2 ) fixed rate . interest only payments are due monthly . beginning february 1 , 2015 , principal and interest payments are required based on a 30-year amortization schedule . ( 3 ) fixed rate . interest only payments are due monthly . beginning february 1 , 2016 , principal and interest payments are required based on a 30-year amortization schedule . ( 4 ) floating rate at 250 basis points over 30-day libor . as of december 31 , 2014 , 30-day libor was 0.17 % . interest only payments are due monthly . ( 5 ) contractual interest rate is 5.6 % . the debt was assumed and recorded at a premium that will be amortized to interest expense over the remaining term . principal and interest payments are required based on a 30-year amortization schedule . ( 6 ) fixed rate . interest only payments are due monthly . beginning june 1 , 2017 , principal and interest payments are required based on a 30-year amortization schedule . as of december 31 , 2014 we were in compliance with all financial covenants contained in our indebtedness . 41 the following table contains summary information concerning the indebtedness that encumbered our properties as of december 31 , 2013 : replace_table_token_14_th ( 1 ) floating rate at 225 basis points over 30-day libor . as of december 31 , 2013 , 30-day libor was 0.17 % . interest only payments are due monthly . these mortgages are held by rait . ( 2 ) fixed rate . interest only payments are due monthly . beginning february 1 , 2015 , principal and interest payments are required based on a 30-year amortization schedule . ( 3 ) fixed rate . interest only payments are due monthly . beginning february 1 , 2016 , principal and interest payments are required based on a 30-year amortization schedule . ( 4 ) floating rate at 275 basis points over 30-day libor . as of december 31 , 2013 , 30-day libor was 0.17 % . interest only payments are due monthly . the weighted average effective interest rate of our mortgage indebtedness was 3.6 % as of december 31 , 2014. as of december 31 , 2014 , rait held $ 38.1 million of our debt while $ 360.9 million was held by third parties . as of december 31 , 2013 , rait held $ 38.1 million of our debt while $ 62.7 million was held by third parties . for each of the years ended december 31 , 2014 and 2013 , we paid approximately $ 1.0 million of interest to rait . mortgage indebtedness each of our mortgages is a non-recourse obligation subject to customary exceptions .
| results of operations year ended december 31 , 2014 compared to the year ended december 31 , 2013 revenue rental income . rental revenue increased $ 27.0 million to $ 44.8 million for the year ended december 31 , 2014 from $ 17.8 million for the year ended december 31 , 2013. the increase is substantially due to the $ 26.4 million of rental income from the acquisition of 20 properties during the year ended december 31 , 2014 and two properties present for a full year in 2014. the remaining increase of $ 0.6 million is due to improved occupancy and rental rates at the historical properties . tenant reimbursement income . tenant reimbursement income increased $ 1.0 million to $ 1.9 million for the year ended december 31 , 2014 from $ 0.9 million for the year ended december 31 , 2013. the increase is substantially due to the acquisition of 20 properties during the year ended december 31 , 2014 and two properties present for a full year in 2014. other income . other income increased $ 1.2 million to $ 2.4 million for the year ended december 31 , 2014 from $ 1.2 million for the year ended december 31 , 2013. the increase is substantially due to the acquisition of 20 properties during the year ended december 31 , 2014 and two properties acquired present for a full year in 2014. expenses property operating expenses .
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the company received a notice of default from western alliance bank notifying the company that as of december 31 , 2017 it was in default , as it had failed to secure at least $ 15.0 million from the sale or issuance of its equity securities or subordinated debt as set forth in the amended western alliance lsa . based on the notice of default the company reclassified the total loan balance of $ 6.7 million to current liabilities on the consolidated balance sheet as of december 31 , 2017 , as the loan could be called at any time by western alliance bank . in february 2018 , the western alliance lsa was amended requiring the company to secure $ 21.0 story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together in conjunction with our financial statements and the related notes included 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 expected financial results , includes forward-looking statements that involve risks and uncertainties . you should review the risks described in part i , item 1a risk factors and elsewhere in this annual report . overview we are a life sciences instrumentation company in the genome analysis space . we develop and market the saphyr system , a platform for ultra-sensitive and ultra-specific structural variation detection that enables researchers and clinicians to accelerate the search for new diagnostics and therapeutic targets and to streamline the study of changes in chromosomes , which is known as cytogenetics . our saphyr system comprises an instrument , chip consumables , reagents and a suite of data analysis tools . structural variation refers to large-scale structural differences in the genomic dna of one individual compared to another . each structural variation involves the rearrangement or repetition of as few as hundreds to as many as tens of millions of dna base pairs . those rearrangements may be insertions , deletions , duplications , inversions or translocations of segments of one or more chromosomes . structural variations may be inherited or arise spontaneously and many cause genetic disorders and diseases . until our commercial launch of the saphyr system in february 2017 , and since , we believe no products existed or exist that could more comprehensively and cost and time-efficiently detect structural variation . our saphyr system comprises an instrument , chip consumables , reagents and a suite of data analysis tools . our customers include researchers and clinicians who seek to uncover and understand the biological or clinical impact of genome variation to improve the diagnosis and treatment of patients with better clinical tests and new medicines or to replace existing cytogenetic tests that are expensive , slow and labor-intense , with a modern solution that simplifies workflow and reduces costs and that has the potential to significantly increase diagnostic yields across the industry . our customers also include researchers in non-human segments such as agricultural genomics where they seek to advance their understanding of how structural variation impacts industrial applications of plants and animals . since our inception , we have raised net proceeds of $ 148.7 million to fund our operations from the issuance of equity and convertible promissory notes . we have incurred losses in each year since our inception . our net losses were $ 18.5 million and $ 23.4 million for the years ended december 31 , 2018 and 2017 , respectively . as of december 31 , 2018 , we had an accumulated deficit of $ 72.8 million . we expect to continue to incur significant expenses and operating losses as we : expand our sales and marketing efforts to further commercialize our products ; continue research and development efforts to improve our existing products ; hire additional personnel ; enter into collaboration arrangements , if any ; add operational , financial and management information systems ; and incur increased costs as a result of operating as a public company . initial public offering in august 2018 , we completed our initial public offering of our common stock , or the ipo , in which we sold an aggregate of 3,864,000 units ( each unit consisting of one share of our common stock and one warrant to purchase one share of our common stock ) at a public offering price of $ 6.125 per unit for net proceeds of $ 19.4 million , after deducting underwriters ' discounts and commissions of $ 2.2 million and other offering expenses of $ 2.1 million . financial overview revenue we generate product revenue from sales of our instruments and consumables . we currently sell our products for research use only applications and our customers are primarily laboratories associated with academic and governmental research institutions , as well as pharmaceutical , biotechnology and contract research companies . sales of our consumables have consistently increased due to an increasing number of our instruments being installed in the field , all of which require certain of our consumables to run customers ' specific tests . consumable revenue consists of sales of complete assays which are developed internally by us , plus sales of kits which contain all the elements necessary to run tests . other revenue consists of warranty and other service-based revenue . 53 the following table presents our revenue for the periods indicated : replace_table_token_0_th the following table reflects total revenue by geography and as a percentage of total revenue , based on the billing address of our customers . north america consists of the united states and canada . emeia consists of europe , middle east , india and africa . asia pacific includes china , japan , south korea , singapore and australia . story_separator_special_tag on november 19 , 2018 , the western alliance lsa was amended . pursuant to section 2.6 ( g ) of the western alliance lsa , we were obligated to pay western alliance bank a success fee of $ 210,000 in connection with our ipo . as part of the amendment , this success fee was decreased from $ 210,000 to $ 160,000. see note 7 to our financial statements for a discussion of terms and provisions to the western alliance lsa and midcap financial csa . note purchase agreement on february 9 , 2018 , we entered into a note purchase agreement with various investors , or the investors , pursuant to which we agreed to sell the investors 8 % convertible promissory notes , or the convertible notes , in the original principal amount up to approximately $ 16.0 million . on april 2 , 2018 , we amended the note purchase agreement to , among other things , increase the principal amount available for issuance under the note purchase agreement to approximately $ 18.4 million . in addition , in connection with the midcap financial csa , we again amended the note purchase agreement to increase the amount available for issuance under the note purchase agreement to approximately $ 19.4 million . the convertible notes had a maturity date of september 30 , 2018 and were convertible either into our common stock or preferred stock , dependent on the conversion events as described in note 12 to our consolidated financial statements . in august 2018 the outstanding convertible promissory notes of $ 14,329,843 and accrued interest was converted into 3,239,294 shares of common stock upon completion of the ipo . cash flows the following table sets forth the cash flow from operating , investing and financing activities for the periods presented : replace_table_token_3_th we derive cash flows from operations primarily from the sale of our products and services . our cash flows from operating activities are also significantly influenced by our use of cash for operating expenses to support the growth of our business . we have historically experienced negative cash flows from operating activities as we have developed our technology , expanded our business and built our infrastructure and this may continue in the future . net cash used in operating activities was $ 19.9 million during the year ended december 31 , 2018 as compared to $ 20.8 million during the year ended december 31 , 2017. the decrease in cash used in operating activities of $ 0.9 million was mostly the result of lower compensation and benefits paid due to the second half 2017 reduction in force for the year ended december 31 , 2018 compared to the same period 2017 . 57 investing activities historically , our primary investing activities have consisted of capital expenditures for the purchase of capital equipment to support our expanding infrastructure . we expect to continue to incur additional costs for capital expenditures related to these efforts in future periods . net cash used in investing activities was $ 0.3 million during the year ended december 31 , 2018 as compared to $ 1.0 million during the year ended december 31 , 2017. financing activities historically , we have financed our operations principally through private placements of our convertible preferred stock and promissory notes and borrowings from credit facilities , as well as gross profits from our commercial operations . in august 2018 , we completed the ipo . net cash provided by financing activities was $ 35.8 million during the year ended december 31 , 2018 as compared to $ 17.6 million during the year ended december 31 , 2017 , an increase of $ 18.2 million . during the year ended december 31 , 2018 we had net proceeds from the issuance of convertible notes of $ 14.3 million , ipo net proceeds of $ 19.4 million , and net debt proceeds ( net of payments outstanding loan ) of $ 2.0 million . during the same period of 2017 , we had net proceeds from the issuance preferred stock and warrants of $ 17.6 million . capital resources we performed an analysis of our ability to continue as a going concern . we believe , based on our current business plan , that our existing cash and cash equivalents will be sufficient to fund our obligations through the fourth quarter of 2019 , but will not be sufficient to fund our obligations after the fourth quarter of 2019. we plan to continue to fund our losses from operations through cash and cash equivalents on hand , as well as through through public or private equity or debt financings , strategic collaborations , licensing arrangements , asset sales , or other arrangements . there can be no assurance that additional funds will be available when needed from any source or , if available , will be available on terms that are acceptable to us . even if we raise additional capital , we may also be required to modify , delay or abandon some of our plans which could have a material adverse effect on our business , operating results and financial condition and our ability to achieve our intended business objectives . any of these actions could materially harm our business , results of operations and future prospects . off-balance sheet arrangements we did not have during the periods presented , and we do not currently have , any off-balance sheet arrangements , as defined under sec rules , and similarly did not and do not have any holdings in variable interest entities . recent accounting pronouncements see note 2 to our condensed consolidated financial statements included elsewhere in this annual report on for information concerning recent accounting pronouncements . critical accounting policies and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states .
| results of operations comparison of the years ended december 31 , 2018 and 2017 the following table sets forth our results of operations for the years ended december 31 , 2018 and 2017 : replace_table_token_2_th revenue revenue increased by $ 2.5 million , or 26 % to $ 12.0 million for the year ended december 31 , 2018 , as compared to $ 9.5 million for the same period in 2017. the increase in product revenue of $ 2.7 million was mostly due to a 29 % increase in instrument unit sales . consumable unit sales increased 63 % in 2018 as compared to 2017 . the increase is attributed to the cumulative growth of the saphyr install base and the introduction of bundled orders to customers which offer purchase discounts in exchange for larger unit orders . cost of revenue cost of product revenue increased by $ 2.7 million , or 44 % , to $ 8.7 million for the year ended december 31 , 2018 , as compared to $ 6.0 million for the same period in 2017. the increase was primarily due to increased unit sales of instruments and consumables year over year . in addition , the company recorded losses of $ 1.3 million and $ 0.4 million in 2018 and 2017 , respectively , to write-down inventory to net realizable value of our irys instrument ( the predecessor to our saphyr instrument ) . the write-downs were driven by the introduction of the saphyr instrument during the first quarter of 2017. we expect the cost of product revenue per instrument to decrease in future periods as we benefit from economies of scale and modifications to the components and assembly over time .
