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57 gwg holdings , inc. and subsidiaries notes to consolidated financial statements ( 9 ) convertible , redeemable preferred stock the company began offering 3,333,333 shares of convertible redeemable preferred stock ( series a preferred stock ) for sale to accredited investors in a private placement on july 31 , 2011. the offering of series a preferred stock concluded on september 2 , 2012 and resulted in 3,278,000 shares being issued for gross consideration of $ 24,582,000 . as story_separator_special_tag you should read the following discussion in conjunction with the consolidated financial statements and accompanying notes and the information contained in other sections of this report . this discussion and analysis is based on the beliefs of our management , as well as assumptions made by , and information currently available to , our management . the statements in this discussion and analysis , as well as disclosures included under the heading `` business '' and elsewhere in this report , concerning expectations regarding our future performance , liquidity and capital resources , as well as other non-historical statements , are forward-looking statements . these forward-looking statements are subject to numerous risks and uncertainties , including those identified under the heading `` risk factors '' . our actual results could differ materially from those suggested or implied by any forward-looking statements . overview we are engaged in the emerging secondary market for life insurance policies . we acquire life insurance policies in the secondary market from policy owners desiring to sell their policies at a discount to the face value of the insurance benefit . once we purchase a policy , we continue paying the policy premiums in order to ultimately collect the face value of the insurance benefit . we seek hold the individual policies to maturity , in order to ultimately collect the policy 's benefit upon the insured 's mortality . our strategy is to build a profitable ( purchased at discounts sufficient to provide a positive return on investment ) and large portfolio of policies ( greater than 300 policies ) that are well diversified in terms of insurance carriers and the mortality profiles of insureds . we believe that diversification among insurers , mortality profiles , and medical conditions will lower our overall risk exposure , and that a larger number of individual policies ( diversification in overall number ) will provide our portfolio with greater actuarial stability . in 2012 , we received $ 7,350,000 in policy benefits and recognized $ 6,283,000 of revenue therefrom . in addition , we recognized revenue of $ 11,154,000 from the change in fair value of our life insurance policies , net of premiums and carrying costs . interest expense , including amortization of the deferred financing costs , was $ 10,879,000 for the twelve months ended december 31 , 2012 , and selling , general and administrative expenses for the twelve months ended december 31 , 2012 were $ 6,467,000. income tax expense for the twelve months ended december 31 , 2012 was $ 1,193,000. our net loss in 2012 was $ 1,013,000. critical accounting policies critical accounting estimates the preparation of our consolidated financial statements requires us to make judgments , estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . we base our judgments , estimates and assumptions on historical experience and on various other factors that are believed to be reasonable under the circumstances . actual results could differ materially from these estimates under different assumptions and conditions . we evaluate our judgments , estimates and assumptions on a regular basis and make changes accordingly . we believe that the judgments , estimates and assumptions involved in the accounting for the valuation of investments in life insurance policies have the greatest potential impact on our consolidated financial statements and accordingly believe these to be our critical accounting estimates . below we discuss the critical accounting policies associated with these estimates as well as certain other critical accounting policies . ownership of life insurance policies—fair value option our primary business involves the purchasing and financing of life insurance policies . as such , we account for the purchase of life insurance policies in accordance with asc 325-30 , investments in insurance contracts , which requires us to use either the investment method or the fair value method . the election is made on an instrument-by-instrument basis and is irrevocable . we have elected to account for these life insurance policies as investments using the fair value method . we initially record our purchase of life insurance policies at the transaction price , which is the amount paid for the policy , inclusive of all fees and costs associated with the acquisition . the fair value of the investment in insurance policies is evaluated at the end of each reporting period . changes in the fair value of the life insurance policies are based on periodic evaluations and are recorded as changes in fair value of life insurance policies in our consolidated and combined statement of operations . the fair value is determined as the net present value of the life insurance portfolio 's future expected cash flows that incorporates current life expectancy and discount rate assumptions . in addition to reporting our results of operations and financial condition based on the fair value of our life insurance policies as required by gaap , management also makes calculations based on the weighted average expected internal rate of return of the policies . see “ non-gaap financial measures ” below . valuation of insurance policies unobservable inputs , as discussed below , are a critical component of our estimate for the fair value of our investments in life insurance policies . we currently use a probabilistic method of valuing life insurance policies , which we believe to be the preferred and most prevalent valuation method in the industry . story_separator_special_tag the series a preferred stock is reported net of issuance costs , sales commissions , including the fair value of warrants issued , and other direct expenses , which are amortized using the interest method as interest expense over the three year redemption period . certain matters discussed in this section of this report , and elsewhere in this report , are forward-looking statements . we have based these forward-looking statements on our current expectations and projections about future events . nevertheless , these forward-looking statements are subject to risks , uncertainties and assumptions about our operations and the investments we make , including , among other things , factors discussed in the “ risk factors ” section of this report and the following : ● changes in the secondary market for life insurance ; ● our limited operating history ; ● the valuation of assets reflected on our financial statements ; ● the reliability of assumptions underlying our actuarial models ; ● our reliance of debt financing ; ● risks relating to the validity and enforceability of the life insurance policies we purchase ; ● our reliance on information provided and obtained by third parties ; ● federal and state regulatory matters ; ● additional expenses , not reflected in our operating history , related to being a public reporting company ; ● competition in the secondary life insurance market ; ● the relative illiquidity of life insurance policies ; ● life insurance company credit exposure ; ● economic outlook ; ● performance of our investments in life insurance policies ; ● financing requirements ; ● litigation risks ; and ● restrictive covenants contained in borrowing agreements . forward-looking statements can generally be identified by the use of words like “ believes , ” “ could , ” “ possibly , ” “ probably , ” “ anticipates , ” “ estimates , ” “ projects , ” “ expects , ” “ may , ” “ will , ” “ should , ” “ seek , ” “ intend , ” “ plan , ” “ expect ” or “ consider , ” or the negative of these expressions or other variations , or by discussions of strategy that involve risks and uncertainties . all forward-looking statements involve known and unknown risks , uncertainties and other factors that may cause our actual transactions , results , performance or achievements to be materially different from any future transactions , results , performance or achievements expressed or implied by such forward-looking statements . we caution you that the forward-looking statements in this report are only estimates and predictions , or statements of current intent . actual results or outcomes , or actions that we ultimately undertake , could differ materially from those anticipated in the forward-looking statements due to risks , uncertainties or actual events differing from the assumptions underlying these statements . principal revenue and expense items we earn revenues from three primary sources as described below . policy benefits realized . we recognize the difference between the death benefits and carrying values of the policy when an insured event has occurred and the company determines that settlement and ultimate collection of the death benefits is realizable and reasonably assured . revenue from a transaction must meet both criteria in order to be recognized . we generally collect the face value of the life insurance policy from the insurance company within 45 days of the insured 's mortality . 31 sale of a life insurance policy or a portfolio of life insurance policies . in an event of a sale of a policy the company recognizes gain or loss as the difference between the sale price and the carrying value of the policy on the date of the receipt of payment on such sale . change in fair value of life insurance policies . we have elected to carry our investments in life insurance policies at fair value in accordance with asc 325-30 , investments in life insurance contracts . accordingly , we value our investments in life insurance policies each reporting period in accordance with the fair value principles discussed herein , which includes the expected payment of premiums for future periods . our main components of expense are summarized below . selling , general and administrative expenses . we recognize and record expenses incurred in the operations of the purchasing and servicing of life insurance policies . these expenses include professional fees , salaries , and sales and marketing expenditures . interest expense . we recognize and record interest expenses associated with the costs of financing our life insurance portfolio for the current period . these expenses include interest paid to our senior lender under our revolving credit facility , as well as all interest paid on our debentures and other outstanding indebtedness such as our subsidiary secured notes and dividends on convertible , redeemable preferred stock . when we issue long-term indebtedness , we amortize the issuance costs associated with such indebtedness over the outstanding term of the financing , and classify it as interest expense . results of operations — 2012 compared to 2011 the following is our analysis of the results of operations for the periods indicated below . this analysis should be read in conjunction with our consolidated financial statements and related notes . revenue . revenue recognized from the receipt of policy benefits was $ 6,283,000 in 2012. revenue recognized from the receipt of policy benefits was $ 2,810,000 in 2011. revenue recognized from the change in fair value of our life insurance policies , net of premiums and carrying costs , was $ 11,154,000 in 2012 and $ 14,994,000 in 2011. the change in fair value related to new policies acquired during 2012 and 2011 was $ 12,242,000 and $ 10,843,000 respectively .
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debt financings summary we had the following outstanding debt balances as of december 31 , 2012 : replace_table_token_14_th our total credit facility and other indebtedness balance as of december 31 , 2012 was $ 167,179,000. the total outstanding face amount under our series i subsidiary secured notes outstanding at december 31 , 2012 was $ 38,570,000 , less unamortized selling costs of $ 725,000 , resulting in a carrying amount of $ 37,845,000. the total outstanding face amount of renewable secured debentures outstanding at december 31 , 2012 was $ 57,609,000 plus $ 845,000 of subscriptions in process , less unamortized selling costs of $ 2,735,000 , resulting in a carrying amount of $ 55,719,000. the fair value of our investments in life insurance policies of $ 164,317,000 plus our cash balance of $ 27,497,000 and our restricted cash balance of $ 2,093,000 , totaled $ 193,907,000 , representing an excess of portfolio assets over secured indebtedness of $ 26,728,000 at december 31 , 2012. the renewable secured debentures and series i secured notes are secured by all our assets and are subordinate to our revolving credit facility with autobahn/dz bank . the renewable secured debentures and series i secured notes are pari-passu with respect to shared collateral pursuant to an inter-creditor agreement . on january 29 , 2013 , gwg holdings entered into an amended and restated credit and security agreement with autobahn funding company llc , as the conduit lender , and dz bank ag deutsche zentral-genossenschaftsbank , as the committed lender and as the agent on behalf of secured parties under such agreement .