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we generate revenue by developing , licensing , and supporting a wide range of software products , by offering an array of services , including cloud-based services to consumers and businesses , by designing , manufacturing , and selling devices that integrate with our cloud-based services , and by delivering relevant online advertising to a global audience . our most significant expenses are related to compensating employees , designing , manufacturing , marketing , and selling our products and services , datacenter costs in support of our cloud-based services , and income taxes . much of our focus in fiscal year 2015 was toward transforming our organization to support our strategy of building best-in-class platforms and productivity services for a mobile-first , cloud-first world . we achieved product development milestones , implemented organizational changes , and made strategic and tactical moves to support the three central ambitions that support our strategy : reinventing productivity and business processes ; building the intelligent cloud platform ; and creating more personal computing . highlights from fiscal year 2015 included : momentum continued to grow in our commercial cloud and productivity offerings as we surpassed an $ 8 billion annualized run rate * at the end of the year . office 365 commercial seats grew 74 % , and office 365 is now deployed in four out of five fortune 500 enterprises , with more than half of that install base using premium workloads . we also added over 50,000 small- and medium-sized business customers each month . server products and services revenue increased 9 % , driven by growth across our cloud and on-premises server products . azure revenue and compute usage increased by triple digits in the fourth quarter year over year , and we ended fiscal year 2015 with more than 17,000 enterprise mobility services customers . * annualized run rate was calculated by multiplying june 2015 revenue by twelve months . 29 part ii item 7 we reached over 8 million paid dynamics seats and refreshed and enhanced microsoft dynamics erp products . we also introduced new social , productivity , mobility , customer service , and marketing capabilities in dynamics crm . we currently have more than 15 million office 365 consumer subscribers , with new customers signing up at a current pace of nearly one million per month . we also surpassed 150 million downloads of office mobile to ios and android devices . bing exceeded 20 % u.s. market share as we focused our advertising business on search . in june 2015 , we entered into agreements with aol and appnexus to outsource our display sales efforts . in hardware , we released surface 3 and expanded distribution of surface pro and the related gross margin percentage grew with increased revenue , and introduced new categories like hololens ย all with an eye toward generating new growth in windows more broadly . xbox console volumes grew to over 12 million , and xbox live users increased 22 % . we shipped over 36 million lumia units , and announced the restructuring of our phone hardware business to run it more effectively near-term while driving reinvention longer term . we completed 16 acquisitions , including mojang synergies ab ( ยmojangย ) , the swedish video game developer of the minecraft gaming franchise , and others , to strengthen our cloud platform and invest in mobile applications . we advanced windows 10 to the threshold of its launch in july 2015 with the help of the windows insider program , a new paradigm to incorporate unprecedented levels of user and developer feedback in our development process . industry trends our industry is dynamic and highly competitive , with frequent changes in both technologies and business models . each industry shift is an opportunity to conceive new products , new technologies , or new ideas that can further transform the industry and our business . at microsoft , we push the boundaries of what is possible through a broad range of research and development activities that seek to identify and address the changing demands of customers , industry trends , and competitive forces . economic conditions , challenges , and risks the market for software , devices , and cloud-based services is dynamic and highly competitive . our competitors are developing new software and devices , while also deploying competing cloud-based services for consumers and businesses . the devices and form factors customers prefer evolve rapidly , and influence how users access services in the cloud , and in some cases , the user 's choice of which suite of cloud-based services to use . we must continue to evolve and adapt over an extended time in pace with this changing environment . the investments we are making in devices and infrastructure will increase our operating costs and may decrease our operating margins . our success is highly dependent on our ability to attract and retain qualified employees . we hire a mix of university and industry talent worldwide . microsoft competes for talented individuals globally by offering an exceptional working environment , broad customer reach , scale in resources , the ability to grow one 's career across many different products and businesses , and competitive compensation and benefits . aggregate demand for our software , services , and devices is correlated to global macroeconomic and geopolitical factors , which remain dynamic . our international operations provide a significant portion of our total revenue and expenses . many of these revenue and expenses are denominated in currencies other than the u.s. dollar . as a result , changes in foreign exchange rates may significantly affect revenue and expenses . recently , the significant strengthening of the u.s. dollar relative to certain foreign currencies has negatively impacted reported revenue and reduced reported expenses from our international operations . 30 part ii item 7 see a discussion of these factors and other risks under risk factors ( part i , item 1a of this form 10-k ) . story_separator_special_tag summary results of operations ( in millions , except percentages and per share amounts ) 2015 2014 2013 percentage change 2015 versus 2014 percentage change 2014 versus 2013 revenue $ 93,580 $ 86,833 $ 77,849 8 % 12 % gross margin $ 60,542 $ 59,755 $ 57,464 1 % 4 % operating income $ 18,161 $ 27,759 $ 26,764 ( 35 ) % 4 % diluted earnings per share $ 1.48 $ 2.63 $ 2.58 ( 44 ) % 2 % fiscal year 2015 compared with fiscal year 2014 revenue increased $ 6.7 billion or 8 % , reflecting a full year of phone hardware sales and growth in revenue from our commercial cloud , surface , server products , search advertising , and xbox live transactions . these increases were offset in part by a decline in revenue from office commercial , windows oem , licensing of windows phone operating system , and office consumer . revenue included an unfavorable foreign currency impact of approximately 2 % . gross margin increased $ 787 million or 1 % , primarily due to higher revenue , offset in part by a $ 6.0 billion or 22 % increase in cost of revenue . cost of revenue increased , mainly due to phone hardware , as well as increasing costs in support of our commercial cloud , including $ 396 million of higher datacenter expenses . gross margin , as a percentage of revenue , improved year over year in each of our reportable segments . 32 part ii item 7 operating income decreased $ 9.6 billion or 35 % , primarily due to impairment , integration , and restructuring expenses in the current year , as well as increased research and development expenses , offset in part by higher gross margin . key changes in operating expenses were : impairment , integration , and restructuring expenses were $ 10.0 billion in the current year , reflecting goodwill and asset impairment charges of $ 7.5 billion related to our phone hardware business , and $ 2.5 billion of integration and restructuring expenses , driven by costs associated with our restructuring plans . research and development expenses increased $ 665 million or 6 % , mainly due to increased investment in new products and services , including nds expenses , offset in part by reduced headcount-related expenses . diluted earnings per share ( ยepsย ) were negatively impacted by impairment , integration , and restructuring expenses , which decreased diluted eps by $ 1.15. fiscal year 2014 compared with fiscal year 2013 revenue increased $ 9.0 billion or 12 % , demonstrating growth across our consumer and commercial businesses , primarily due to higher revenue from server products , xbox platform , commercial cloud , and surface . revenue also increased due to the acquisition of nds . commercial cloud revenue doubled , reflecting continued subscriber growth from our cloud-based offerings . gross margin increased $ 2.3 billion or 4 % , primarily due to higher revenue , offset in part by a $ 6.7 billion or 33 % increase in cost of revenue . cost of revenue increased mainly due to higher volumes of xbox consoles and surface devices sold , and $ 575 million of higher datacenter expenses , primarily in support of commercial cloud revenue growth . cost of revenue also increased due to the acquisition of nds . operating income increased $ 995 million or 4 % , reflecting higher gross margin , offset in part by increased research and development expenses and sales and marketing expenses . key changes in operating expenses were : research and development expenses increased $ 970 million or 9 % , mainly due to increased investment in new products and services in our devices engineering group , including nds expenses , and increased investment in our applications and services engineering group . sales and marketing expenses increased $ 535 million or 4 % , primarily due to nds expenses and increased investment in sales resources , offset in part by lower advertising costs . 33 part ii item 7 story_separator_special_tag style= '' color : # 999999 '' width= '' 100 % '' / > part ii item 7 which concluded in conjunction with the acquisition of nds , as well as an increase in phone patent licensing revenue . retail and non-oem sales of windows declined $ 274 million or 35 % , mainly due to the launch of windows 8 in the prior year . windows oem revenue declined $ 136 million or 1 % , due to continued softness in the consumer pc market , offset in part by a 12 % increase in oem pro revenue . office consumer revenue declined $ 249 million or 7 % , reflecting the transition of customers to office 365 consumer as well as continued softness in the consumer pc market . the declines in windows oem and office consumer revenue were partially offset by benefits realized from ending our support for windows xp in april 2014. d & c licensing gross margin increased $ 454 million or 3 % , primarily due to a $ 353 million or 14 % decrease in cost of revenue . d & c licensing cost of revenue decreased , mainly due to a $ 411 million or 23 % decline in traffic acquisition costs . computing and gaming hardware computing and gaming hardware revenue increased $ 2.9 billion or 48 % , primarily due to higher revenue from the xbox platform and surface . xbox platform revenue increased $ 1.7 billion or 34 % , mainly due to sales of xbox one , which was released in november 2013 , offset in part by a decrease in sales of xbox 360. we sold 11.7 million xbox consoles during fiscal year 2014 compared with 9.8 million xbox consoles during fiscal year 2013. surface revenue increased $ 1.3 billion or 157 % , mainly due to a higher number of devices and accessories sold .
| segment results of operations devices and consumer replace_table_token_1_th * not meaningful fiscal year 2015 compared with fiscal year 2014 d & c revenue increased $ 3.9 billion or 10 % , primarily due to a full year of phone hardware sales , as well as higher revenue from surface , search advertising , and xbox live transactions , offset in part by a decrease in revenue from windows oem , licensing of windows phone operating system , and office consumer . collectively , office consumer and office 365 consumer revenue declined 17 % . d & c gross margin decreased $ 1.4 billion or 7 % , reflecting higher cost of revenue , offset in part by higher revenue . d & c cost of revenue increased $ 5.3 billion or 30 % , mainly due to a full year of phone hardware costs . d & c licensing d & c licensing revenue decreased $ 4.6 billion or 23 % , mainly due to lower revenue from windows oem , windows phone licensing , and office consumer . windows oem revenue declined $ 1.9 billion or 15 % , primarily due to declines of 15 % in oem pro revenue and 16 % in oem non-pro revenue . windows oem pro revenue decreased , primarily due to benefits realized from the expiration of support for windows xp in the prior year , and declines in the business pc market . windows oem non-pro revenue declined , mainly due to an increased mix of opening price point devices sold , and declines in the consumer pc market . revenue from licensing of windows phone operating system decreased $ 1.4 billion or 55 % , primarily due to prior year revenue associated with our joint strategic initiatives with nokia that terminated when we acquired nds .
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commitments lease agreement we lease approximately 8 ,400 square feet of office and laboratory space pursuant to an operating lease which expires on december 31 , 2018. rent expense for the years ended december 31 , 2017 , 2016 and 2015 was $ 151,748 , $ 149,288 , and $ 146,092 , respectively . future minimum lease payments total $ 156,545 in 2018. other commitments in the normal course of business , we may enter into various firm purchase commitments related to production and testing of our vaccine material , conduct of clinical trials , and other research-related act ivities . as of december 31 , 2017 , we had approximately $ 79,000 of unrecorded outstanding purchase commitments to our vendors and subcontractors , all of which we expect will be due in 2018. we expect this entire amount to be reimbursable to us pursuant to currently outstanding government grants . 7 . preferred stock series b convertible preferred stock our series b convertible preferred stock , $ 1,000 stated value ( โ series b preferred stock โ ) , has rights and privileges as set forth in the pertinent certificate of designation of preferences , rights and limitations , including a liquidation preference equal to the stated value per share . the series b preferred stock has no voting rights and is not entitled to a dividend . as of december 31 , 2017 , there were 100 shares of series b preferred stock outstanding , convertible at any time at the option of the holder into 285,714 shares of common stock . series c convertible preferred stock in february 2015 , we issued 3,000 shares of our series c convertible preferred stock , $ 1,000 stated value ( โ series c preferred stock โ ) and warrants to purchase up to an aggregate of 51,333,331 shares of our common stock for total net proceeds of $ 2,679,810 . we allocated $ 1,695,869 of the purchase price to the fair value of the warrants issued in the transaction ( recorded to additional paid-in capital ) and recorded the net amount of $ 983,941 as the initial carrying value of the series c preferred stock . the series c preferred stock has rights and privileges as set forth in the pertinent certificate of designation of preferences , rights and limitations , including a liquidation preference equal to the stated value per share . the series c preferred stock has no voting rights and is not entitled to a dividend . the series c preferred stock is convertible at any time at the option of the holders into shares of our common stock , and contains price adjustment provisions which may , under certain circumstances , reduce the conversion price if we sell , or grant options to purchase , our common stock at a price lower than the then conversion price of the series c preferred stock . during 2016 , 132 shares of series c preferred stock were converted into 1,400,000 shares of common stock . during 2017 , 298 shares of series c preferred stock were converted into 19,862,000 shares of common stock . in may 2017 , in connection with the issuance of our series d convertible preferred stock discussed below , the conversion price of our series c preferred stock was automatically reduced from $ 0.05 per share to $ 0.015 per share . as of december 31 , 2017 , there were 2,570 shares of series c preferred stock outstanding , convertible into 171,349,733 shares of common stock . f-11 series d convertible preferred stock in may 2017 , we issued 1,000 shares of our series d convertible preferred stock , $ 1,000 stated value ( โ series d preferred stock โ ) , for gross proceeds of $ 1.0 million . net proceeds , after deduction of certain expenses , were $ 980,000 . each share of series d preferred stock is entitled to a liquidation preference equal to the initial purchase price , has no voting rights , and is not entitled to a dividend . the series d preferred stock is convertible at any time at the option of the holders into shares of our common stock , with an initial conversion price of $ 0.015 per share . the series d preferred shares contains price adjustment provisions , which may , under certain circumstances , reduce the conversion price on future dates according to a formula based on the then-current market price for our common stock . we assessed the series d preferred stock under asc topic 480 , โ distinguishing liabilities from equity โ ( โ asc 480 โ ) , asc topic 815 , โ derivatives and hedging โ ( โ asc 815 โ ) , and asc topic 470 , โ debt โ ( โ asc 470 โ ) . the series d preferred stock contains an embedded feature allowing an optional conversion by the holder into common stock which meets the definition of a derivative . however , we determined that the preferred stock is an โ equity host โ ( as described by asc 815 ) for purposes of assessing the embedded derivative for potential bifurcation and that the optional conversion feature is clearly and closely associated to the preferred stock host ; therefore , the embedded derivative does not require bifurcation and separate recognition under asc 815. we determined there to be a beneficial conversion feature ( โ bcf โ ) requiring recognition at its intrinsic value . story_separator_special_tag sab 104 provides guidance in applying gaap to revenue recognition issues , and specifically addresses revenue recognition for upfront , nonrefundable fees received in connection with research collaboration agreements . during 2017 , 2016 and 2015 , our revenue consisted primarily of grant and contract funding received from the nih . revenue from these arrangements is approximately equal to the costs incurred and is recorded as income as the related costs are incurred . in may 2014 , the fasb issued accounting standards update 2014-09 , revenue from contracts with customers ( asu 2014-09 ) , which creates a new topic , accounting standards codification topic 606. the standard is principle-based and provides a five-step model to determine when and how revenue is recognized . the core principle is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . asu 2014-09 is effective for the company beginning january 1 , 2018. we do not believe the adoption of asu 2014-09 will have a material impact on our financial statements . 23 stock-based compensation we account for stock-based transactions in which the company receives services from employees , directors or others in exchange for equity instruments based on the fair value of the aw ard at the grant date . compensation cost for awards of common stock is estimated based on the price of the underlying common stock on the date of issuance . compensation cost for stock options or warrants is estimated at the grant date based on each instrument 's fair value as calculated by the black-scholes option pricing model . we recognize stock-based compensation cost as expense ratably on a straight-line basis over the requisite service period for the award . in march 2016 , the fasb issued accounting standards update 2016-09 , improvements to employee share-based payment accounting ( โ asu 2016-09 โ ) , which amends accounting standards codification topic 718 , compensation โ stock compensation . asu 2016-09 is an attempt to simplify several aspects of the accounting for stock-based payment transactions , including the income tax consequences , classification of awards as either equity or liabilities , and classification on the statement of cash flows . we adopted asu 2016-09 effective january 1 , 2017 ; such adoption had no material impact on our financial statements . in may 2017 , the fasb issued accounting standards update 2017-09 , scope of modification accounting ( โ asu 2017-09 โ ) , which amends accounting standards codification topic 718 , compensation โ stock compensation . asu 2017-09 is an attempt to provide clarity and reduce both ( 1 ) diversity in practice and ( 2 ) cost and complexity when applying the guidance in topic 718 compensation โ stock compensation , to a change to the terms or conditions of a share-based payment award . asu 2017-09 is effective for the company beginning january 1 , 2018. we do not believe the adoption of asu 2017-09 will have a material impact on our financial statements . liquidity and capital resources o ur principal uses of cash are to finance our research and development activities . since inception , we have funded these activities primarily from government grants and clinical trial assistance , and from sales of our equity securities . at december 31 , 2017 , we had cash and cash equivalents of $ 312,727 and total assets of $ 490,235 , as compared to $ 454,030 and $ 610,217 , respectively , at december 31 , 2016. at december 31 , 2017 , we had a working capital deficit of $ 363,218 , compared to positive working capital of $ 174,532 at december 31 , 2016. our current liabilities at december 31 , 2017 and 2016 include $ 715,235 and $ 279,240 , respectively , of accrued management salaries and director fees , payment of which will continue to be deferred as discussed further below . net cash used in operating activities was $ 1,688,464 , $ 1,946,119 , and $ 2,705,263 for the years ended december 31 , 2017 , 2016 and 2015 , respectively . generally , the variances between periods are due to fluctuations in our net losses , offset by non-cash charges such as depreciation and stock-based compensation expense , and by net changes in our assets and liabilities . our net losses generally fluctuate based on expenditures for our research activities , partially offset by government grant revenues . as of december 31 , 2017 , there is $ 481,695 in remaining grant funds available for use during 2018. see the table with further details under โ results of operations โ grant and collaboration revenues โ below . during 2016 and 2017 members of our executive management team and our board of directors agreed to defer portions of their salaries and fees in order to help conserve the company 's cash resources . as of december 31 , 2017 and 2016 , the accumulated deferrals totaled $ 715,235 and $ 279,240 , respectively . the ongoing deferrals of approximately $ 30,200 per month for the management salaries and approximately $ 28,000 per quarter for the board of director fees will continue until such time as a significant financing event ( as determined by the board of directors ) is consummated . niaid has funded the costs of conducting all of our human clinical trials ( phase 1 and phase 2a ) to date for our preventive hiv vaccines , with geovax incurring certain costs associated with manufacturing the clinical vaccine supplies and other study support .
| results of operations we recorded net losses of $ 2,170,162 , $ 3,271,701 , and $ 2,689,287 for the years ended december 31 , 2017 , 2016 and 2015 , respectively . our operating results typically fluctuate due to the timing of activities and related costs associated with our research and development activities and our general and administrative costs , as described below . grant and collaboration revenue s we recorded grant and collaboration revenues of $ 1,075,270 , $ 828,918 , and $ 428,081 for the years ended december 31 , 2017 , 2016 and 2015 , respectively . our grant revenues relate to grants and contracts from niaid in support of our vaccine development activities . we record revenue associated with these grants as the related costs and expenses are incurred . the difference in our grant revenues from period to period is dependent upon our expenditures for activities supported by the grants and fluctuates based on the timing of the expenditures . additional detail concerning our grant revenues and the remaining funds available for use as of december 31 , 2017 is presented in the table below . replace_table_token_4_th in march 2017 , we entered into a collaboration with american gene technologies international , inc. ( agt ) whereby agt intends to conduct a phase 1 human clinical trial with our combined technologies , with the goal of developing a functional cure for hiv infection . the cost of the clinical trial will be borne by agt . the primary objectives of the trial will be to assess the safety and efficacy of the therapy , with secondary objectives to assess the immune responses as a measure of efficacy . in exchange for use of our vaccine product in the clinical trial , agt paid us a fee of $ 95,000 which we recorded as revenue during 2017. no commercial rights or licenses have yet been granted to agt .
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indicative or firm ) and the relationship of recent market activity to the prices provided from alternative pricing sources . f-18 fair values of these assets and liabilities are based on prices provided by independent market participants that are based on observable inputs using market-based valuation techniques . these valuation models and analytical tools use market story_separator_special_tag financial condition and results of operations . you should read the following discussion and analysis together with โ item 6. selected financial data โ and our financial statements and related notes included elsewhere in this annual report . the following discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those expressed or implied in any forward-looking statements as a result of various factors , including those set forth under the caption โ item 1a . risk factors. โ overview we are a commercial stage company that develops and markets products based on a novel technology platform to facilitate the routine use of complex molecular profiling . our htg edge and htg edgeseq platforms automate sample processing and can quickly , robustly and simultaneously profile hundreds or thousands of molecular targets from samples a fraction of the size required by current technologies . our objective is to establish the htg edge and htg edgeseq platforms as standards in molecular profiling and make this capability accessible to all molecular labs from research to the clinic . we believe that our target customers desire high quality molecular profiling information in a multiplexed panel format from increasingly smaller and less invasive samples , with the ability to collect such information locally to minimize turnaround time and cost . our htg edge system is capable of running both our original , plate-based chemistry , which quantifies rna using our plate reader included with the system , and our htg edgeseq chemistry , which is detected using ngs instrumentation provided by the end user . we also have the flexibility to provide the htg edge instrument without our plate reader or a dedicated htg edgeseq system for those customers whose focus is ngs readout of our htg edgeseq chemistry . we plan to launch a new version of our htg edgeseq system in 2017 that will target the lower-volume throughput lab market . this program , referred to as โ project janus โ for development , is expected to increase our addressable market by enabling efficient molecular profiling of smaller quantity batches of samples . our innovative platforms and menu of molecular profiling panels are being utilized by a wide range of customers including biopharmaceutical companies , academic institutions and molecular labs to simultaneously analyze a comprehensive set of molecular information from valuable clinical samples and substantially improve their workflow efficiency . we currently market several proprietary molecular profiling panels that address the needs of customers in high impact areas of translational research and biopharmaceutical biomarker and companion diagnostics . in addition , we have a focused development pipeline that includes planned panels for translational research , drug development and molecular diagnostics . our product strategy is to build complete profiling panels of established and emerging molecular targets for broader and disease-specific approaches . we have incurred significant losses since our inception , and we have never been profitable . we incurred net losses of $ 21.4 million and $ 14.0 million for the years ended december 31 , 2015 and 2014 , respectively . as of december 31 , 2015 , we had an accumulated deficit of $ 89.6 million and we had available cash and cash equivalents totaling approximately $ 3.3 million and investments in highly liquid corporate and government debt securities totaling $ 28.2 million . recent developments we continue to expand and evolve our assay and panel offerings , focusing primarily on our htg edgeseq platform . throughout the year ended december 31 , 2015 , we launched several new htg edgeseq products for research use only , including our htg edgeseq oncology biomarker panel , htg edgeseq immuno-oncology assay , htg edgeseq lymphoma panel and htg edgeseq diffuse large b-cell lymphoma cell of origin assay . we are collaborating with the centre of excellence for the prevention of organ failure ( proof centre ) in vancouver , canada by providing technical advice on our htg edgeseq system , which they are using for their development of an rna-based liquid biopsy test from peripheral blood . the heart transplant rejection blood test is intended to provide early indication of organ rejection in heart transplant patients , allowing doctors to better monitor and treat patients post-transplant . we completed a product development service agreement and have begun full development of our new low throughput instrument , project janus . we are targeting a launch by the end of 2017. we believe that this product will expand our addressable market into the smaller clinical labs . we hired a vice president of european commercial operations and have begun implementing a direct sales and support approach in europe . 