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disclosure controls and procedures we maintain disclosure controls and procedures , as defined in rule 13a-15 ( e ) promulgated under the securities exchange act of 1934 ( the `` exchange act `` ) , that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the exchange act is recorded , processed , summarized and reported within the time periods specified in the securities and exchange commission 's rules and forms and that such information is accumulated and communicated to our management , including our chief executive officer and chief financial officer , as appropriate to allow timely decisions regarding required disclosure . we carried out an evaluation , under the supervision and with the participation of our management , including our chief executive officer and chief financial officer , of the effectiveness of the design and operation of our disclosure controls and procedures as of december 31 , 2013. based on the evaluation of these disclosure controls and procedures , and in light of the material weaknesses found in our internal controls over financial reporting , our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective . management 's report on internal control over financial reporting management is responsible for establishing and maintaining adequate internal control over financial reporting , as defined in exchange act rule 13a-15 ( f ) . the company 's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the united states of america . because of its inherent limitations , internal control over financial reporting may not prevent or detect misstatements . also , projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions , or that the degree of compliance with the policies or procedures may deteriorate . under the supervision and with the participation of management , including the chief executive officer and chief financial officer , the company conducted an evaluation of the effectiveness of the company 's internal control over financial reporting as of december 31 , 2013 , using the criteria established in internal control - integrated framework issued by the committee of sponsoring organizations of the treadway commission ( `` coso `` ) . a material weakness is a deficiency , or combination of deficiencies , in internal control over financial reporting , such that there is a reasonable possibility that a material misstatement of the company 's annual or interim financial statements will not be prevented or detected on a timely basis . in its assessment of the effectiveness of internal control over financial reporting as of december 31 , 2013 , the company determined that there were control deficiencies that constituted material weaknesses , as described below . 1. we do not have an independent audit committee the company does not have an audit committee financial expert ( as defined in item 407 of regulation s-k ) serving on its board of directors . all current members of the board of directors lack sufficient financial expertise for overseeing financial reporting responsibilities . the company has not yet employed an audit committee financial expert on its board due to the inability to attract such a person . 2. we did not maintain appropriate cash controls as of december 31 , 2013 , the company has not maintained sufficient internal controls over financial reporting for the cash process , including failure to segregate cash handling and accounting functions , and did not require dual signature on the company 's bank accounts . 3. we did not implement appropriate information technology controls as at december 31 , 2013 , the company retains copies of all financial data and material agreements ; however , there is no formal procedure or evidence of normal backup of the company 's data or off-site storage of the data in the event of theft , misplacement , or loss due to unmitigated factors . accordingly , the company concluded that these control deficiencies resulted in a possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected story_separator_special_tag this annual report on form 10-k contains forward-looking statements . these forward-looking statements are not historical facts but rather are based on current expectations , estimates and projections . we may use words such as anticipate , expect , intend , plan , believe , foresee , estimate and variations of these words and similar expressions to identify forward-looking statements . these statements are not guarantees of future performance and are subject to certain risks , uncertainties and other factors , some of which are beyond our control , are difficult to predict and could cause actual results to differ materially from those expressed or forecasted . you should read this report completely and with the understanding that actual future results may be materially different from what we expect . the forward-looking statements included in this report are made as of the date of this report and should be evaluated with consideration of any changes occurring after the date of this report . we will not update forward-looking statements even though our situation may change in the future and we assume no obligation to update any forward-looking statements , whether as a result of new information , future events or otherwise . liquidity and capital resources as of december 31 , 2013 , the company had cash of $ 888,704 and other current assets of $ 116,747. the company had current liabilities of $ 957,274. this represents a working capital surplus of $ 48,177. during 2014 to date , the company has received subscriptions of $ 3million story_separator_special_tag disclosure controls and procedures we maintain disclosure controls and procedures , as defined in rule 13a-15 ( e ) promulgated under the securities exchange act of 1934 ( the `` exchange act `` ) , that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the exchange act is recorded , processed , summarized and reported within the time periods specified in the securities and exchange commission 's rules and forms and that such information is accumulated and communicated to our management , including our chief executive officer and chief financial officer , as appropriate to allow timely decisions regarding required disclosure . we carried out an evaluation , under the supervision and with the participation of our management , including our chief executive officer and chief financial officer , of the effectiveness of the design and operation of our disclosure controls and procedures as of december 31 , 2013. based on the evaluation of these disclosure controls and procedures , and in light of the material weaknesses found in our internal controls over financial reporting , our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective . management 's report on internal control over financial reporting management is responsible for establishing and maintaining adequate internal control over financial reporting , as defined in exchange act rule 13a-15 ( f ) . the company 's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the united states of america . because of its inherent limitations , internal control over financial reporting may not prevent or detect misstatements . also , projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions , or that the degree of compliance with the policies or procedures may deteriorate . under the supervision and with the participation of management , including the chief executive officer and chief financial officer , the company conducted an evaluation of the effectiveness of the company 's internal control over financial reporting as of december 31 , 2013 , using the criteria established in internal control - integrated framework issued by the committee of sponsoring organizations of the treadway commission ( `` coso `` ) . a material weakness is a deficiency , or combination of deficiencies , in internal control over financial reporting , such that there is a reasonable possibility that a material misstatement of the company 's annual or interim financial statements will not be prevented or detected on a timely basis . in its assessment of the effectiveness of internal control over financial reporting as of december 31 , 2013 , the company determined that there were control deficiencies that constituted material weaknesses , as described below . 1. we do not have an independent audit committee the company does not have an audit committee financial expert ( as defined in item 407 of regulation s-k ) serving on its board of directors . all current members of the board of directors lack sufficient financial expertise for overseeing financial reporting responsibilities . the company has not yet employed an audit committee financial expert on its board due to the inability to attract such a person . 2. we did not maintain appropriate cash controls as of december 31 , 2013 , the company has not maintained sufficient internal controls over financial reporting for the cash process , including failure to segregate cash handling and accounting functions , and did not require dual signature on the company 's bank accounts . 3. we did not implement appropriate information technology controls as at december 31 , 2013 , the company retains copies of all financial data and material agreements ; however , there is no formal procedure or evidence of normal backup of the company 's data or off-site storage of the data in the event of theft , misplacement , or loss due to unmitigated factors . accordingly , the company concluded that these control deficiencies resulted in a possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected story_separator_special_tag this annual report on form 10-k contains forward-looking statements . these forward-looking statements are not historical facts but rather are based on current expectations , estimates and projections . we may use words such as anticipate , expect , intend , plan , believe , foresee , estimate and variations of these words and similar expressions to identify forward-looking statements . these statements are not guarantees of future performance and are subject to certain risks , uncertainties and other factors , some of which are beyond our control , are difficult to predict and could cause actual results to differ materially from those expressed or forecasted . you should read this report completely and with the understanding that actual future results may be materially different from what we expect . the forward-looking statements included in this report are made as of the date of this report and should be evaluated with consideration of any changes occurring after the date of this report . we will not update forward-looking statements even though our situation may change in the future and we assume no obligation to update any forward-looking statements , whether as a result of new information , future events or otherwise . liquidity and capital resources as of december 31 , 2013 , the company had cash of $ 888,704 and other current assets of $ 116,747. the company had current liabilities of $ 957,274. this represents a working capital surplus of $ 48,177. during 2014 to date , the company has received subscriptions of $ 3million
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results of operations year ended december 31 , 2013 the following table sets forth the company 's results of operations for the year ended on december 31 , 2013 and the comparative period for the year ended december 31 , 2012. replace_table_token_2_th revenues the company had no revenues from operations in the year ended december 31 , 2013 , compared to revenues of $ 54,968 in the comparative period for the year ended december 31 , 2012. the company 's operations are in the development stage . operating expenses for the year ended december 31 , 2013 , the company 's operating expenses increased by $ 437,894 , or 11 % . operating expenses are comprised of salaries and office administrative fees , research and development expenses , impairment of patents , professional fees , and other general and administrative expenses . salaries and office administrative fees were materially unchanged . research and development expenses decreased by $ 269,377 , due principally to a reduction of $ 383,291 in share option expense offset by an increase of $ 120,828 in net payroll costs , the latter primarily reflecting an increase in headcount . impairment of patents was $ 350,000 ( 2012 $ nil ) due to discovery of an earlier filed patent similar to one licensed by the company . professional fees increased by $ 371,256 due to additional fees for public relations and investor relations services to raise the profile of the company . general and administrative expenses decreased by $ 14,031 due to a reduction in fundraising services expense . other income for the year ended december 31 , 2013 , the company recorded other income of $ 865,623 , representing grant funds received from public bodies in respect of approved expenditures , where there is no obligation to repay .
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our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors , including those discussed in other sections of this annual report on form 10-k. see “ special note regarding forward-looking statements ” for additional factors relating to such statements and see “ risk factors ” included in item 1a of this annual report on form 10-k. past operating results are not necessarily indicative of operating results in any future periods . covid-19 update during march 2020 , a global pandemic was declared by the world health organization related to the rapidly growing outbreak of a novel strain of coronavirus ( “ covid-19 ” ) . the pandemic has had and continues to have a significant effect on economic conditions in the united states of america ( “ united states ” or “ u.s. ” ) , as the efforts of federal , state , local and foreign governments to react to the public health crisis with mitigation measures have created and continue to cause significant uncertainties in the u.s. and global economy . the extent to which the covid-19 pandemic affects our business , operations and financial results depends , and will continue to depend , on numerous evolving factors that we may not be able to accurately predict such as further government and health authorities restrictions , progress in and effectiveness of vaccination efforts in the united states or in the countries in which we operate and conduct business . in response to the pandemic , our top priority has been to take appropriate actions to protect the health and safety of our employees . we have adjusted standard operating procedures within our business operations to ensure continued worker safety , and are continually monitoring evolving health guidelines and responding to changes as appropriate . these procedures include reconfiguring facilities to reduce employee density , expanded and more frequent cleaning within facilities , implementation of appropriate and mandated distancing programs , employee temperature monitoring and requiring use of certain personal protective equipment at our u.s. headquarters and call centers in mexico and guatemala . as of december 31 , 2020 , all of our facilities are open and operating with adjustments to ensure social distancing and facial covering requirements established by state and local regulations . notwithstanding the operational challenges created by these measures , our business continues to function and , to date , our customer service has not been adversely affected in any material respect . despite these efforts , the covid-19 pandemic continues to pose the risk that we or our employees , sending and paying agents , as well as consumers and their beneficiaries , are or may become further restricted from conducting business activities , partially or completely , for an indefinite period of time , including due to shutdowns requested or mandated by governmental authorities or imposed by our management , or that the pandemic may otherwise interrupt or impair business activities . these risks could be magnified if the recent resurgence of covid-19 illnesses continues or is not adequately contained and governmental authorities once again impose restrictions on commercial and social activities or businesses that employ our customers take actions that adversely affect the incomes of those employees . the operational changes noted above had only a limited effect on the company 's financial results . although we saw a slight year-over-year decrease in our volume of transactions at the beginning of the pandemic , the year ended december 31 , 2020 has shown a year-over-year increase in both dollar volume and transactions , including all-time highs for one-month sales in august and again in october , as well as a quarterly record for sales in the fourth quarter of 2020. the economic effects of the pandemic caused increased foreign exchange volatility , particularly with respect to the mexican peso , which has created additional operational challenges ; however , the overall effect on our results of operations to date has been positive . despite positive trends during the second half of the year , we continue to monitor this evolving pandemic and its potential effects on the company 's operations . although governmental authorities took measures that restricted the normal course of operations of businesses and consumers that were in place for much of the year ended december 31 , 2020 , the company and our sending agents are considered essential businesses under current governmental guidance and such measures did not have a material adverse effect on the company 's financial condition , results of operations and cash flows for the year ended december 31 , 2020. notwithstanding the foregoing , the company 's business is dependent upon the willingness and ability of its employees , network of agents and consumers to conduct money transfer services and the ultimate effects of the economic disruption caused by the pandemic and responses thereto . although the company 's operations continued effectively despite social distancing and other measures taken in response to the pandemic , the ultimate impact of the covid-19 pandemic on our financial condition , results of operations and cash flows is subject to future developments , including the duration of the pandemic and the related extent of its severity , as well as its impact on the economic conditions , particularly the level of unemployment of our customers , which remain uncertain and can not be predicted at this time . if the global response to contain and remedy the covid-19 pandemic escalates further or is unsuccessful , or if governmental decisions to ease pandemic related restrictions are ineffective , premature or counterproductive , the company could experience a material adverse effect on its financial condition , results of operations and cash flows . 26 index further quantification and discussion of these pandemic related effects , to the extent relevant and material , are included in the discussion of results of operations below . story_separator_special_tag transfers generally ; our ability to maintain compliance with the regulatory requirements of the jurisdictions in which we operate or plan to operate ; international political factors or implementation of tariffs , border taxes or restrictions on remittances or transfers of money out of the united states and canada ; changes in u.s. tax laws ; political instability , currency restrictions and volatility in countries in which we operate or plan to operate ; consumer fraud and other risks relating to customer authentication ; weakness in u.s. or international economic conditions ; changes in immigration laws and their enforcement ; our ability to protect our brand and intellectual property rights ; and our ability to retain key personnel . throughout 2020 , latin american political and economic conditions have remained unstable , as evidenced by high unemployment rates in key markets , currency reserves , currency controls , restricted lending activity , weak currencies , low consumer confidence , some of which reflect the impact of the covid-19 pandemic , among other factors . specifically , continued political and economic unrest in parts of mexico and some countries in south america contributed to volatility . our business has generally been resilient during times of economic instability as money remittances are essential to many recipients , with the funds used by the receiving parties for their daily needs ; however , long-term sustained appreciation of the mexican peso or guatemalan quetzal as compared to the u.s. dollar could negatively affect our revenues and profitability . money remittance businesses have continued to be subject to strict legal and regulatory requirements , and we continue to focus on and regularly review our compliance programs . in connection with these reviews , and in light of regulatory complexity and heightened attention of governmental and regulatory authorities related to cybersecurity and compliance activities , we have made , and continue to make , enhancements to our processes and systems designed to detect and prevent cyber-attacks , consumer fraud , money laundering , terrorist financing and other illicit activities , along with enhancements to improve consumer protection , including the dodd-frank wall street reform and consumer protection act and similar regulations outside the united states . in coming periods , we expect these enhancements will continue to result in changes to certain of our business practices and may result in increased costs . we maintain a regulatory compliance department , under the direction of our chief compliance officer , whose responsibility is to monitor transactions , detect suspicious activity , maintain financial records and train our employees and agents . an independent third-party consulting firm periodically reviews our policies and procedures to ensure the efficacy of our anti-money laundering and regulatory compliance program . the market for money remittance services is very competitive . our competitors include a small number of large money remittance providers , financial institutions , banks and a large number of small niche money remittance service providers that serve select regions . we compete with larger companies , such as western union , moneygram and euronet , and a number of other smaller msb entities . we generally compete for money remittance agents on the basis of value , service , quality , technical and operational differences , commission structure and marketing efforts . as a philosophy , we sell credible solutions to our sending agents , not discounts or higher commissions , as is typical for the industry . we compete for money remittance customers on the basis of trust , convenience , service , efficiency of outlets , value , technology and brand recognition . 28 index we have encountered and continue to expect to encounter increasing competition as new electronic platforms emerge that enable customers to send and receive money through a variety of channels , but we do not expect adoption rates to be as significant in the near term for the customer segment we serve . regardless , we continue to innovate in the industry by differentiating our money remittance business through programs to foster loyalty among agents as well as customers and have expanded our channels through which our services are accessed to include online and mobile offerings which are experiencing customer adoption . we qualify as an “ emerging growth company ” pursuant to the provisions of the jumpstart our business startups act of 2012 ( the “ jobs act ” ) , enacted on april 5 , 2012. an “ emerging growth company ” can take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “ emerging growth companies. ” these provisions include : an exemption from the auditor attestation requirement of section 404 of the sarbanes-oxley act in the assessment of the emerging growth company 's internal control over financial reporting ; an exemption from the adoption of new or revised financial accounting standards until they would apply to private companies ; and an exemption from compliance with any new requirements adopted by the public company accounting oversight board requiring mandatory audit firm rotation or communication of critical audit matters ( “ cams ” ) in the auditor 's report . a cam is defined as any matter arising from the audit of the financial statements that was communicated or required to be communicated to the audit committee and that ( 1 ) relates to accounts or disclosures that are material to the financial statements ; and ( 2 ) involves especially challenging , subjective , or complex auditor judgment .
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results of operations the following table summarizes key components of our results of operations for the periods indicated : replace_table_token_1_th year ended december 31 , 2020 compared to the year ended december 31 , 2019 revenues revenues for the above periods are presented below : replace_table_token_2_th wire transfer and money order fees , net of $ 307.9 million , for the year ended december 31 , 2020 increased by $ 34.8 million from $ 273.1 million for the year ended december 31 , 2019. this increase of $ 34.8 million was primarily due to a 18 % increase in transaction volume largely due to the continued growth in our agent network , which grew by 5 % from december 2019 to december 2020. revenues from foreign exchange gain , net of $ 46.8 million for the year ended december 31 , 2020 increased by $ 2.5 million from $ 44.3 million for the year ended december 31 , 2019. this increase was primarily due to higher transaction volume achieved by growth in our agent network and a higher average amount sent by our customers as a result of increased foreign exchange volatility during the year . 32 index operating expenses operating expenses for the above periods are presented below : replace_table_token_3_th service charges from agents and banks — service charges from agents and banks were $ 238.6 million for the year ended december 31 , 2020 compared to $ 212.7 million for the year ended december 31 , 2019. the increase of $ 25.9 million , or 12 % , was primarily due to the increase in transaction volume described above .