69 factors affecting our performance we believe that our future results of operations are dependent on a number of factors discussed below . while each of these areas present significant opportunities for us , they also pose significant risks and challenges that we must successfully address . see the section entitled โ risk factors โ for further discussion of these risks . the installed base of our htg edge and htg edgeseq platform and proprietary panels the growth of our business is tied to the number of htg edge and htg edgeseq instruments we install . in addition to sales of our htg edge and htg edgeseq systems , we place systems under reagent rental agreements , where we install instruments in the customer 's facility for no upfront charge , and the customer agrees to purchase consumable products at a stated price over the term of the agreement . story_separator_special_tag the increase in higher margin consumable sales and the decrease in lower margin grant revenue year over year also contributed to the decrease in cost of revenue as a percentage of revenue . cost of revenue included $ 2.2 million in largely fixed manufacturing costs for the year ended december 31 , 2015 , and $ 1.3 million for the year ended december 31 , 2014. as we grow our revenues , we do not expect these fixed costs to increase on a linear basis and expect these costs will decrease as a percentage of revenue over time . research and development expenses research and development expenses represent costs to develop new proprietary panels and evolve our htg edgeseq platform . these expenses include payroll and related expenses , consulting expenses , laboratory supplies and amounts incurred under collaborative supply or development agreements . research and development costs are expensed as incurred . we expect our research and development expenses to increase in absolute dollars in future periods as we continue to develop additional panels and evolve our systems . further , we began the development of our next generation instrument platform , project janus , in 2015. we expect research and development costs to increase in 2016 and 2017 as this project continues toward the launch of our new platform . research and development expenses increased by $ 1.5 million , or 50 % , for the year ended december 31 , 2015 compared to the year ended december 31 , 2014. expenses incurred for the year ended december 31 , 2014 related primarily to the development of our htg edgeseq systems and panels . increases in research and development expenses in 2015 have been driven by increases in research and development headcount who support our increasing activities related to our next generation project janus instrument platform and our panel development programs . selling , general and administrative expenses selling , general and administrative expenses primarily consist of personnel costs for our sales and marketing , regulatory , legal , executive management and finance and accounting functions . the expenses also include stock-based compensation , promotional expenses , consulting and facility and overhead costs . our selling , general and administrative expenses increased in 2015 as a result of operating as a public company , including expenses related to compliance with the rules and regulations of the securities and exchange commission and the nasdaq global market , additional director and officer insurance costs , investor relations activities and other administrative and professional services . we expect to see increased levels of spending in 2016 as we will incur a full year of expenses as a public company . we also expect selling , general and administrative expenses to increase as we expand our commercial activities in the united states and in europe . selling , general and administrative expenses increased by $ 5.1 million , or 51 % , for the year ended december 31 , 2015 , compared to the year ended december 31 , 2014. this increase was primarily driven by higher sales and marketing headcount costs of approximately $ 1.7 million , in connection with the expansion of commercial sales activities for our htg edge and htg edgeseq systems in 2015. in addition , general and administrative costs increased by $ 2.5 million , primarily due to increases in payroll costs of $ 0.7 million , professional fees of $ 1.0 million , and insurance costs of $ 0.4 million . the increase in professional fees is related to financial audits , legal fees and consulting fees , all related to our initial public offering and subsequent costs of being a public company . insurance costs , also increased significantly over the prior year , primarily related to increased director and officer insurance premiums . loss from change in stock warrant valuation loss from the change in stock warrant valuation for the year ended december 31 , 2015 was a result of an increase in the fair value of our preferred stock warrants just prior to the exercise of series d preferred stock warrants , the conversion to common stock warrants of our series c-2 preferred stock warrants , convertible note warrants and growth term loan warrants at the time of our initial public offering . the increase in the fair value of our preferred stock warrants until their conversion to common stock warrants was primarily attributable to the proximity to and increased likelihood of completing an initial public offering . 73 interest expense as of december 31 , 2015 , we had an obligation due to nuvogen research , llc , or nuvogen , in the amount of $ 9.2 million under an asset purchase agreement and an obligation due to a syndicate of two lending institutions of $ 11.0 million under a growth term loan entered into in august 2014 and amended in august 2015. interest expense for the year ended december 31 , 2015 and 2014 related to our borrowings under our loan agreement and also included non-cash interest expense related to our obligation to nuvogen . interest expense increased by $ 1.0 million for the year ended december 31 , 2015 as compared to the year ended december 31 , 2014. the increase related primarily to the growth term loan that included interest of $ 0.9 million and the accretion of financing costs and related premiums and discounts of $ 0.4 million for the year ended december 31 , 2015 , compared to interest of $ 0.4 million and accretion of financing costs and related premiums and discounts of $ 0.2 million for the year ended december 31 , 2014. interest expense related to the nuvogen obligation was $ 0.3 million for the year ended december 31 , 2015 compared to $ 0.2 million for the year ended december 31 , 2014. loss on settlement of convertible debt with completion of our initial public offering in may 2015 , our remaining convertible note debt discount and deferred financing costs relating to the convertible notes totaling $ 0.7 million
| financial operations overview and results of operations comparison of the years ended december 31 , 2015 and 2014 replace_table_token_4_th revenue we generate revenue from the sale of our htg edge and htg edgeseq platforms , including our htg edge and htg edgeseq systems , our proprietary consumables and related services , such as sample processing for pharmaceutical customers . consumables consist primarily of our molecular profiling panels , which we also refer to as assays and test menu . total revenue for the year ended december 31 , 2015 increased by 21 % to $ 4.0 million compared to total revenue for the year ended december 31 , 2014. product revenue product revenue includes revenue from the sale of instruments and consumables . revenue from the sale of instruments is derived from the sale of our htg edge and htg edgeseq systems . revenue from the sale of instruments represented 19 % and 24 % of our total revenue for the years ended december 31 , 2015 and 2014 , respectively . in addition to the sale of our htg edge and htg edgeseq instruments , we place systems under reagent rental agreements , whereby we install instruments in our customer 's facility for no upfront charge and the customer agrees to purchase our consumable products at a stated priced over the term of the agreement . in some instances , we provide instruments free of charge under short term evaluation agreements which allow a prospective customer to evaluate our system in anticipation of their decision to purchase the system . in almost all of our evaluation agreements , our prospective customer is required to purchase consumables during the evaluation period . we also have collaboration agreements whereby academic or other collaborators are provided the use of our instrument at no cost .
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76 wex inc. notes to consolidated financial statements ( continued ) ( in thousands , except per share data ) the following is a summary of the allocation of the purchase price to the assets and liabilities acquired : replace_table_token_32_th ( a ) weighted average life โ 6.4 years . ( b ) story_separator_special_tag the discussion below focuses on the factors affecting our consolidated results of operations for the years ended december 31 , 2015 , 2014 and 2013 and financial condition at december 31 , 2015 and 2014 and , where appropriate , factors that may affect our future financial performance , unless stated otherwise . this discussion should be read in conjunction with the consolidated financial statements , notes to the consolidated financial statements and selected consolidated financial data . the acronyms and abbreviations identified below are used in the `` management 's discussion and analysis of financial condition and results of operations '' as well as in item 8 . `` financial statements and supplementary data . '' the following is provided to aid the reader and provide a reference when reviewing the consolidated financial statements . average expenditure per payment processing transaction average total dollars of spend in a funded fuel transaction 2011 credit agreement credit agreement entered into on may 23 , 2011 among the company , as borrower , wex card holdings australia pty ltd , a wholly-owned subsidiary of the company , as specified designated borrower , bank of america , n.a. , as administrative agent and letter of credit issuer , and the other lenders party thereto 2013 credit agreement amended and restated credit agreement entered into on january 18 , 2013 by and among the company and certain of our subsidiaries , as borrowers , and wex card holdings australia pty ltd , as specified designated borrower , with a lending syndicate 2014 amendment agreement amendment and restatement agreement entered into on august 22 , 2014 , among the company , the lenders party thereto , and bank of america , n.a. , as administrative agent 2014 credit agreement second amended and restated credit agreement entered into on august 22 , 2014 , by and among the company and certain of our subsidiaries , as borrowers , and wex card holding australia pty ltd. , as designated borrower , and bank of america , n.a. , as administrative agent on behalf of consenting lenders . adjusted net income or ani a non-gaap metric that adjusts net earnings attributable to wex inc. to exclude fair value changes of fuel-price related derivative instruments , the amortization of purchased intangibles , the impact of net foreign currency remeasurement gains and losses , the expense associated with stock-based compensation , acquisition related expenses and adjustments , the net impact of tax rate changes on the company 's deferred tax asset and related changes in the tax-receivable agreement , deferred loan costs associated with the extinguishment of debt , certain non-cash asset impairment charges , restructuring charges , gains on the extinguishment of a portion of the tax receivable agreement , regulatory reserves , gains or losses on divestitures and adjustments attributable to non-controlling interests , including adjustments to the redemption value of a non-controlling interest , as well as the related tax impacts of the adjustments asu 2014-09 accounting standards update no . 2014-09 revenue from contracts with customers ( topic 606 ) asu 2015-03 accounting standards update no . 2015-03 interestโimputation of interest ( subtopic 835-30 ) : simplifying the presentation of debt issuance costs asu 2015-16 accounting standards update no . 2015-16 business combinations ( topic 805 ) : simplifying the accounting for measurement-period adjustments company wex inc. and all entities included in the consolidated financial statements efs electronic funds source llc esso portfolio in europe european commercial fleet card portfolio acquired from exxonmobil evolution1 eb holdings corp. and its subsidiaries which includes evolution1 , inc. , acquired by the company on july 16 , 2014 evolution1 plan evolution1 401 ( k ) plan sponsored by evolution1 inc. fasb financial accounting standards board fdic federal deposit insurance corporation gaap generally accepted accounting principles in the united states higher one higher one , inc. a technology and payment services company focused on higher education indenture the notes were issued pursuant to an indenture dated as of january 30 , 2013 among the company , the guarantors listed therein , and the bank of new york mellon trust company , n.a. , as trustee 31 nci non-controlling interests nol net operating loss notes $ 400 million notes with a 4.75 % fixed rate , issued on january 30 , 2013 now deposits negotiable order of withdrawal deposits over-the-road typically heavy trucks traveling long distances pacific pride pacific pride services , llc , previously a wholly-owned subsidiary , sold on july 29 , 2014 payment solutions purchase volume total amount paid by customers for transactions payment processing transactions funded payment transactions where the company maintains the receivable for total purchase ppg price per gallon of fuel rapid ! paycard rapid ! paycard , previously a line of business of the company , sold on january 7 , 2015 saas software-as-a-service sec securities and exchange commission securitization subsidiary southern cross wex 2015-1 trust , a bankruptcy-remote subsidiary consolidated by the company total fleet transactions total of transaction processing and payment processing transactions transaction processing transactions unfunded payment transactions where the company is the processor and only has receivables for the processing fee unik unik s.a. , the company 's brazilian subsidiary wex wex inc. wex europe services consists primarily of our european commercial fleet card portfolio acquired by the company from exxonmobil on december 1 , 2014 2015 highlights and year in review wex stands as a premier global payments solution provider in the corporate payments market . our opportunities for growth extend well beyond the fleet fuel market , and in particular to the online travel and healthcare payments market . building on a leading market position in our core fleet business , we continue to expand our company . story_separator_special_tag we amended prior year tax returns as a result of this change in estimate which reduced the 2014 tax expense by approximately $ 11.3 million . in addition , the 2014 tax provision was reduced by $ 2.4 million as a result of the change in estimate . future tax rates may fluctuate due to changes in the mix of earnings among different tax jurisdictions . our tax rate has fluctuations due to the impacts that rate and mix changes have on our net deferred tax assets . we anticipate that our future gaap effective tax rate should be within the range of our historical rates , excluding discrete items . 33 segments previously , we reported our results of operations in two business segments , fleet payment solutions and other payment solutions . during the fourth quarter of 2015 , we revised our internal and external reporting and now report our results of operations in three reportable segments : fleet solutions , travel and corporate solutions , and health and employee benefit solutions . the fleet solutions segment provides customers with payment and transaction processing services specifically designed for the needs of commercial and government fleets . this segment also provides information management services to these fleet customers . fleet solutions remains on the same basis as the historical fleet payment solutions business segment . the travel and corporate solutions segment focuses on the complex payment environment of business-to-business payments , providing customers with payment processing solutions for their corporate payment and transaction monitoring needs . travel and corporate solutions includes the travel business as well as other virtual and prepaid verticals . the health and employee benefit solutions segment provides healthcare payment products and saas consumer directed platforms , as well as payroll related benefits to customers in brazil . summarized quarterly revenues by segment for the years ended december 31 , 2015 and 2014 , are as follows : replace_table_token_4_th 34 results of operations year ended december 31 , 2015 , as compared to the year ended december 31 , 2014 fleet solutions segment the following table reflects comparative operating results and key operating statistics within our fleet solutions segment : replace_table_token_5_th nm - not meaningful ( a ) as of december 1 , 2014 , these key operating statistics include fuel related payment processing transactions and gallons of fuel from the esso portfolio in europe . revenues payment processing revenue decreased $ 50.8 million for 2015 , as compared to 2014 . this decrease is primarily due to a decline in the average domestic price per gallon of fuel in 2015 as compared to 2014. this decrease is partially offset by an increase in payment processing volume primarily related to the acquisition of the esso portfolio in europe in december of 2014. other revenues increased $ 27.5 million in 2015 , as compared to 2014 , primarily due to ( i ) an increase in account servicing revenue as a result of the esso portfolio in europe acquisition in december of 2014 ; and ( ii ) an increase in finance fees for 2015 , as compared to 2014 . the increase in finance fees is primarily due to an increase in late fees assessed as well as additional factoring revenue . payments for customer receivables , or trade receivables , are due within thirty days or less . late fee revenue , which is included in finance fees , is earned when a customer 's receivable balance becomes delinquent . the late fee is calculated using a stated late fee rate based on the outstanding balance , subject to a minimum charge . the absolute amount of such outstanding balances can be attributed to ( i ) changes in fuel prices ; ( ii ) customer specific transaction volume ; and ( iii ) customer specific delinquencies . late fee revenue can also be impacted by changes in ( i ) late fee rates and ( ii ) increases or decreases in the number of customers with overdue balances . 35 expenses the following table compares selected expense line items within our fleet solutions segment : replace_table_token_6_th nm - not meaningful salary and other personnel expenses increased $ 15.0 million for 2015 , as compared to 2014 . the increase is primarily due to an increase in headcount related to the acquisition of the esso portfolio in europe in december of 2014 , partially offset by lower stock compensation expense . we recorded restructuring costs of approximately $ 9.0 million related to our global review of operations , of which $ 1.4 million was paid in 2015. the costs related to this initiative are employee termination benefits and third party service fees . these actions are expected to continue through 2017. we anticipate lower employee and facility related expenses once the restructuring is complete . service fees increased $ 20.3 million during 2015 , as compared to 2014 . the increase is due to expenses associated with the acquisition of the esso portfolio in europe in december of 2014. this increase is partially offset by a decrease in service fees related to the divestiture of pacific pride that occurred in july of 2014. provision for credit losses decreased $ 9.9 million for 2015 , as compared to 2014 . we use a roll rate methodology to calculate the amount necessary for our ending receivable reserve balance . this methodology takes into account total receivable balances , recent charge off experience , recoveries on previously charged off accounts , and the dollars that are delinquent to calculate the total reserve . in addition , management undertakes a detailed evaluation of the receivable balances to help ensure further overall reserve adequacy . we generally measure our credit loss performance by calculating credit losses as a percentage of total fuel expenditures on payment processing transactions . our credit losses as a percentage of customers spend decreased to 9.4 basis points as compared to 11.7 basis points for 2014 .