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important factors that may cause such differences include , but are not limited to , those discussed under the “ forward-looking statements ” above and “ item ia . risk factors ” in part i of this annual report on form 10-k. business overview we are one of the world 's leading clinical contract research organizations , or cros , by revenue , solely focused on providing scientifically-driven outsourced clinical development services to the biotechnology , pharmaceutical and medical device industries . our mission is to accelerate the global development of safe and effective medical therapeutics . we differentiate ourselves from our competitors by our disciplined operating model centered on providing full-service phase i-iv clinical development services and our therapeutic expertise . we believe this combination results in timely and cost-effective delivery of clinical development services for our customers . we believe that we are a partner of choice for small- and mid-sized biopharmaceutical companies based on our ability to consistently utilize our full-service , disciplined operating model to deliver timely and high-quality results for our customers . we focus on conducting clinical trials across all major therapeutic areas , with particular strength in cardiology , metabolic disease , oncology , central nervous system , or cns and antiviral and anti-infective , or avai . our global platform includes approximately 3,500 employees across 37 countries , providing our customers with broad access to diverse markets and patient populations as well as local regulatory expertise and market knowledge . how we generate revenue we earn fees through the performance of services detailed in our customer contracts . contract scope and pricing is typically based on either a fixed-fee or unit-of-service model , with consideration of activities performed by third parties , as well as ancillary costs necessary to deliver on the contract scope that are reimbursable by our customers . our contracts can range in duration from a few months to several years . these contracts are individually priced and negotiated based on the anticipated project scope , including the complexity of the project and the performance risks inherent in the project . the majority of our contracts are structured with an upfront fee that is collected at the time of contract signing , and the balance of the fee is collected over the duration of the contract either through an arranged billing schedule or upon completion of certain performance targets or defined milestones . revenue , which is distinct from billing and cash receipt , is recognized based on the satisfaction of the individual performance obligations identified in each contract . substantially all of our customer contracts consist of a single performance obligation , as the promise to transfer the individual services defined in the contracts are not separately identifiable from other promises in the contract , and therefore not distinct . our performance obligations are generally satisfied over time and recognized as services are performed . the progression of our contract performance obligations are measured primarily utilizing the input method of cost to cost . cancellation provisions in our contracts allow our customers to terminate a contract either immediately or according to advance notice terms specified within the applicable contract , which is typically 30 days . contract cancellation may occur for various reasons , including , but not limited to , adverse patient reactions , lack of efficacy , or inadequate patient enrollment . upon cancellation , we are entitled to fees for services rendered and reimbursable costs incurred through the date of termination , including payment for subsequent services necessary to conclude the study or close out the contract . these fees are typically discussed and agreed upon with the customer and are realized as revenue when we believe the amount can be estimated reliably and its realization is probable . changes in revenue from period to period are driven primarily by new business volume and task order execution activity , project cancellations , changes in estimated costs to complete performance obligations , and the mix of active studies during a given period that can vary based on therapeutic area and or study life cycle stage . - 45 - costs and expenses our costs and expenses are comprised primarily of our total direct costs , selling , general and administrative costs , depreciation and amortization and income taxes . total direct costs total direct costs are primarily driven by labor and related employee benefits , but also include contracted third party service related expenses , fees paid to site investigators , reimbursed out of pocket expenses , laboratory supplies and other expenses contributing to service delivery . the other costs of service delivery can include office rent , utilities , supplies and software licenses which are allocated between total direct costs and selling , general and administrative expenses based on the estimated contribution among service delivery and support function efforts on a percentage basis . total direct costs are expensed as incurred and are not deferred in anticipation of contracts being awarded or finalization of changes in scope . total direct costs , as a percentage of net revenue , can vary from period to period due to project labor efficiencies , changes in workforce , compensation/bonus programs and service mix . selling , general and administrative selling , general and administrative expenses are primarily driven by compensation and related employee benefits , as well as rent , utilities , supplies , software licenses , professional fees ( e.g. , legal and accounting expenses ) , travel , marketing and other operating expenses . depreciation depreciation is provided on our property and equipment on the straight-line method at rates adequate to allocate the cost of the applicable assets over their estimated useful lives , which is three to five years for computer hardware , software , phone , and medical imaging equipment , five to seven years for furniture and fixtures and other equipment , and thirty to forty years for buildings . story_separator_special_tag we have translated the euro into u.s. dollars using the following average exchange rates based on data obtained from www.xe.com : replace_table_token_4_th - 47 - story_separator_special_tag cash equivalents , none of which was restricted , was held by our foreign subsidiaries as of december 31 , 2019. on september 30 , 2019 , the company entered into the credit facility consisting of up to a $ 50.0 million revolving line of credit ( the “ line of credit ” ) . the credit facility replaced a senior secured term loan facility of $ 165.0 million ( the “ prior senior secured term loan facility ” ) and a senior secured revolving credit facility of $ 150.0 million ( the “ prior senior secured revolving credit facility ” and , together with the prior senior secured term loan facility , the “ prior senior secured credit facilities ” ) which were set to expire in december 2021. in relation to the termination of the prior senior secured credit facilities , we repaid all outstanding obligations . as a result , no amounts remain outstanding under the prior senior secured credit facilities . as of december 31 , 2019 , we had $ 49.8 million available for borrowing under the credit facility . our expected primary cash needs on both a short and long-term basis are for investment in operational growth , capital expenditures , share repurchases , selective strategic bolt-on acquisitions , other investments , and other general corporate needs . we have historically funded our operations and growth with cash flow from operations and borrowings under our credit facilities . we expect to continue expanding our operations through organic growth and potentially highly selective bolt-on acquisitions and investments . we expect these activities will be funded from existing cash , cash flow from operations and , if necessary , borrowings under our existing or future credit facilities or other debt . we have deemed that foreign earnings will be indefinitely reinvested and therefore we have not - 49 - provided taxes on these earnings . while we do not anticipate the need to repatriate these foreign earnings for liquidity purposes given our cash flows from operations and available borrowings under existing and future credit facilities , we would incur taxes on these earnings if the need for repatriation due to liquidity purposes arises . we believe that our sources of liquidity and capital will be sufficient to finance our cash needs for the next 12 months and on a longer-term basis . however , we can not assure you that our business will generate sufficient cash flow from operations , or that future borrowings will be available to us under our credit facility or otherwise , in an amount sufficient to fund our liquidity needs . replace_table_token_6_th cash flows from operating activities cash flows from operations are driven mainly by net income , stock based compensation expense , amortization of intangibles and net movement in advanced billings , accrued expenses , prepaid and other current assets , and accounts receivable and unbilled , net . accounts receivable and unbilled , net , and advanced billings fluctuate on a regular basis as we perform our services , bill our customers and ultimately collect on those receivables . we attempt to negotiate payment terms in order to provide for payments prior to or soon after the provision of services , but this timing of collection can vary significantly on a period by period comparative basis . net cash flows provided by operating activities were $ 201.9 million for the year ended december 31 , 2019 consisting of net income of $ 100.4 million . adjustments to reconcile net income to net cash provided by operating activities were $ 65.9 million , primarily related to amortization of intangibles of $ 14.8 million , depreciation of $ 8.4 million , stock based compensation expense of $ 20.7 million , deferred income tax provision of $ 10.1 million , and noncash lease expense of $ 9.9 million . changes in operating assets and liabilities provided $ 35.6 million in operating cash flows and were primarily driven by increased accrued expenses of $ 21.8 million and increased advanced billings of $ 44.6 million , offset by increased accounts receivable and unbilled , net of $ 21.3 million . net cash flows provided by operating activities were $ 156.6 million for the year ended december 31 , 2018 consisting of net income of $ 73.2 million . adjustments to reconcile net income to net cash provided by operating activities were $ 43.8 million , primarily related to amortization of intangibles of $ 29.6 million , depreciation of $ 9.2 million , stock based compensation expense of $ 6.5 million , and deferred income tax provision of $ 3.9 million , offset by $ 7.7 million of amortization and adjustment of deferred credit . changes in operating assets and liabilities provided $ 39.6 million in operating cash flows and were primarily driven by increased accrued expenses of $ 29.0 million and increased advanced billings of $ 35.6 million , offset by increased accounts receivable and unbilled , net of $ 27.0 million . net cash flows provided by operating activities were $ 97.4 million for the year ended december 31 , 2017 consisting of net income of $ 39.1 million . adjustments to reconcile net income to net cash provided by operating activities were $ 45.4 million , primarily related to amortization of intangibles of $ 37.9 million , depreciation of $ 8.6 million , stock based compensation expense of $ 4.5 million , and deferred income tax provision of $ 3.2 million , offset by $ 8.8 million of amortization and adjustment of deferred credit . changes in operating assets and liabilities provided $ 12.9 million in operating cash flows and were primarily driven by increased accounts payable of $ 4.8 million , increased advanced billings of $ 7.7 million , and increased pre-funded study costs of $ 5.3 million , offset by increased prepaid expenses and other current assets of $ 3.5 million .
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results of operations year ended december 31 , 2019 compared to year ended december 31 , 2018 replace_table_token_5_th total revenue total revenue increased by $ 156.4 million to $ 861.0 million for the year ended december 31 , 2019 , from $ 704.6 million for the year ended december 31 , 2018. the increase was primarily driven by strong activity within the oncology and other uncategorized therapeutic areas . total direct costs total direct costs increased by $ 126.2 million , to $ 615.3 million for the year ended december 31 , 2019 from $ 489.1 million for the year ended december 31 , 2018. the increase was primarily attributed to higher reimbursed out-of-pocket expenses and higher personnel costs , outsourced services , and service-related supply costs to support the growth in service activities . reimbursed out-of-pocket expenses , which can fluctuate significantly from period to period based on the timing of the program initiation or closeout , increased $ 57.5 million for the year ended december 31 , 2019 , compared to the same period in the prior year . the remaining increase was primarily attributed to higher personnel costs of $ 45.1 million , outsourced service costs of $ 7.1 million , and service-related supply costs of $ 5.7 million in the year ended december 31 , 2019 , compared to the same period in the prior year . selling , general and administrative selling , general and administrative expenses increased by $ 19.6 million , to $ 95.2 million for the year ended december 31 , 2019 from $ 75.7 million for the year ended december 31 , 2018. the increase was primarily driven by higher personnel costs of $ 16.7 million in the year ended december 31 , 2019 , compared to the same period in the prior year , to support growth in project activities .
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the liability is discounted using credit adjusted risk-free rate estimates at story_separator_special_tag and results of operations this management discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and related notes contained elsewhere in this annual report on form 10-k. this management discussion and analysis contains forward‑looking statements that involve risks , uncertainties , and assumptions as described under the heading `` cautionary note regarding forward‑looking statements , '' in part i of this annual report on form 10-k. our actual results could differ materially from those anticipated by these forward‑looking statements as a result of many factors , including those discussed under `` item 1a . risk factors '' and elsewhere in this annual report on form 10-k. overview we are a diversified mineral company that delivers potassium , magnesium , sulfur , salt , and water products essential for customer success in agriculture , animal feed and the oil and gas industry . we are the only u.s. producer of muriate of potash ( sometimes referred to as potassium chloride or potash ) , which is applied as an essential nutrient for healthy crop development , utilized in several industrial applications , and used as an ingredient in animal feed . in addition , we produce a specialty fertilizer , trio ® , which delivers three key nutrients , potassium , magnesium , and sulfate , in a single particle . we also provide water , magnesium chloride , brine and various oilfield products and services . our extraction and production operations are conducted entirely in the continental united states . we produce potash from three solution mining facilities : our hb solution mine in carlsbad , new mexico , our solution mine in moab , utah and our brine recovery mine in wendover , utah . we also operate our north compaction facility in carlsbad , new mexico , which compacts and granulates product from the hb mine . we produce trio ® from our conventional underground east mine in carlsbad , new mexico . until mid-2016 , we also produced potash from our east and west mines in carlsbad , new mexico . in april 2016 , we converted our east facility from a mixed-ore facility that produced both potash and trio ® to a trio ® ‑only facility . in addition , in early july 2016 , we idled mining operations at our west facility and transitioned the facility into care and maintenance . these changes were designed to increase our production of trio ® , a product that had traditionally shown more resilience to pricing pressure than potash , and to lower costs in a time of declining potash prices . we have water rights in new mexico under which we sell water primarily to support oil and gas development in the permian basin near our carlsbad facilities . we continue to work to expand our sales of water . in may 2019 , we acquired certain land , water rights , and other related assets from dinwiddie cattle company . we refer to these assets and operations as `` intrepid south . '' the purchase price was $ 53 million , and we incurred $ 3.2 million in acquisition-related fees . we are required to pay dinwiddie cattle company an additional $ 12 million pending the resolution by dinwiddie cattle company or others by may 1 , 2020 , of certain issues identified in the diligence process . dinwiddie cattle company also reserved a 20-year , 10 % royalty , proportionally reduced as to our interest , on certain produced water disposal revenue relating to intrepid south and certain other properties located near intrepid south . we have three segments : potash , trio ® , and oilfield solutions . we account for the sale of byproducts as revenue in the potash or trio ® segment based on which segment generated the byproduct . for each of the years ended december 31 , 2019 , 2018 , and 2017 , a majority of our byproduct sales were accounted for in the potash segment . significant business trends and activities our financial results have been , or are expected to be , impacted by several significant trends and activities , which are described below . we expect these trends to continue to impact our results of operations , cash flows , and financial position . potash pricing and demand . potash remained a significant driver of our profitability , comprising 47 % of our total sales in 2019. our average net realized sales price for potash increased in 2019 to $ 284 per ton compared to $ 256 per ton for 2018 due to price increases late in 2018 that we realized in 2019. after the spring season , our competitors announced a summer fill program , reducing prices by $ 45 per ton . proposed price increases after summer fill did not materialize and we continued to sell at summer pricing levels during the second half of 2019. despite production curtailments of over four million tons by competitors in the second half of 2019 , significant inventories remained available in early 2020. in response to these above average inventories , our competitors announced a winter fill pricing program in january 2020 , reducing potash price by an additional $ 25 per ton . customers had until january 22 to place orders for delivery through the end of the first quarter . price levels increased by $ 20 after the order window . we expect good subscription under the program and expect to achieve higher pricing midway through the second quarter . similar to prior years , global effective capacity continues to exceed demand and larger producers have worked to balance stabilize the market through production curtailments . domestic pricing of our potash is influenced principally 38 by the price established by our competitors . the interaction of global potash supply and demand , ocean , land , and barge freight rates , and currency fluctuations also influence pricing . trio ® pricing and demand . story_separator_special_tag evaporation rates in 2019 were below average across our facilities which will reduce production in the spring of 2020 when compared to the prior year . above average rainfall at our wendover facility also decreased our magnesium chloride production in 2019 and we expect to have limited volumes of magnesium chloride available for sale until the evaporation season begins in 2020. diversification of products and services . we continued to diversify our products and services in 2019 , particularly with the acquisition of intrepid south in may 2019. in addition to water sales , intrepid south also generates revenue from right-of-way agreements , surface damages and easements , caliche sales , and a produced water royalty . these sales generated revenue of $ 3.7 million in 2019 and incur either minimal or no operating expense . we are in the process of adding a brine station at intrepid south and are currently developing a produced water facility with a partner near intrepid south . as we continue to diversify our portfolio , we may enter into new or complementary business that expand our product and service offerings beyond our existing assets or products through acquisition of companies or assets or otherwise . additionally , we may expand into oil and natural gas exploration and production or into new products or services in our current industry or other industries . 40 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > ® pricing , and an increase in water sales , primarily due to oil and gas drilling activity near our facilities in new mexico . byproduct revenue increased $ 6.6 million as we continue to execute on our strategy to grow sales of our byproducts . cost of goods sold increased $ 4.0 million , or 3 % in 2018 , as compared to 2017 , primarily due to increased sales discussed above . our gross margin percentage increased to 18 % in 2018 compared to 7 % in 2017. the increase was driven the increase in average net realized sales prices for our products , coupled with an increase in sales of higher-margin products , such as fresh water and byproducts . we also recorded fewer lower of cost or nrv inventory adjustments in 2018 , as the average net realized sales price per ton for potash and trio ® improved . net income increased $ 34.4 million , or 152 % , in 2018 compared to 2017 , primarily driven by higher gross margins , as discussed above , and the decrease in interest expense in 2018 compared to 2017 , as discussed below . selling and administrative expense in 2018 , selling and administrative expenses increased $ 1.5 million or 8 % from 2017. the increase was primarily due to an increase in our share-based compensation expense in 2018 compared to 2017. the increase in share-based compensation was due to granting awards earlier in 2018 compared to 2017 , coupled with the 2018 grant vesting over a shorter time period as compared to the 2017 grant . other operating expense in 2018 , we recognized other operating expense of $ 0.1 million compared to $ 3.5 million in 2017. in 2017 , we recorded a loss on a sale of an asset of $ 1.7 million , recorded an additional $ 1.1 million increase in our stores inventory allowance , and recorded a one-time $ 0.6 million accrual related to land impact issues on or adjacent to our property in new mexico . interest expense interest expense decreased $ 7.8 million in 2018 compared to 2017. approximately $ 4.2 million of the decrease was due to our weighted-average interest rate on our senior notes declining to 4.32 % in 2018 from 7.65 % in 2017. additionally , write-offs of deferred financing fees and make-whole payments related to principal prepayments on our senior notes decreased approximately $ 3.3 million in 2018 compared to 2017 . 42 potash segment results replace_table_token_10_th 1 potash segment sales include byproduct sales which were $ 21.2 million , $ 16.6 million and $ 12.4 million for the years ended december 31 , 2019 , 2018 , and 2017 , respectively . 2 depreciation , depletion , and amortization incurred excludes depreciation , depletion , and amortization amounts absorbed in or ( relieved from ) inventory . 3 average net realized sales price per ton is a non-gaap measure . more information about this non-gaap measure is below under the heading `` non-gaap financial measure . '' potash segment results for the years ended december 31 , 2019 , and 2018 our total potash segment sales in 2019 were similar to the prior year , as an increase of $ 4.6 million in byproduct sales was mostly offset by a $ 4.1 million decrease in potash sales accounted for in the potash segment , as detailed below . potash sales accounted for in the potash segment decreased 4 % during 2019 , compared to 2018. the average net sales price per ton increased 11 % to $ 284 per potash ton sold during 2019 , compared to the same period in 2018 , due to higher pricing in the first half of 2019. this was offset by a 12 % decrease in potash tons sold as a delayed harvest and an expectation of flat or declining potash prices entering the 2020 spring season limited purchases in the fourth quarter of 2019. our second half 2019 potash average net realized sales price per ton was also negatively impacted by a summer fill program announced in june 2019 by our competitors . under the program , the potash list prices decreased by $ 45 per ton for orders placed before june 27 and scheduled for shipment during the third quarter and list prices were scheduled to increase $ 25 per ton after the order window closed . the increased list prices did not materialize and potash remained at the lower summer fill prices levels in the second half of 2019 , which contributed to the decrease in potash sales revenue .
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consolidated results replace_table_token_9_th 1 sales include sales of byproducts which were $ 26.5 million , $ 19.3 million and $ 12.7 million for the years ended december 31 , 2019 , 2018 , and 2017 , respectively . 2 average net realized sales price per ton is a non-gaap measure . more information about this non-gaap measure is below under the heading `` non-gaap financial measure . '' consolidated results for the years ended december 31 , 2019 , and 2018 our total sales increased $ 11.8 million , or 6 % in 2019 , compared to 2018 , as a $ 7.2 million increase in byproduct sales , a $ 3.3 million increase in water sales , excluding byproduct water sales , and a $ 4.8 million increase in sales from other sources , was partly offset by a $ 3.0 million decrease in potash sales . our water sales , excluding byproducts , increased 21 % primarily due to increased water sales from the additional water rights we acquired with intrepid south in may 2019 and continued strong demand from oil and gas operators near our properties . sales from other revenue sources , which include high-speed mixing , right-of-way agreements , surface damages and easements , caliche sales , and a produced water royalty , increased as we completed additional mixing jobs in 2019 , and due to the acquisition of intrepid south in may 2019. potash sales volumes decreased 12 % in 2019 , compared to 2018 , due to wet weather during the spring application season and reduced sales in the fourth quarter of 2019 , as a result of a delayed harvest and an expectation of reduced pricing entering the 2020 spring season .