| 2014 highlights during 2014 , our increase in accounts receivable , net of the account receivable balances acquired with our acquisitions , was primarily funded by operating activities . accounts receivable increased in 2014 over 2013 as a result of increased customer spend levels . on july 16 , 2014 , we acquired evolution1 for approximately $ 532.2 million in cash . the transaction was financed through our cash on hand and existing credit facility . on july 29 , 2014 , we sold our pacific pride subsidiary , for $ 49.7 million , which resulted in a pre-tax gain of $ 27.5 million . 47 on august 22 , 2014 , we entered into agreements , including the 2014 credit agreement , to modify certain terms of our existing bank borrowing agreements in order to permit the additional financing and investments necessary to facilitate the consummation of the esso portfolio in europe transaction . on december 1 , 2014 , wex europe services limited , acquired certain assets of exxonmobil 's european commercial fuel card program for approximately $ 379.5 million , which includes operations , funding , pricing , sales and marketing in nine countries in europe . during 2014 , we had $ 58.1 million of capital expenditures . a significant portion of our capital expenditures are for the development of internal-use computer software primarily to enhance product features and functionality in the united states and for the development of our global fleet platform . our capital spending is financed primarily through internally generated funds . 2013 highlights during 2013 , our increase in accounts receivable , net of the account receivable balances acquired with our acquisitions , was funded by operating activities as well as a $ 150 million overall increase in borrowed federal funds and deposits . accounts receivable increased in 2013 over 2012 as a result of increased customer spend levels .
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total net income tax ( refunds ) payments were $ 98.0 million in 2017 , $ ( 42.4 ) million in 2016 , and $ ( 7.9 ) million in 2015. the company and its subsidiaries are subject to u.s. federal and state income taxes in multiple jurisdictions . in many cases our uncertain tax positions are related to tax years that remain open and subject to examination by the relevant taxing authorities . in general , the company 's 2014 through 2017 tax years remain open to examination . additional years may be open to the extent attributes are being carried forward to an open year . in march 2017 , the internal revenue service ( irs ) initiated an examination of the company 's federal income tax returns for the years 2013 through 2015. as of december 31 , 2017 , the irs has not proposed any adjustments with respect to the examination . the company 's subsidiaries are also subject to foreign income taxes in certain jurisdictions . in november 2016 , the canadian revenue agency ( โ cra โ ) initiated an examination of the company 's canadian subsidiary for the periods 2013 through 2015. as of december 12 , 2017 , the cra concluded its examination with minimal adjustments . as of december 31 , 2017 and 2016 , our liability for unrecognized tax benefits related primarily to state income 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 . - 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 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 product 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 . additionally , we compare our trends to those of our peers . we continuously monitor factors that impact 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 oil prices which have risen from a low of approximately $ 29 per barrel in the first quarter of 2016 to approximately $ 65 per barrel in the first quarter of 2018. as a result of this significant increase in the price of oil , as well as improvements in the prices of natural gas and natural gas liquids , the u.s. domestic rig count has risen from an historic low of 404 in the second quarter of 2016 to 975 early in the first quarter of 2018. we believe that there are several reasons for the increase in the price of oil during the past two years . one catalyst for the improvement in the price of oil relates to the announcement by the opec cartel during the fourth quarter of 2016 that it would impose production quotas on its member countries in order to support the price of oil on the world market . in addition , global demand for oil appears to be growing , and global production and inventories do not appear to be excessive . rpc believes that oil production in the united states has also become an increasingly important determinant of global oil prices , because the united states grew to be the world 's largest producer of oil during the second quarter of 2015 . 18 following its recent peak , u.s. oil production fell by approximately 13 percent as of the third quarter of 2016. story_separator_special_tag the prices of oil and natural gas increased during the third and fourth quarters of 2016 and throughout 2017. we believe that the price of oil has risen to a level that provides adequate financial returns to our customers and encourages increased drilling and production activities in many domestic oil-producing basins . however , the price of natural gas has not risen to a level that encourages our customers to increase their drilling and production activities . the average price of natural gas liquids increased by 57.9 percent during 2017 as compared to the prior year . prevailing commodity prices early in the first quarter of 2018 have moderately positive implications for rpc 's near-term activity levels . the majority of the u.s. domestic rig count remains directed towards oil . at the beginning of the first quarter of 2018 , approximately 80 percent of the u.s. domestic rig count was directed towards oil , consistent with the prior year . we believe that oil-directed drilling will remain the majority of domestic drilling , and that natural gas-directed drilling will remain a low percentage of u.s. domestic drilling in the near term . we believe that this relationship will continue due to relatively low prices for natural gas , high production from existing natural gas wells , and industry projections of limited increases in domestic natural gas demand during the near term . we continue to monitor the market for our services and the competitive environment during 2018. the u.s. domestic rig count has increased sharply since the historical low recorded during the second quarter of 2016 , which has increased demand and pricing for our services . we are encouraged by the fact that drilling and completion activities continue to be highly service-intensive and require a large amount of equipment and raw materials . furthermore , we note that some wells in the u.s. domestic market have been drilled but not completed , and that the number of drilled but not completed wells has increased by more than 80 percent since the beginning of 2014. we believe that many of our customers have started to complete these wells , and that they provide potential revenue for rpc 's completion-directed services during the near term . finally , we are encouraged by our belief that many of our competitors have not maintained their equipment to a level that allows them to provide reliable , consistent services to their customers . we believe that pricing for services to the industry has reached a level that provides financial returns that will allow the industry to maintain its fleet of revenue-producing equipment and hire additional personnel to operate idle equipment . we note that these improved financial returns have allowed previously insolvent service companies to resume operations and add equipment , and that a number of smaller competitors have completed initial or secondary public equity offerings over the past year , which may facilitate their access to capital . while we believe that demand for revenue-producing service capacity will continue to exceed supply during the near term , we are monitoring the actions of our competitors and the formation of new competitors very carefully . one of our responses to such competitive threats is to undertake relatively moderate fleet expansions , thus preserving our capital strength and liquidity . rpc did not increase the size of its fleet of revenue-producing equipment during 2017 , although in the third quarter of 2017 we placed orders for new revenue-producing equipment to be delivered during the second quarter of 2018. rpc also monitors the financial stability of our customers , because many of them rely on the debt and equity markets as a source of capital to conduct their operations , and if these sources of capital do not continue , our customers may have to curtail their drilling and completion operations . our consistent response to the industry 's persistent uncertainty is to maintain sufficient liquidity and a conservative capital structure and monitor our discretionary spending . we intend to maintain a financial structure that includes little or no debt during the near term . an additional benefit of our financial liquidity is that we were able to take advantage of is our ability to maintain our equipment during the recent industry downturn , which allowed us to benefit immediately when industry activity levels increased and we were able to return our idle revenue-producing equipment to service quickly and at minimal cost . rpc believes that the current macroeconomic environment as well as the near-term outlook regarding commodity prices and the types of services required by our customers in the current oilfield completion operating environment holds positive indications for our revenues , earnings and operating cash flows during 2018. in addition , we expect that the recently enacted tax cuts and jobs act will have a meaningful positive impact on our financial results through increased earnings and operating cash flow in 2018. we believe that our projected lower tax rates will further enhance our ability to improve rpc 's shareholder returns through profitable growth , dividends and share repurchases . 20 story_separator_special_tag to the prior year . the average domestic rig count during 2016 was 48.2 percent lower than 2015. international revenues , which decreased from $ 72.1 million in 2015 to $ 51.2 million in 2016 , were seven percent of consolidated revenues in 2016 compared to six percent of consolidated revenues in 2015. international revenues decreased primarily due to lower customer activity levels in australia , gabon , equatorial guinea , china and argentina in 2016 , partially offset by increased activity in bolivia compared to the prior year . our international revenues are impacted by the timing of project initiation and their ultimate duration . cost of revenues . cost of revenues in 2016 was $ 607.9 million compared to $ 986.1 million in 2015 , a decrease of $ 378.3 million or 38.4 percent , due to lower activity levels coupled with reduced personnel headcount and incentive compensation .
| results of operations replace_table_token_3_th ( 1 ) the indicated statement of operations data for 2017 includes the impact of a net discrete tax benefit of $ 19.3 million , or $ 0.09 per share , recorded as a result of the tax cuts and jobs act enacted during the fourth quarter of 2017. year ended december 31 , 2017 compared to year ended december 31 , 2016 revenues . revenues in 2017 increased $ 866.3 million or 118.8 percent compared to 2016. the technical services segment revenues in 2017 increased $ 858.7 million or 126.3 percent compared to the prior year . the increase is due primarily to improved pricing , higher service intensity and activity levels and a larger active fleet of revenue-producing equipment as compared to prior year , particularly within our pressure pumping service . the support services segment revenues in 2017 increased $ 7.6 million or 15.3 percent compared to 2016 due primarily to improved activity levels and pricing in the rental tool service line , which is the largest service line within this segment . technical services reported an operating profit during 2017 compared to an operating loss in the prior year , while support services reported a smaller operating loss in 2017 compared to the prior year . the average price of oil increased 16.9 percent while the average price of natural gas increased 18.8 percent during 2017 compared to the prior year . the average domestic rig count during 2017 was 72.2 percent higher than 2016. international revenues , which increased from $ 51.2 million in 2016 to $ 55.8 million in 2017 , were three percent of consolidated revenues in 2017 compared to seven percent of consolidated revenues in 2016. international revenues increased primarily due to higher customer activity levels in canada and argentina in 2017 , partially offset by lower activity in gabon and bolivia compared to the prior year .