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resulting in non-taxable income of $ 126,000 , and · nationwide 's continued benefit from increased activity in residential construction and the renovation and remodeling markets . key indicators economic measures much of our business is driven by the ebbs and flows of the general economic conditions in both the united states and , to a lesser extent , abroad . our tools segment focuses on a wide array of customer types including , but not limited to large retailers , aerospace , large and small resellers of pneumatic tools and parts ; and automotive related customers . the tools segment tends to track the general economic conditions of the united states , industrial production and general retail sales . the key economic measures for our hardware group are housing starts and remodeling spending activity . a key economic measure relevant to us is the cost of the raw materials in our products . key materials include metals , especially various types of steel and aluminum . also important is the value of the united states dollar ( “ usd ” ) in relation to the taiwanese dollar ( “ twd ” ) , as we purchase a significant portion of our products from taiwan . purchases from chinese sources are made in usds . however , if the rmb , were to be revalued against the usd , there could be a significant negative impact on the cost of our products . as the result of the uat acquisition , we closely monitor the fluctuation in the great british pound ( “ gbp ” ) to the usd , and the gbp to twd , both of which can have an impact on the consolidated results . the cost and availability of a quality labor pool in the countries where products and components are manufactured , both overseas as well as in the united states , could materially affect our overall results . operating measures key operating measures we use to manage our operating segments are : orders ; shipments ; development of new products ; customer retention ; inventory levels and productivity . these measures are recorded and monitored at various intervals , including daily , weekly and monthly . to the extent these measures are relevant they are discussed in the detailed sections below for each operating segment . financial measures key financial measures we use to evaluate the results of our business include : various revenue metrics ; gross margin ; selling , general and administrative expenses ; earnings before interest and taxes ; operating cash flows and capital expenditures ; return on sales ; return on assets ; days sales outstanding and inventory turns . these measures are reviewed at monthly , quarterly and annual intervals and compared to historical periods as well as established objectives . to the extent that these measures are relevant , they are discussed in the detailed sections below for each operating segment . 12 critical accounting policies and estimates we prepare our consolidated financial statements in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . certain of these accounting policies require us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and the related disclosure of contingent assets and liabilities , revenues and expenses . on an ongoing basis , we evaluate estimates , including those related to bad debts , inventory reserves , goodwill and intangible assets , warranty reserves and taxes . we base our estimates on historical data and experience , when available , and on various other assumptions that are believed to be reasonable under the circumstances , the combined 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 . our critical accounting policies are further described below . in addition to the company 's significant accounting policies described in note 1 to the consolidated financial statements , p & f considers the following policies and estimates to be the most critical in understanding the judgments that are involved in the preparation of the company 's consolidated financial statements and the uncertainties that could impact the company 's financial position , results of operations and cash flows . revenue recognition we recognize revenue when persuasive evidence of an arrangement exists , delivery has occurred or title has passed to our customer or services have been provided , the sale price is fixed or determinable , and collectability is reasonably assured . we sell our goods on terms which transfer title and risk of loss at a specified location , typically shipping point , port of loading or port of discharge , depending on the final destination of the goods . revenue recognition from product sales occurs when all factors are met , including transfer of title and risk of loss , which occurs either upon shipment by us or upon receipt by customers at the location specified in the terms of sale . other than standard product warranty provisions , our sales arrangements provide for no other post-shipment obligations . we do offer rebates and other sales incentives , promotional allowances or discounts , from time to time and for certain customers , typically related to customer purchase volume , all of which are fixed or determinable and are classified as a reduction of revenue and recorded at the time of sale . we periodically evaluate whether an allowance for sales returns is necessary . historically , we have experienced minimal sales returns . if we believe there are material potential sales returns , we would provide the necessary provision against sales . accounts receivable and allowance for doubtful accounts accounts receivable are customer obligations due under normal trade terms . we sell our products to retailers , distributors and oems involved in a variety of industries . story_separator_special_tag if any of these factors exist , the company is required to test the long-lived asset for recoverability and may be required to recognize an impairment charge for all or a portion of the asset 's carrying value . income taxes we account for income taxes using the asset and liability approach . this approach requires the recognition of current tax assets or liabilities for the amounts refundable or payable on tax returns for the current year , as well as the recognition of deferred tax assets or liabilities for the expected future tax consequences of temporary differences that can arise between ( a ) the amount of taxable income and pretax financial income for a year , such as from net operating loss carryforwards and other tax credits , and ( b ) the tax bases of assets or liabilities and their reported amounts in the consolidated financial statements . deferred tax assets and liabilities are measured using enacted tax rates . the impact on deferred tax assets and liabilities of changes in tax rates and laws , if any , is reflected in the consolidated financial statements in the period enacted . further , we evaluate the likelihood of realizing benefit from our deferred tax assets by estimating future sources of taxable income and the impact of tax planning strategies . deferred tax assets are reduced by a valuation allowance when , in the opinion of management , it is more likely than not that some portion , or all , of the deferred tax assets will not be realized . we file a consolidated federal tax return . p & f and certain of its subsidiaries file combined tax returns in new york and texas . all subsidiaries , other than uat , file other state and local tax returns on a stand-alone basis . uat files an income tax return with the taxing authorities in the united kingdom . when tax returns are filed , it is highly certain that some positions taken would be sustained upon examination by the taxing authorities , while other positions are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained . the benefit of a tax position is recognized in the financial statements in the period during which , based on all available evidence , management believes it is more likely than not that the position will be sustained upon examination , including the resolution of appeals or litigation processes , if any . tax positions taken are not offset or aggregated with other positions . tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority . the portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination . interest and penalties associated with unrecognized tax benefits are classified as income taxes in the consolidated statements of income and comprehensive income . 14 story_separator_special_tag product line , as well as distributes a complementary line of sockets , which in the aggregate are referred to as ( “ atp ” ) . hy-tech machine products ( “ hy-tech machine ” ) are primarily marketed to the mining , construction and industrial manufacturing sectors . replace_table_token_7_th replace_table_token_8_th during the fourth quarter of 2015 hy-tech continued to be negatively impacted by weakness in the global oil and gas sector . we believe that the reduced levels of oil and gas exploration and extraction has , among other things , resulted in the decline in our sale of drilling motors and related parts and sockets during the fourth quarter . however , the decline in hy-tech 's atp revenue was partially offset by an increase in sales of atsco products this quarter compared to the fourth quarter of 2014. the hy-tech machine revenue declined this quarter compared to the same period a year ago , due primarily to lower than normal level of orders from its customers in the specialty manufacturing , mine safety and railroad markets . with respect to hy-tech 's major customer , we believe their decision to source internally , certain pneumatic impact wrenches from their facilities , has contributed in part to the decline in revenue . with respect to the full year 2015 , the increase in atp revenue , compared to the full year 2014 , is primarily attributable to atsco product sales , partially offset by declines in revenue of non-atsco tools and parts , drilling motors and parts , as well as sockets . as discussed earlier , we believe , among other factors , that the reduction in oil and gas exploration and extraction has , throughout 2015 , negatively impacted hy-tech 's overall revenue , most notably its atp product line . according to information issued by baker hughes , a leading oil field services company , the total number of rotary rigs operating in the united states is 698 , down from 1,811 , or a 61.5 % decline from one year ago . until such time when major exploration and related activity levels return to recent historic levels , it is difficult to predict when this sector of the atp category will improve . as such , hy-tech intends to continue to pursue alternate markets and customers with added focus on its atsco products and other pneumatic tool markets . in line with the aforementioned , its hy-tech machine 's 2015 revenue improved more than 21 % , when compared to full-year 2104. despite a weaker fourth quarter of 2015 , this product category improved its revenue this year compared to the prior year , due mainly to stronger demand from the markets and customers it serves .
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results of operations 2015 compared to 2014 revenue unless otherwise discussed elsewhere in the management 's discussion and analysis ( “ md & a ” ) section , we believe that our relationships with our key customers remain satisfactory . in 2015 , we have elected not to sell certain promotional-type products to sears , which we did sell during 2014. revenue from sears is included in florida pneumatic 's retail category . hy-tech 's shipments to its major customer have significantly declined , resulting in part from this customer 's decision to source certain products from within . other than the aforementioned , there were no major trends or uncertainties that had , or we could reasonably expect could have , a material impact on our revenue . the three acquisitions that occurred during the third quarter of 2014 played a significant role in our 2015 results of operations . other than the ongoing weakness in oil and gas exploration and extraction , particularly in the united states , which is our primary market for hy-tech and to a lesser degree florida pneumatic 's industrial sector , there was no unusual or infrequent event , transaction or any significant economic change that materially affected our results of operations . we believe the on-going slowdown in the global oil and gas extraction and exploration sector may likely negatively impact a portion of our 2016 results . the tables set forth below provide an analysis of our revenue for the three and twelve-month periods ended december 31 , 2015 and 2014. consolidated replace_table_token_3_th replace_table_token_4_th 15 tools florida pneumatic florida pneumatic markets its air tool products to three primary sectors within the pneumatic tool market ; retail , industrial/catalog and the automotive market . it also generates revenue from its berkley products line , as well as a line of air filters and other oem parts ( “ other ” ) .
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superior uniform group , inc. michael benstock by : michael benstock ( chief executive officer and principal executive officer ) date : february 26 , 2015 pursuant to the requirements of the securities exchange act of 1934 , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . michael benstock michael benstock , february 26 , 2015 chief executive officer ( principal executive officer ) andrew d. demott , jr. andrew d. demott , jr. , february 26 , 2015 chief financial officer and treasurer story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements , which present our results of operations for the years ended december 31 , 2014 and 2013 , as well as our financial positions at december 31 , 2014 and 2013 , contained elsewhere in this form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this form 10-k , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . you should review the “ special note regarding forward looking statements ” and “ risk factors ” sections of this form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . business outlook uniforms and related products historically , we have manufactured and sold a wide range of uniforms , career apparel and accessories , which comprises our uniforms and related products segment . our primary products are provided to workers employed by our customers and , as a result , our business prospects are dependent upon levels of employment and overall economic conditions , among other factors . our revenues are impacted by our customers ' opening and closing of locations and reductions and increases in headcount . additionally , between 2009 and 2013 voluntary employee turnover had declined significantly because fewer alternative jobs were available to employees of our customers . while the current economic environment in the united states remains somewhat sluggish , we are seeing an improvement in the employment environment and as such , voluntary employee turnover is beginning to increase . capital is increasingly being freed up to fund business startups and expansions in the economy . we are also seeing an increase in the demand for employees in the healthcare sector as a result of the affordable care act . all of these factors are expected to have positive impacts on our prospects for growth in net sales in 2015. we are also beginning to gain traction in our penetration of the direct health care market . we have been awarded our first group purchasing organization contract beginning february 1 , 2015 that will increase the number of healthcare facilities that we are able to pursue for direct sales by at least 3,000. we expect to be awarded additional agreements for other group purchasing organizations in the near term . during the latter part of 2010 , cotton prices began increasing dramatically and reached historical highs during 2011 due to weather-related and other supply disruptions , which when combined with robust global demand , particularly in asia , created concerns about availability in addition to increased costs for our products . while we were able to pass on a portion of these price increases to our customers during most of 2011 , we began to see a negative impact on our gross margins in the fourth quarter of 2011. this trend continued for us through the end of the third quarter of 2012 at which point we began to realize cost reductions as cotton prices began to stabilize . our fourth quarter 2012 margins began to show improvement in comparison to the first three quarters of 2012 and this trend continued to improve significantly during 2013. this situation appears to have stabilized and our margins have returned to historically normal levels . we have been and continue to actively pursue acquisitions to increase our market share in the uniforms and related products segment . as discussed in note 15 to the consolidated financial statements , the company completed the acquisition of substantially all of the assets of hpi direct , inc. on july 1 , 2013. remote staffing solutions we are pursuing a diversified business model to include growth of our remote staffing solutions segment , operating in el salvador , belize , and the united states this business segment was initially started to provide remote staffing services for the company at a lower cost structure in order to improve our own operating results . it has in fact enabled us to reduce our operating expenses in our uniforms and related products segment and to more effectively service our customers ' needs in that segment . we added our belize location at the end of 2012 as a replacement for our costa rican location that was closed in 2012. the belize operation offers a more competitive cost structure for the company as compared to costa rica . we began selling remote staffing services to other companies at the end of 2009. we have grown this business from approximately $ 1 million in net sales to outside customers in 2010 to approximately $ 8 million in net sales to outside customers in 2014. we have spent significant effort over the last several years improving the depth of our management infrastructure in this segment to support significant growth in this segment in 2015 and beyond . we increased net sales to outside customers in this segment by approximately 42 % in 2014 as compared to 2013 and by approximately 63 % in 2013 as compared to 2012. we are investing in a new call center building in el salvador expected to be completed near the end of 2015 that will essentially double our existing capacity there . story_separator_special_tag interest expense and tax interest expense increased to $ 484,000 for the year ended december 31 , 2014 from $ 195,000 for the year ended december 31 , 2013. this increase is attributed to higher average borrowings outstanding in the current period . the acquisition debt related to the hpi acquisition was only outstanding for the last six months of the year ended december 31 , 2013. the effective income tax rate in 2014 was 35.3 % and in 2013 was 31.1 % . the 4.2 % increase in the effective tax rate is attributed primarily to the following : a decrease in the benefit for income from foreign operations ( contributing 3.2 % ) , an increase in the net accrual for uncertain tax positions ( contributing 2.0 % ) , an increase in the federal rate for taxable earnings in excess of $ 10,000,000 ( contributing 0.5 % ) , partially offset by a decrease in non-deductible share based compensation as a percentage of taxable earnings ( contributing 0.7 % ) , and a net decrease in other items as a result of the significant increase in income in the current period ( contributing 0.8 % ) . during the year ended december 31 , 2014 and 2013 , the company did not recognize deferred income taxes on foreign income of $ 1,841,000 and $ 1,688,000 , respectively , due to the fact that these amounts are considered to be reinvested indefinitely in foreign subsidiaries . based upon our current expectations , we do not expect to recognize deferred income taxes on our 2015 foreign income as this income is expected to be reinvested indefinitely in foreign subsidiaries . liquidity and capital resources story_separator_special_tag roman , times , serif '' > capital expenditures the company has an on-going capital expenditure program designed to maintain and improve its facilities . capital expenditures , excluding the 2013 hpi acquisition , were approximately $ 4,936,000 and $ 1,631,000 in 2014 and 2013 , respectively . we are investing in a new call center building in el salvador expected to be completed near the end of 2015 that will essentially double our existing capacity there . we spent approximately $ 2 million on the el salvador project in 2014 and expect to spend in excess of an additional $ 5 million to complete the project . dividends and share repurchase program during the years ended december 31 , 2014 and 2013 , the company paid cash dividends of approximately $ 3,663,000 and $ 874,000 , respectively . on december 31 , 2012 , the company paid a special dividend of $ 0.27 per share representing a prepayment — and payment in lieu of — the company 's regular quarterly dividend for 2013 in order to take advantage of a tax efficient method to return capital to our shareholders prior to anticipated increases in tax rates associated with dividends . during 2013 , the company restarted its regular quarterly dividend of $ 0.068 per share one quarter early and paid this dividend during the fourth quarter of 2013. during 2014 , the company increased its regular quarterly dividend to $ .075 per quarter beginning with the third quarter dividend . total dividends paid in 2014 were $ 0.285 per share . on august 1 , 2008 , the company 's board of directors approved an increase to the outstanding authorization under its common stock repurchase program to allow for the repurchase of 1,000,000 additional shares of the company 's outstanding shares of common stock . under this program , the company reacquired and retired -0- shares and 13,211 shares of its common stock in the years ended december 31 , 2014 and 2013 , respectively , with approximate costs of -0- and $ 162,000 , respectively . at december 31 , 2014 , the company had 261,675 shares remaining for purchase under its common stock repurchase program . shares purchased under the common stock repurchase program are constructively retired and returned to unissued status . we consider several factors in determining when to make share repurchases , including among other things , our cost of equity , our after-tax cost of borrowing , our debt to total capitalization targets and our expected future cash needs . there is no expiration date or other restriction governing the period over which we can make our share repurchases under the program . the company anticipates that it will continue to pay dividends and that it will repurchase additional shares of its common stock in the future as financial conditions permit . 16 credit agreement effective july 1 , 2013 , the company entered into an amended and restated 5-year credit agreement with fifth third bank that made available to the company up to $ 15,000,000 on a revolving credit basis ( the “ initial credit facility ” ) in addition to a $ 30,000,000 term loan utilized to finance the acquisition of substantially all of the assets of hpi direct , inc. as discussed in note 15. interest is payable on the term loan at libor plus 0.95 % ( 1.1 % at december 31 , 2014 ) and on the revolving credit agreement at libor ( rounded up to the next 1/8 th of 1 % ) plus 0.95 % ( 1.2 % at december 31 , 2014 ) . both loans are based upon the one-month libor rate for u.s. dollar based borrowings . the company pays an annual commitment fee of 0.10 % on the average unused portion of the commitment under the initial credit facility . the available balance under the initial credit facility is reduced by outstanding letters of credit . as of december 31 , 2014 , there were no outstanding balances under letters of credit . effective october 22 , 2013 , the credit agreement was amended to , among other things , increase the amount of permitted investments in subsidiaries that are not parties to the credit agreement and related agreements , from $ 1 million to $ 5 million .
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overview the company uses a number of standards for its own purposes in measuring its liquidity , such as : working capital , profitability ratios , long-term debt as a percentage of long-term debt and equity , and activity ratios . the company 's balance sheet is very strong at this point and provides the ability to pursue acquisitions , to invest in new product lines and technologies , and to invest in additional working capital as necessary . as of december 31 , 2014 , approximately $ 4,147,000 of our cash is held in our foreign subsidiaries and can not be repatriated without recognizing and paying federal income taxes on this amount . the company 's primary source of liquidity has been its net income . in addition , e ffective july 1 , 2013 , the company entered into a five year $ 30,000,000 term loan to finance the acquisition of substantially all of the assets of hpi direct , inc. the company also has $ 25 million in revolving credit facilities available for use in the event it is needed , under which $ 660,000 is outstanding at december 31 , 2014. accounts receivable – trade increased 23.0 % from $ 22,735,000 as of december 31 , 2013 to $ 27,956,000 as of december 31 , 2014. the increase is attributed to the significant increase in net sales in 2014. prepaid expenses and other current assets decreased 25.2 % from $ 6,012,000 on december 31 , 2013 to $ 4,497,000 as of december 31 , 2014. the decrease is primarily attributed to a reduction in deposits with vendors for upcoming purchases of finished goods . inventories increased 17.8 % from $ 49,486,000 on december 31 , 2013 to $ 58,282,000 as of december 31 , 2014. this increase is due to higher inventory levels required to meet higher net sales volumes .