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basis of presentation during the fourth quarter of 2018 , the company classified the consumer and industrial chemistry technologies segment as held for sale based on management 's intention to sell this business . during the fourth quarter of 2016 , the company also classified the drilling technologies and production technologies segments as held for sale based on management 's intention to sell these businesses . the company 's historical financial statements have been revised to present the operating results of the consumer and industrial chemistry technologies , drilling technologies , and production technologies segments as discontinued operations . the results of operations of these segments are presented as โ loss from discontinued operations โ in the statement of operations and the related cash flows of these segments has been reclassified to discontinued operations for all periods presented . the assets and liabilities of these segments have been reclassified to โ assets held for sale โ and โ liabilities held for sale โ , respectively , in the consolidated balance sheet for all periods presented , as applicable . during 2017 , the company completed the sale or disposal of the assets and transfer or liquidation of liabilities and obligations of the drilling technologies and production technologies segments . results of operations of the consumer and industrial chemistry technologies segment for the years ended december 31 , 2018 , 2017 , and 2016 are discussed below . results of operations of the drilling technologies and production technologies segments for the year ended december 31 , 2016 are discussed below . executive summary flotek is a global , diversified , technology-driven company that develops and supplies chemistries and services to the oil and gas industries . flotek also supplied high value compounds to companies that make food and beverages , cleaning products , cosmetics , and other products that are sold in consumer and industrial markets , classified as discontinued operations at december 31 , 2018. flotek operates in over 20 domestic and international markets . the company 's oilfield business includes specialty chemistries and logistics which enable its customers in pursuing improved efficiencies in the drilling and completion of their wells . customers include major integrated oil and gas ( โ o & g โ ) companies , oilfield services companies , independent o & g companies , pressure-pumping service companies , national and state-owned oil companies , and international supply chain management companies . the company also produced non-energy-related citrus oil and related products , classified as discontinued operations at december 31 , 2018 , including ( 1 ) high value compounds used as additives by companies in the flavors and fragrances markets and ( 2 ) environmentally friendly chemistries for use in numerous industries around the world , including the o & g industry . additionally , the company also provides automated bulk material handling , loading facilities , and blending capabilities . continuing operations the operations of the company are categorized into one reportable segment : energy chemistry technologies . energy chemistry technologies designs , develops , manufactures , packages , and markets specialty chemistries used in o & g well drilling , cementing , completion , and stimulation . these technologies developed by flotek 's research and innovation team enable customers to pursue improved efficiencies in the drilling and completion of wells . discontinued operations in 2018 , the consumer and industrial chemistry technologies segment qualified for classification as a discontinued operation . the drilling technologies and production technologies segments were sold during 2017 and are classified as discontinued operations , as well . consumer and industrial chemistry technologies designed , developed , and manufactured products that are sold to companies in the flavor and fragrance industries and specialty chemical industry . these technologies are used by beverage and food companies , fragrance companies , and companies providing household and industrial cleaning products . drilling technologies assembled , rented , sold , inspected , and marketed downhole drilling equipment used in energy , mining , and industrial drilling activities . production technologies assembled and marketed production-related equipment , including pumping system components , electric submersible pumps ( โ esp โ ) , gas separators , valves , and services that support natural gas and oil production activities . 19 market conditions the company 's success is sensitive to a number of factors , which include , but are not limited to , drilling and well completion activity , customer demand for its advanced technology products , market prices for raw materials , and governmental actions . drilling and well completion activity levels are influenced by a number of factors , including the number of rigs in operation and the geographical areas of rig activity . additional factors that influence the level of drilling and well completion activity include : historical , current , and anticipated future o & g prices , federal , state , and local governmental actions that may encourage or discourage drilling activity , customers ' strategies relative to capital funds allocations , weather conditions , and technological changes to drilling and completion methods and economics . historical north american drilling activity is reflected in โ table a โ below . customers ' demand for advanced technology products and services provided by the company are dependent on their recognition of the value of : chemistries that improve the economics of their o & g operations , chemistries that meet the need of consumer product markets , and chemistries that are economically viable , socially responsible , and ecologically sound . market prices for commodities , including citrus oils , can be influenced by : historical , current , and anticipated future production levels of the global citrus ( primarily orange ) crops , weather related risks , health and condition of citrus trees ( e.g. , disease and pests ) , and international competition and pricing pressures resulting from natural and artificial pricing influences . story_separator_special_tag in addition , management believes the company is well-positioned to take advantage of significant increases in demand for its products should market conditions improve dramatically in the near term . results of continuing operations ( in thousands ) : replace_table_token_3_th story_separator_special_tag research and innovation ( โ r & i โ ) expense for the year ended december 31 , 2017 , increased $ 3.8 million , or 40.9 % , from 2016 . the increase in r & i is primarily attributable to increased personnel for new product development and flotek 's commitment to remaining responsive to customer needs , increased demand , continued growth and refining of existing product lines , and the development of new chemistries which are expected to expand the company 's intellectual property portfolio . interest and other expense decreased $ 1.3 million , or 55.6 % , for the year ended december 31 , 2017 , compared to 2016 , primarily due to the repayment of the term loan in may 2017 , 23 as well as decreasing the outstanding balance of the revolving credit facility throughout 2017. the company recorded an income tax provision of $ 6.1 million , yielding an effective tax provision rate of 53.7 % , for the year ended december 31 , 2017 , compared to an income tax benefit of $ 2.2 million , yielding an effective tax benefit rate of 33.1 % , in 2016 . as part of the company 's strategic restructuring of its business to enable a greater focus on its core businesses in energy chemistry and consumer and industrial chemistry , the company completed the sale or disposal of the assets and transfer or liquidation of liabilities and obligations of the drilling technologies and production technologies segments during 2017. the company recorded a net loss from discontinued operations of $ 14.3 million for the year ended december 31 , 2017 . results by segment replace_table_token_4_th results for 2018 compared to 2017 โenergy chemistry technologies ect revenue for the year ended december 31 , 2018 , decreased $ 65.3 million , or 26.9 % , from 2017 , compared to a 25.4 % increase in completion activity as measured by the eia . ect 's under-performance when compared to these market indicators was primarily attributable to product mix and an ongoing transition related to the company selling progressively more to oil and gas company end users rather than through energy service companies . income from operations for the ect segment decreased $ 70.4 million for the year ended december 31 , 2018 , compared to 2017 , partially due to the $ 37.2 million goodwill impairment charge taken in the second quarter of 2018. income from operations , excluding impairment , decreased $ 33.2 million , or 98.9 % , for the year ended december 31 , 2018 , compared to 2017 . this decrease is primarily a result of gross margin compression caused by reduced sales activity coupled with increases in material and labor costs , inventory reserve adjustments , and higher logistics expenditures , partially offset by a reduction in overhead expenses . results for 2017 compared to 2016 โenergy chemistry technologies ect revenue for the year ended december 31 , 2017 , increased $ 54.9 million , or 29.2 % , from 2016 , compared to a 39.9 % increase in completion activity as measured by the eia . ect performed along these market indicators by continuing to promote the benefits of its cnf ยฎ chemistries . revenues increased with the increased customer demand resulting from improved oilfield market conditions . income from operations for the ect segment increased $ 4.6 million , or 15.8 % , for the year ended december 31 , 2017 , compared to 2016. this increase is primarily attributable to an increase in gross profit , increased activity associated with sales and marketing efforts in pursuit of growth opportunities , and cost reductions . the company continues its commitment to research and innovation efforts within energy chemistry technologies . discontinued operations during the fourth quarter of 2018 , the company classified the consumer and industrial chemistry technologies segment as held for sale based on management 's intention to sell the business . in addition , during the fourth quarter of 2016 , the company classified the drilling technologies and production technologies segments as held for sale based on management 's intention to sell these businesses . the company 's historical financial statements have been revised to present the operating results of the consumer and industrial chemistry technologies , drilling technologies , and production technologies segments as discontinued operations . during 2017 , the company completed the sale or disposal of the assets and transfer or liquidation of liabilities and obligations of the drilling technologies and production technologies segments . 24 replace_table_token_5_th results for 2018 compared to 2017 โconsumer and industrial chemistry technologies cict revenue for the year ended december 31 , 2018 , decreased $ 1.6 million , or 2.2 % , from 2017 , primarily due to a decline in the value of terpenes and some softness for flavor ingredients . the market for citrus oils was affected by the historic high prices experienced in 2017 and 2018 , which limited market activity and top line revenue . citrus greening reduced citrus crops globally , thereby limiting the company 's performance in comparison to the growth experienced in 2016 and 2017. income from operations for the cict segment decreased $ 4.4 million , or 59.1 % , for the year ended december 31 , 2018 , from 2017 , primarily due to higher raw material costs and reduced by-product sales , as well as increased expenses related to operations of the new still put into production in the third quarter of 2018. results for 2017 compared to 2016 โconsumer and industrial chemistry technologies cict revenue for the year ended december 31 , 2017 , decreased $ 0.6 million , or 0.8 % , from 2016 , primarily due to a decline in sales volumes . the high price for citrus oils limited market activity and top line revenue .
| results for 2018 compared to 2017 โconsolidated consolidated revenue for the year ended december 31 , 2018 , decreased $ 65.3 million , or 26.9 % , from 2017 . the decrease in revenue was due to changes in product mix and an ongoing transition related to the company selling progressively more to oil and gas company end users rather than through energy service companies . 22 consolidated operating expenses for the year ended december 31 , 2018 , decreased $ 28.9 million , or 15.3 % , from 2017 , and , as a percentage of revenue , increased to 89.9 % for the year ended december 31 , 2018 , from 77.6 % in 2017 . the decrease in expenses was primarily attributable to decreased sales , lower stock compensation expense , and decreased headcount , partially offset by increased freight and other direct costs associated with manufacturing . corporate general and administrative ( โ cg & a โ ) expenses are not directly attributable to products sold or services provided . cg & a costs decreased $ 10.0 million , or 24.2 % , for the year ended december 31 , 2018 , from 2017 . as a percentage of revenue , cg & a rose from 17.1 % to 17.7 % for the year ended december 31 , 2018 , compared to 2017 . the decrease in cg & a costs was primarily due to aggressive cost reduction measures which began in the last quarter of 2017 , as well as lower incentive and stock compensation expense . depreciation and amortization expense for the year ended december 31 , 2018 , decreased by $ 0.6 million , or 5.7 % , from 2017 . research and innovation ( โ r & i โ ) expense for the year ended december 31 , 2018 , decreased $ 2.8 million , or 21.1 % , from 2017 . the decrease in r & i is primarily attributable to reallocating personnel into operational roles .
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for each of the three years in the period ended december 31 , 2018 , and the related notes ( collectively referred to as the โ financial statements โ ) . in our opinion , the financial statements present fairly , in all material respects , the financial position of the company at december 31 , 2018 and 2017 , and the results of their operations and their cash flows for each of the three years in the period ended december 31 , 2018 , in conformity with accounting principles generally accepted in the united states of america . going concern uncertainty the accompanying financial statements have been prepared assuming that the company will continue as a going concern . as discussed in note 1 to the financial statements , the company has suffered recurring losses from operations and has an accumulated deficit that raise substantial doubt about its ability to continue as a going concern . management 's plans in regard to these matters are also described in note 1. the financial statements do not include any adjustments that might result from the outcome of this uncertainty . basis for opinion these financial statements are the responsibility of the company 's management . our responsibility is to express an opinion on the company 's financial statements based on our audits . we are a public accounting firm registered with the public company accounting oversight board ( united states ) ( โ pcaob โ ) and are required to be independent with respect to the company in accordance with the u.s. federal securities laws and the applicable rules and regulations of the securities and exchange commission and the pcaob . we conducted our audits in accordance with the standards of the pcaob . those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement , whether due to error or fraud . the company is not required to have , nor were we engaged to perform , an audit of its internal control over financial reporting . as part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the company 's internal control over financial reporting . accordingly , we express no such opinion . our audits included performing procedures to assess the risks of material misstatement of the financial statements , whether due to error or fraud , and performing procedures that respond to those risks . such procedures included examining , on a test basis , evidence regarding the amounts and disclosures in the financial statements . our audits also included evaluating the accounting principles used and significant estimates made by management , as well as evaluating the overall presentation of the financial statements . we believe that our story_separator_special_tag forward-looking statements statements in the following discussion and throughout this report that are not historical in nature are โ forward-looking statements โ within the meaning of section 27a of the securities act and section 21e of the exchange act . you can identify forward-looking statements by the use of words such as โ expect , โ โ anticipate , โ โ estimate , โ โ may , โ โ will , โ โ should , โ โ intend , โ โ believe , โ and similar expressions . although we believe the expectations reflected in these forward-looking statements are reasonable , such statements are inherently subject to risk and we can give no assurances that our expectations will prove to be correct . actual results could differ from those described in this report because of numerous factors , many of which are beyond our control . these factors include , without limitation , those described under item 1a โ risk factors. โ we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect actual outcomes . please see โ note regarding forward-looking statements โ at the beginning of this annual report on form 10-k. the following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes thereto and other financial information appearing elsewhere in this annual report on form 10-k. overview we are a pharmaceutical company developing therapeutics utilizing our proprietary long-term drug delivery platform , proneura , for the treatment of select chronic diseases for which steady state delivery of a drug provides an efficacy and or safety benefit . we have been transitioning to a commercial stage enterprise since may 25 , 2018 when we reacquired probuphine ยฎ ( buprenorphine ) implant , or probuphine , from braeburn pharmaceuticals , inc. , or braeburn .. probuphine is the first product based on our proneura technology approved in the u.s. and canada for the maintenance treatment of opioid use disorder , or oud , in eligible patients . since the reacquisition , we have been implementing a strategic plan aimed at building the foundation to support an effective u.s. product relaunch targeted at select oud market segments best suited for a product like probuphine , including the establishment of a small experienced commercial team and the engagement of new strategic partners in the product order and distribution process . proneura consists of a small , solid rod made from a mixture of ethylene-vinyl acetate , or eva , and a drug substance . the resulting product is a solid matrix that is placed subdermally , normally in the inside part of the upper arm in a short physician office based outpatient procedure , and is removed in a similar manner at the end of the treatment period . story_separator_special_tag this re-evaluation may shorten or lengthen the period over which revenue is recognized . changes to these estimates are recorded on a cumulative catch up basis . if we can not reasonably estimate when our performance obligations either are completed or become inconsequential , then revenue recognition is deferred until we can reasonably make such estimates . revenue is then recognized over the remaining estimated period of performance using the cumulative catch-up method . revenue is recognized for licenses or sales of functional intellectual property at the point in time the customer can use and benefit from the license . for performance obligations that are services , revenue is recognized over time proportionate to the costs that we have incurred to perform the services using the cost-to-cost input method . 40 share-based payments we recognize compensation expense for all share-based awards made to employees , directors and consultants . the fair value of share-based awards is estimated at the grant date based on the fair value of the award and is recognized as expense , net of estimated pre-vesting forfeitures , ratably over the vesting period of the award . we use the black-scholes option pricing model to estimate the fair value method of our awards . calculating stock-based compensation expense requires the input of highly subjective assumptions , including the expected term of the share-based awards , stock price volatility , and pre-vesting forfeitures . we estimate the expected term of stock options granted for the years ended december 31 , 2018 and 2017 based on the historical experience of similar awards , giving consideration to the contractual terms of the share-based awards , vesting schedules and the expectations of future employee behavior . we estimate the volatility of our common stock at the date of grant based on the historical volatility of our common stock . the assumptions used in calculating the fair value of stock-based awards represent our best estimates , but these estimates involve inherent uncertainties and the application of management judgment . as a result , if factors change and we use different assumptions , our stock-based compensation expense could be materially different in the future . in addition , we are required to estimate the expected pre-vesting forfeiture rate and only recognize expense for those shares expected to vest . we estimate the pre-vesting forfeiture rate based on historical experience . if our actual forfeiture rate is materially different from our estimate , our stock-based compensation expense could be significantly different from what we have recorded in the current period . income taxes we make certain estimates and judgments in determining income tax expense for financial statement purposes . these estimates and judgments occur in the calculation of certain tax assets and liabilities , which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes . as part of the process of preparing our financial statements , we are required to estimate our income taxes in each of the jurisdictions in which we operate . this process involves us estimating our current tax exposure under the most recent tax laws and assessing temporary differences resulting from differing treatment of items for tax and accounting purposes . we assess the likelihood that we will be able to recover our deferred tax assets . we consider all available evidence , both positive and negative , expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance . if it is not more likely than not that we will recover our deferred tax assets , we will increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable . clinical trial accruals we also record accruals for estimated ongoing clinical trial costs . clinical trial costs represent costs incurred by cros and clinical sites . these costs are recorded as a component of research and development expenses . under our agreements , progress payments are typically made to investigators , clinical sites and cros . we analyze the progress of the clinical trials , including levels of patient enrollment , invoices received and contracted costs when evaluating the adequacy of accrued liabilities . significant judgments and estimates must be made and used in determining the accrued balance in any accounting period . actual results could differ from those estimates under different assumptions . revisions are charged to expense in the period in which the facts that give rise to the revision become known . the actual clinical trial costs for studies conducted in the past three years have not differed materially from the estimated projection of expenses . warrants issued in connection with equity financing we generally account for warrants issued in connection with equity financings as a component of equity , unless there is a deemed possibility that we may have to settle warrants in cash . for warrants issued with deemed possibility of cash settlement , we record the fair value of the issued warrants as a liability at each reporting period and record changes in the estimated fair value as a non-cash gain or loss in the statements of operations and comprehensive income ( loss ) . 41 liquidity and capital resources replace_table_token_3_th we have funded our operations since inception primarily through the sale of our securities and the issuance of debt , as well as with proceeds from warrant and option exercises , corporate licensing and collaborative agreements , the sale of royalty rights and government-sponsored research grants . in the second quarter or 2018 , we began generating revenue from the direct sale of products .
| results of operations year ended december 31 , 2018 compared to year ended december 31 , 2017 product revenues for the year ended december 31 , 2018 were approximately $ 0.5 million reflecting net revenues generated from sales of probuphine by us after reacquiring the product in late may 2018. there were no product revenues in 2017. license revenues were approximately $ 5.4 million and $ 215,000 for the years ended december 31 , 2018 and 2017 , respectively . revenues for the year ended december 31 , 2018 reflect approximately $ 2.1 million related to the up-front payment and amortization of deferred revenue related to the sale to molteni of the european intellectual property rights to our probuphine product , approximately $ 1.1 million related to the amendment to our purchase agreement with molteni in august 2018 , approximately $ 2.1 million related to reacquiring the rights to probuphine and termination of the braeburn license , and approximately $ 32,000 related to the recognition of royalties earned on net sales of our probuphine product by braeburn prior to termination of the license agreement in late may 2018. revenue for the year ended december 31 , 2017 reflects the recognition of royalties earned on net sales of probuphine . grant revenues were approximately $ 0.7 million for the year ended december 31 , 2018. we had no grant revenues for the year ended december 31 , 2017. cost of goods sold for the year ended december 31 , 2018 was approximately $ 0.5 million . cost of goods sold reflects costs and expenses associated with sales of our probuphine product by us after reacquiring the product in may 2018. research and development expenses for 2018 were approximately $ 7.5 million compared to approximately $ 9.6 million in 2017 , a decrease of approximately $ 2.1 million , or 22 % .
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the deferred compensation obligation associated with company common stock is recorded as a component of shareholders ' equity at cost and subsequent changes in fair value are not reflected in operations or shareholders ' equity of the company . further , while the company has no obligation to do so , the lcp also story_separator_special_tag overview our business is comprised of two operating segments , the flight support group ( โ fsg โ ) and the electronic technologies group ( โ etg โ ) . the flight support group consists of heico aerospace holdings corp. ( โ heico aerospace โ ) , which is 80 % owned , and heico flight support corp. , which is wholly owned , and their collective subsidiaries , which primarily : designs , manufactures , repairs , overhauls and distributes jet engine and aircraft component replacement parts . the flight support group designs , manufactures , repairs , overhauls and distributes jet engine and aircraft component replacement parts . the parts and services are approved by the federal aviation administration ( โ faa โ ) . the flight support group also manufactures and sells specialty parts as a subcontractor for aerospace and industrial original equipment manufacturers and the united states government . additionally , the flight support group is a leading supplier , distributor , and integrator of military aircraft parts and support services primarily to foreign military organizations allied with the united states and a leading manufacturer of advanced niche components and complex composite assemblies for commercial aviation , defense and space applications . the electronic technologies group consists of heico electronic technologies corp. ( โ heico electronic โ ) and its subsidiaries , which primarily : designs and manufactures electronic , microwave and electro-optical equipment , high-speed interface products , high voltage interconnection devices and high voltage advanced power electronics . the electronic technologies group designs , manufactures and sells various types of electronic , microwave and electro-optical equipment and components , including power supplies , laser rangefinder receivers , infrared simulation , calibration and testing equipment ; power conversion products serving the high-reliability military , space and commercial avionics end-markets ; underwater locator beacons used to locate data and voice recorders utilized on aircraft and marine vessels ; electromagnetic interference shielding for commercial and military aircraft operators , traveling wave tube amplifiers and microwave power modules used in radar , electronic warfare , on-board jamming and countermeasure systems , electronics companies and telecommunication equipment suppliers ; advanced high-technology interface products that link devices such as telemetry receivers , digital cameras , high resolution scanners , simulation systems and test systems to computers ; high voltage energy generators interconnection devices , cable assemblies and wire for the medical equipment , defense and other industrial markets ; high frequency power delivery systems for the commercial sign industry ; high voltage power supplies found in satellite communications , ct scanners and in medical and industrial x-ray systems ; three-dimensional microelectronic and stacked memory products that are principally integrated into larger subsystems equipping satellites and spacecraft ; harsh 30 index environment connectivity products and custom molded cable assemblies ; rf and microwave amplifiers , transmitters and receivers used to support military communications on unmanned aerial systems , other aircraft , helicopters and ground-based data/communications systems , wireless cabin control systems , solid state power distribution and management systems and fuel level sensing systems for business jets and for general aviation , as well as for the military/defense market and microwave modules , units and integrated sub-systems for commercial and military satellites . our results of operations during each of the past three fiscal years have been affected by a number of transactions . this discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto included herein . all applicable share and per share information has been adjusted retrospectively to reflect the 5-for-4 stock splits effected in october 2013 and april 2012. see note 1 , summary of significant accounting policies โ stock splits , of the notes to consolidated financial statements for additional information regarding these stock splits . for further information regarding the acquisitions discussed below , see note 2 , acquisitions , of the notes to consolidated financial statements . acquisitions are included in our results of operations from the effective dates of acquisition . in june 2014 , we acquired , through a subsidiary of heico flight support corp. , certain assets and liabilities of quest aviation supply , inc. ( โ quest aviation โ ) . quest aviation is a niche supplier of parts to repair thrust reversers on various aircraft engines . in october 2013 , we acquired , through heico electronic , all of the outstanding stock of lucix corporation ( `` lucix '' ) in a transaction carried out by means of a merger . lucix is a leading designer and manufacturer of high performance , high reliability microwave modules , units , and integrated sub-systems for commercial and military satellites . on may 31 , 2013 , we acquired , through heico flight support corp. , reinhold industries , inc. ( `` reinhold '' ) through the acquisition of all of the outstanding stock of reinhold 's parent company in a transaction carried out by means of a merger . reinhold is a leading manufacturer of advanced niche components and complex composite assemblies for commercial aviation , defense and space applications . in october 2012 , we acquired , through heico flight support corp. , 80.1 % of the assets and assumed certain liabilities of action research corporation ( โ action research โ ) . action research is an faa-approved repair station that has developed unique proprietary repairs that extend the lives of certain engine and airframe components . the remaining 19.9 % interest continues to be owned by an existing member of action research 's management team . the purchase price of this acquisition was paid using cash provided by operating activities . story_separator_special_tag valuation of inventory inventory is stated at the lower of cost or market , with cost being determined on the first-in , first-out or the average cost basis . losses , if any , are recognized fully in the period when identified . 33 index we periodically evaluate the carrying value of inventory , giving consideration to factors such as its physical condition , sales patterns and expected future demand in order to estimate the amount necessary to write down any slow moving , obsolete or damaged inventory . these estimates could vary significantly from actual amounts based upon future economic conditions , customer inventory levels , or competitive factors that were not foreseen or did not exist when the estimated write-downs were made . in accordance with industry practice , all inventories are classified as a current asset including portions with long production cycles , some of which may not be realized within one year . business combinations we allocate the purchase price of acquired entities to the underlying tangible and identifiable intangible assets acquired and liabilities and any noncontrolling interests assumed based on their estimated fair values , with any excess recorded as goodwill . determining the fair value of assets acquired and liabilities assumed requires management 's judgment and often involves the use of significant estimates and assumptions , including assumptions with respect to future cash inflows and outflows , discount rates , asset lives and market multiples , among other items . we determine the fair values of intangible assets acquired generally in consultation with third-party valuation advisors . as part of the agreement to acquire certain subsidiaries , we may be obligated to pay contingent consideration should the acquired entity meet certain earnings objectives subsequent to the date of acquisition . as of the acquisition date , contingent consideration is recorded at fair value as determined through the use of a probability-based scenario analysis approach . under this method , a set of discrete potential future subsidiary earnings is determined using internal estimates based on various revenue growth rate assumptions for each scenario . a probability of likelihood is then assigned to each discrete potential future earnings estimate and the resultant contingent consideration is calculated and discounted using a weighted average discount rate reflecting the credit risk of a market participant . subsequent to the acquisition date , the fair value of such contingent consideration is measured each reporting period and any changes are recorded within our consolidated statements of operations . changes in either the revenue growth rates , related earnings or the discount rate could result in a material change to the amount of contingent consideration accrued . as of october 31 , 2014 and 2013 , $ 1.2 million and $ 29.3 million of contingent consideration was accrued within our consolidated balance sheets , respectively . during fiscal 2014 , 2013 and 2012 , such fair value measurement adjustments resulted in a net gain of $ 28.1 million , a net gain of $ 1.6 million and a loss of $ .1 million , respectively . for further information regarding the adjustment above , see note 7 , fair value measurements , of the notes to consolidated financial statements . valuation of goodwill and other intangible assets we test goodwill for impairment annually as of october 31 , or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may not be fully 34 index recoverable . in evaluating the recoverability of goodwill , we compare the fair value of each of our reporting units to its carrying value to determine potential impairment . if the carrying value of a reporting unit exceeds its fair value , the implied fair value of that reporting unit 's goodwill is to be calculated and an impairment loss is recognized in the amount by which the carrying value of the reporting unit 's goodwill exceeds its implied fair value , if any . the fair values of our reporting units were determined using a weighted average of a market approach and an income approach . under the market approach , fair values are estimated using published market multiples for comparable companies . we calculate fair values under the income approach by taking estimated future cash flows that are based on internal projections and other assumptions deemed reasonable by management and discounting them using an estimated weighted average cost of capital . based on the annual goodwill impairment test as of october 31 , 2014 , 2013 and 2012 , we determined there was no impairment of our goodwill . the fair value of each of our reporting units as of october 31 , 2014 significantly exceeded its carrying value . we test each non-amortizing intangible asset ( principally trade names ) for impairment annually as of october 31 , or more frequently if events or changes in circumstances indicate that the asset might be impaired . to derive the fair value of our trade names , we utilize an income approach , which relies upon management 's assumptions of royalty rates , projected revenues and discount rates . we also test each amortizing intangible asset for impairment if events or circumstances indicate that the asset might be impaired . the test consists of determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows . if the total of the undiscounted future cash flows is less than the carrying amount of those assets , we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets . the determination of fair value requires us to make a number of estimates , assumptions and judgments of such factors as projected revenues and earnings and discount rates .
| results of operations the following table sets forth the results of our operations , net sales and operating income by segment and the percentage of net sales represented by the respective items in our consolidated statements of operations ( in thousands ) : replace_table_token_8_th 36 index comparison of fiscal 2014 to fiscal 2013 net sales our net sales in fiscal 2014 increased by 12 % to a record $ 1,132.3 million , as compared to net sales of $ 1,008.8 million in fiscal 2013. the increase in net sales principally reflects an increase of $ 97.7 million ( a 15 % increase ) to a record $ 762.8 million in net sales within the fsg as well as an increase of $ 29.4 million ( an 8 % increase ) to a record $ 379.4 million in net sales within the etg . the net sales increase in the fsg reflects organic growth of approximately 9 % as well as additional net sales of $ 37.7 million from a fiscal 2013 acquisition . the organic growth in the fsg principally reflects new product offerings and favorable market conditions resulting in net sales increases of $ 58.6 million within our aftermarket replacement parts and repair and overhaul services product lines . the net sales increase in the etg resulted from additional net sales of $ 23.5 million from a fiscal 2013 acquisition as well as organic growth of approximately 2 % . the organic growth in the etg principally reflects an increase in demand for certain space and aerospace products resulting in a $ 7.5 million and $ 2.1 million increase in net sales , respectively , partially offset by a decrease in demand for certain defense products resulting in a decrease in net sales of $ 3.4 million .
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the update does not extend the use of fair value accounting , but does provide guidance on how it should be applied where it is already required or permitted under current gaap . asu no . 2011-04 is effective for annual and interim periods beginning after december 15 , 2011 , which for us was january 1 , 2012 , and had no impact on our consolidated financial statements . other new accounting pronouncements issued but not effective until after december 31 , 2012 , are not expected to have story_separator_special_tag the following discussion and analysis of our financial condition and results of operations includes statements regarding the industry outlook and our expectations regarding the performance of our business . these non-historical statements in the discussion and analysis are forward-looking statements . these forward-looking statements are subject to numerous risks and uncertainties , including , but not limited to , the risks and uncertainties described in โ risk factors. โ our actual results may differ materially from those contained in or implied by any forward-looking statements . the discussion and analysis should be read in conjunction with the โ risk factors โ and financial statements and notes thereto included elsewhere in this annual report . unless otherwise noted , the information provided pertains to both verso paper and verso holdings . all assets , liabilities , income , expenses and cash flows presented for all periods represent those of verso paper 's indirect , wholly-owned subsidiary , verso holdings , in all material respects , except for verso paper 's common stock transactions , verso finance 's debt obligation and related financing costs and interest expense , verso holdings ' loan to verso finance , and the debt obligation of verso holdings ' consolidated variable interest entity to verso finance . overview we are a leading north american supplier of coated papers to catalog and magazine publishers . coated paper is used primarily in media and marketing applications , including catalogs , magazines , and commercial printing applications , such as high-end advertising brochures , annual reports , and direct mail advertising . we are one of north america 's largest producers of coated groundwood paper which is used primarily for catalogs and magazines . we are also a low cost producer of coated freesheet paper which is used primarily for annual reports , brochures , and magazine covers . we also produce and sell market kraft pulp which is used to manufacture printing and writing paper grades and tissue products . background we began operations on august 1 , 2006 , when we acquired the assets and certain liabilities of the business of international paper . we were formed by affiliates of apollo for the purpose of consummating the acquisition from international paper . verso paper went public on may 14 , 2008 , with an ipo of 14 million shares of common stock . 27 selected factors affecting operating results net sales our sales , which we report net of rebates , allowances , and discounts , are a function of the number of tons of paper that we sell and the price at which we sell our paper . the coated paper industry is cyclical , which results in changes in both volume and price . paper prices historically have been a function of macro-economic factors which influence supply and demand . price has historically been substantially more variable than volume and can change significantly over relatively short time periods . our average coated paper prices declined from 2008 through the first quarter of 2010. while our average coated paper prices climbed modestly beginning in the second quarter of 2010 through the third quarter of 2011 , in late 2011 and 2012 they declined again . prices may not improve , and we do not expect prices in 2013 to return to the levels they were at in 2008 before they declined . recent industry forecasts have predicted that prices for both coated freesheet and coated groundwood will remain stable through the first quarter of 2013. we are primarily focused on serving two end-user segments : catalogs and magazines . in 2012 , we believe we were a leading north american supplier of coated papers to catalog and magazine publishers . coated paper demand is primarily driven by advertising and print media usage . advertising spending and magazine and catalog circulation tend to correlate with changes in the gdp of the united states โ they rise with a strong economy and contract with a weak economy . many of our customers provide us with forecasts of their paper needs , which allows us to plan our production runs in advance , optimizing production over our integrated mill system and thereby reducing costs and increasing overall efficiency . generally , our sales agreements do not extend beyond the calendar year . typically , our sales agreements provide for quarterly price adjustments based on market price movements . we reach our end-users through several channels , including printers , brokers , paper merchants , and direct sales to end-users . we sell and market our products to approximately 130 customers which comprise approximately 700 end-user accounts . in 2012 , quad/graphics , inc. accounted for approximately 10 % of our total net sales . our historical results include specialty papers that we manufacture for thilmany , llc , or โ thilmany , โ on paper machine no . 5 at the androscoggin mill . under a long-term supply agreement entered into in 2005 in connection with international paper 's sale of its industrial papers business to thilmany , these products are sold to thilmany at a variable charge for the paper purchased and a fixed charge for the availability of the machine . the amounts included in our net sales for the specialty papers sold to thilmany totaled $ 42.0 million , $ 39.5 million , and $ 37.8 million , in 2012 , 2011 , and 2010 , respectively . story_separator_special_tag long-lived assets are reviewed for impairment upon the occurrence of events or changes in circumstances that indicate that the carrying value of the assets may not be recoverable , as measured by comparing their net book value to the estimated undiscounted future cash flows generated by their use . in 2012 , based on a comprehensive assessment of the damage resulting from the fire and explosion at our paper mill in sartell , minnesota , we decided to permanently close the mill and recorded a fixed asset impairment charge of $ 66.5 million , which is included in restructuring charges on our accompanying consolidated statements of operations . the impairment charge was calculated based on the excess of carrying value over the estimated fair value of the site , which was estimated based on preliminary negotiations with potential buyers received subsequent to our decision to shut down the mill . goodwill and other intangible assets are accounted for in accordance with asc topic 350 . intangible assets primarily consist of trademarks , customer-related intangible assets and patents obtained through business acquisitions . we have identified the following trademarks as intangible assets with an indefinite life : influence ยฎ , liberty ยฎ , and advocate ยฎ . we assess goodwill and indefinite-lived intangible assets at least annually for impairment or more frequently if events occur or circumstances change between annual tests that would more likely than not reduce the fair value of the reporting unit below its carrying amount . trademarks are evaluated by comparing the expected undiscounted future cash flow to their carrying values . during 2012 , based on a projected reduction of revenue primarily as a result of a reduction in production capacity from the closure of the sartell mill , we recognized a trademarks impairment charge of $ 3.7 million , which is included in restructuring charges on our accompanying consolidated statements of operations . goodwill was evaluated at the reporting unit level and has been allocated to the โ coated โ segment . we tested goodwill for impairment by applying a two-step test . the first step was to compare the fair value of the reporting unit with its carrying amount , including goodwill . if the fair value of the reporting unit was less than its carrying amount , goodwill was considered impaired and the loss was measured by performing step two , which involved using a hypothetical purchase price allocation to determine the implied fair value of the goodwill and compare it to the carrying value of the goodwill . for reporting units with zero or negative carrying amounts , step two was required if it was more likely than not that a goodwill impairment existed . an impairment loss was recognized to the extent the implied fair value of the goodwill was less than the carrying amount of the goodwill . during 2011 , based on a combination of factors , including the difficult market conditions that resulted in a decline in customer demand and excess capacity in the coated paper markets and high raw material , energy and distribution costs that have challenged the profitability of our products , we concluded sufficient indicators existed to require us to perform an interim goodwill impairment analysis . upon finalizing our analysis during the fourth quarter of 2011 , verso paper recognized a goodwill impairment charge of $ 18.7 million and verso holdings recognized a goodwill impairment charge of $ 10.5 million . we had no goodwill remaining as of december 31 , 2011 . 30 management believes that the accounting estimates associated with determining fair value as part of an impairment analysis are critical accounting estimates because estimates and assumptions are made about our future performance and cash flows . the estimated fair value is generally determined on the basis of discounted future cash flows . we also consider a market-based approach and a combination of both . while management uses the best information available to estimate future performance and cash flows , future adjustments to management 's projections may be necessary if economic conditions differ substantially from the assumptions used in making the estimates . pension benefit obligations . we offer various pension plans to employees . the calculation of the obligations and related expenses under these plans requires the use of actuarial valuation methods and assumptions , including the expected long-term rate of return on plan assets , discount rates , and mortality rates . actuarial valuations and assumptions used in the determination of future values of plan assets and liabilities are subject to management judgment and may differ significantly if different assumptions are used . contingent liabilities . a liability is contingent if the outcome or amount is not presently known , but may become known in the future as a result of the occurrence of some uncertain future event . we estimate our contingent liabilities based on management 's estimates about the probability of outcomes and their ability to estimate the range of exposure . accounting standards require that a liability be recorded if management determines that it is probable that a loss has occurred and the loss can be reasonably estimated . in addition , it must be probable that the loss will be confirmed by some future event . as part of the estimation process , management is required to make assumptions about matters that are by their nature highly uncertain . the assessment of contingent liabilities , including legal contingencies , asset retirement obligations and environmental costs and obligations , involves the use of critical estimates , assumptions , and judgments . management 's estimates are based on their belief that future events will validate the current assumptions regarding the ultimate outcome of these exposures . however , there can be no assurance that future events will not differ from management 's assessments . recent accounting developments asc topic 220 , comprehensive income . accounting standards update , or โ asu , โ no .
| results of operations the following table sets forth certain consolidated financial information for the years ended december 31 , 2012 , 2011 , and 2010. cost of sales in the following table and discussion includes the cost of products sold and depreciation , amortization , and depletion . the following table and discussion should be read in conjunction with the information contained in our consolidated financial statements and the related notes thereto included elsewhere in this annual report . replace_table_token_7_th 2012 compared to 2011 net sales . net sales for 2012 decreased 14.4 % to $ 1,474.6 million from $ 1,722.5 million in 2011 , reflecting an 11.1 % decrease in total sales volume , which was driven by the shutdown of three paper machines late last year and the closure of the sartell mill in the third quarter of this year . additionally , the average sales price for all of our products decreased 3.7 % , led by a decline in the price of pulp . net sales for our coated papers segment decreased 17.0 % to $ 1,177.1 million in 2012 , from $ 1,418.8 million in 2011. this change reflects a 15.3 % decrease in paper sales volume , which was driven by the shutdown of three paper machines late last year and the closure of the sartell mill in the third quarter of this year . the average sales price per ton of coated paper decreased 2.1 % compared to the prior year .
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