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bromine is commonly used in brominated flame retardants , fumigants , water purification compounds , dyes , medicines and disinfectants . crude salt is the principal material in alkali production as well as chlorine alkali production and is widely used in the chemical , food and beverage , and other industries . through our wholly-owned subsidiary , syci , we manufacture and sell chemical products used in oil and gas field exploration , oil and gas distribution , oil field drilling , papermaking chemical agents , inorganic chemicals and manufacture and sell materials that are used for human and animal antibiotics .. on december 12 , 2006 , we acquired , through a share exchange , upper class group limited , a british virgin islands holding corporation which then owned all of the outstanding shares of schc . under accounting principles generally accepted in the united states , the share exchange is considered to be a capital transaction in substance , rather than a business combination . that is , the share exchange is equivalent to the issuance of stock by upper class for the net assets of our company , accompanied by a recapitalization , and is accounted for as a change in capital structure . accordingly , the accounting for the share exchange was identical to that resulting from a reverse acquisition , except no goodwill was recorded . under reverse takeover accounting , the post reverse acquisition comparative historical consolidated financial statements of the legal acquirer , our company , are those of the legal acquiree , upper class group limited , which is considered to be the accounting acquirer . share and per share amounts reflected in this report have been retroactively adjusted to reflect the merger . on february 5 , 2007 , the company , acting through schc , acquired syci . since the ownership of the company and syci was then substantially the same , the transaction was accounted for as a transaction between entities under common control , whereby we recognized the assets and liabilities of syci at their carrying amounts . share and per share amounts stated in this report have been retroactively adjusted to reflect the merger . on august 31 , 2008 , syci completed the construction of a new chemical production line . it passed the examination by shouguang city administration of work safety and local fire department . this new production line focuses on producing environmental friendly additive products , solid lubricant and polyether lubricant , for use in oil and gas exploration . the line has an annual production capacity of 5,000 tons . formal production of this chemical production line started on september 15 , 2008. the total annual production capacity of syci is 36,300 tons . on october 12 , 2009 we completed a 1-for-4 reverse stock split of our common stock , such that for each four shares outstanding prior to the stock split there was one share outstanding after the reverse stock split . all shares of common stock referenced in this report have been adjusted to reflect the stock split figures . on october 27 , 2009 our shares began trading on the nasdaq global select market under the ticker symbol “ gfre ” and on june 30 , 2011 we changed our ticker symbol to “ gure ” to better reflection of our corporate name . on january 12 , 2015 , the company and schc entered into an equity interest transfer agreement with scrc pursuant to which schc agreed to acquire scrc and all rights , title and interest in and to all assets owned by scrc , a leading manufacturer of materials for human and animal antibiotics in china and other parts of asia . on february 4 , 2015 the company closed the transactions contemplated by the agreement between the company , schc and scrc . on the closing date , the company issued 7,268,011 shares of its common stock , par value $ 0.0005 per share ( the “ shares ” ) , at the closing market price of $ 1.84 per share on the closing date to the four former equity owners of scrc .the issuance of the shares was exempt from registration pursuant to regulation s of the securities act of 1933 , as amended . on the closing date , the company entered into a lock-up agreement with the four former equity owners of scrc . in accordance with the terms of the lock-up agreement , the shareholders agreed not to sell or transfer the shares for five years from the date the stock certificates evidencing the shares were issued . the sellers of scrc agreed as part of the purchase price to accept the shares , based on a valuation of $ 2.00 , which was a 73 % premium to the price on the day the agreement was entered into . for accounting purposes , the shares are now being valued at $ 1.84 , which was the closing price of our stock on the day of the closing date of the agreement . the price difference between the original $ 2.00 and the current $ 1.84 is solely for accounting purposes . there has been no change in the number of shares issued . 21 on november 24 , 2015 , gulf resources , inc. , a delaware corporation consummated a merger with and into its wholly-owned subsidiary , gulf resources , inc. , a nevada corporation . as a result of the reincorporation , the company is now a nevada corporation . on december 15 , 2015 , the company registered a new subsidiary in the sichuan province of the prc named daying county haoyuan chemical company limited ( “ dchc ” ) with registered capital of rmb50,000,000 , and there was rmb13,848,730 capital contributed by schc as of december 31 , 2017. dchc was established to further explore and develop natural gas and brine resources ( including bromine and crude salt ) in china . story_separator_special_tag we also expect to carry out enhancement projects for the transmission channels and ducts for rectification and improvement in order to meet the new environmental rules in china in 2018 , which will costs of approximately $ 8.5 million . bromine segment for the fiscal year 2017 , the cost of net revenue for our bromine segment was $ 20,991,198 , a decrease of $ 9,888,125 ( or 32 % ) compared to $ 30,879,323 for the fiscal year 2016. the major components of our cost of net revenue for the bromine segment were cost of raw materials and finished goods consumed of $ 5,081,097 ( or 24 % ) , depreciation and amortization of manufacturing plant and machinery of $ 9,966,196 ( or 47 % ) and electricity of $ 2,114,611 ( or 10 % ) for fiscal year 2017. the major components of our cost of net revenue for the bromine segment were cost of raw materials and finished goods consumed of $ 8,198,333 ( or 27 % ) , depreciation and amortization of manufacturing plant and machinery of $ 14,614,059 ( or 47 % ) and electricity of $ 2,566,285 ( or 8 % ) for fiscal year 2016 , a similar cost structure as compared with the same in 2017. the decrease in net cost of net revenue was mainly attributable to the closure of all of our plant and factories to perform rectification and improvement since september 1 , 2017. some of our local customers were also requested to stop production , which affected our customers ' industries and our sales volume . the table below represents the major production cost components of bromine per ton sold for the respective periods : replace_table_token_18_th 26 crude salt segment for the fiscal year 2017 , the cost of net revenue for our crude salt segment was $ 4,329,663 , representing a decrease of $ 3,857,628 , or 47 % , over the same period in 2016. the decrease in cost was mainly due to the decrease in volume of crude salt sold and unit production cost . the decrease in cost was mainly due to the decrease in depreciation and amortization of manufacturing plant and machinery mainly dueto ( i ) some plant and equipment related to the crude salt and bromine facilities were fully depreciated in june 2016 ; and ( ii ) the demolition factory no.6 in december 2016 for bromine and crude salt segment , which partially offset by the increase in depreciation and amortization of manufacturing plant and machinery due to the enhancement projects carried out for our extraction wells and transmission channels and ducts which commenced in august 2016 and completed in september 2016.the significant costs were depreciation and amortization of $ 1,801,050 ( or 42 % ) , resource tax calculated based on the crude salt sold of $ 971,819 ( or 22 % ) and electricity of $ 267,022 ( or 6 % ) for the fiscal year 2017. the significant costs were depreciation and amortization of $ 5,837,225 ( or 71 % ) , resource tax calculated based on the crude salt sold of $ 919,268 ( or 11 % ) and electricity of $ 437,453 ( or 5 % ) for the fiscal year 2016. the table below represents the major production cost components of crude salt per ton sold for the respective periods : replace_table_token_19_th chemical products segment for the fiscal year 2017 , the cost of net revenue for our chemical products segment was $ 37,836,229 , representing a decrease of $ 17,882,828 , or 32 % , over the same period in 2016. this decrease was primarily attributable to the closure of our chemical factories and being relocated since september 1 , 2017. some of our local customers were also requested to stop production , which affected our customers ' industries and our sales volume . gross profit . gross profit was $ 44,365,351 , or 41 % , of net revenue for fiscal year 2017 as compared to $ 54,489,331 , or 37 % , of net revenue for fiscal year 2016. replace_table_token_20_th 27 bromine segment for the fiscal year 2017 , the gross profit margin for our bromine segment was 50 % , as compared to 46 % for the fiscal year 2016. this 4 % increase is mainly due to the increased average selling price and the decrease in the purchase price of raw material and the decrease in depreciation and amortization of manufacturing plant and machinery mainly due to ( i ) some plant and equipment related to the crude salt and bromine facilities were fully depreciated in june 2016 ; and ( ii ) the demolition factory no.6 in december 2016 for bromine and crude salt segment , which partially offset by the increase in depreciation and amortization of manufacturing plant and machinery due to the enhancement projects carried out for our extraction wells and transmission channels and ducts which commenced in august 2016 and completed in september 2016 . crude salt segment for the fiscal year 2017 , the gross profit margin for our crude salt segment was 52 % as compared to 9 % for the same period in 2016. this 43 % increase is mainly due to the increase in crude salt price and decrease in depreciation and amortization of manufacturing plant and machinery as mentioned in cost of net revenue of crude salt . chemical products segment the gross profit margin for our chemical products segment for the fiscal year 2017 was 33 % as compared to 33 % for the same period in 2016. research and development costs the total research and development costs incurred for the fiscal years 2017 and 2016 were $ 195,195 and $ 261,931 , respectively , a decrease of 25 % . research and development costs for the fiscal year 2017 represented raw materials used by syci for testing the manufacturing routine . research and development costs for the fiscal year 2016 represented raw materials used by syci and scrc for testing the manufacturing routine .
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results of operations year ended december 31 , 2017 as compared to year ended december 31 , 2016 replace_table_token_11_th net revenue the table below shows the changes in net revenue in the respective segment of the company for the fiscal year 2017 compared to the same period in 2016 : replace_table_token_12_th replace_table_token_13_th replace_table_token_14_th bromine segment 23 the sales volume of bromine decreased from 14,955 tonnes for the fiscal year 2016 to 10,681 tonnes for the same period in 2017 , a decrease of 29 % . the major reason for the decrease in the sales volume of bromine was mainly due to the closure of all of our plant and factories to perform rectification and improvement since september 1 , 2017. some of our local customers were also requested to stop production , which affected our customers ' industries and our sales volume . the selling price of bromine increased from $ 3,799 per tonne for the fiscal year 2016 to $ 3,953 per tonne for the same period in 2017 , an increase of 4 % . the table below shows the changes in the average selling price and changes in the sales volume of bromine for the fiscal year 2017 from the same period in 2016. fiscal year decrease in net revenue of bromine as a result of : 2017 vs. 2016 increase in average selling price $ 1,978,753 decrease in sales volume $ ( 16,565,582 ) total effect on net revenue of bromine $ ( 14,586,829 ) crude salt segment the sales volume of crude salt decreased by 13 % from 316,161 tonnes for the fiscal year 2016 to 274,534 tonnes for the same period in 2017. the average selling price of crude salt increased from $ 28.42 per tonne for the fiscal year 2016 to $ 32.73 per tonne for the same period in 2017 an increase of 15 % .
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in addition , holders of the partnership units in carlyle holdings i l.p. , carlyle holdings ii l.p. , and carlyle holdings iii l.p. exchanged such units for an equivalent number of shares of common stock and certain other restructuring steps occurred ( the conversion , together with such restructuring steps and related transactions , the “ conversion ” ) . unless the context suggests otherwise , references in this report to “ carlyle , ” the “ company , ” “ we , ” “ us ” and “ our ” refer ( i ) prior to the consummation of the conversion to the carlyle group l.p. and its consolidated subsidiaries and ( ii ) from and after the consummation of the conversion to the carlyle group inc. and its consolidated subsidiaries . references to our common stock in periods prior to the conversion refer to the common units of the carlyle group l.p. the following discussion should be read in conjunction with the consolidated financial statements and the related notes included in this annual report on form 10-k. overview we conduct our operations through three operating segments : global private equity , global credit , and investment solutions . global private equity — our global private equity segment advises our 34 buyout and middle market and growth capital funds , our 10 u.s. and internationally focused real estate funds , our 14 natural resources funds , and our three legacy energy funds . the segment also includes three ngp predecessor funds and five ngp carry funds advised by ngp . as of december 31 , 2020 , our global private equity segment had $ 131.8 billion in aum and $ 91.6 billion in fee-earning aum . global credit — our global credit segment advises a group of 71 funds that pursue investment strategies including loans and structured credit , direct lending , opportunistic credit , distressed credit , and aircraft financing and servicing . as of december 31 , 2020 , our global credit segment had $ 55.9 billion in aum and $ 42.1 billion in fee-earning aum . investment solutions — our investment solutions segment advises global private equity and real estate fund of funds programs and related co-investment and secondary activities across 283 fund vehicles . as of december 31 , 2020 , our investment solutions segment had $ 58.1 billion in aum and $ 36.4 billion in fee-earning aum . we earn management fees pursuant to contractual arrangements with the investment funds that we manage and fees for transaction advisory and oversight services provided to portfolio companies of these funds . we also typically receive a performance fee from an investment fund , which may be either an incentive fee or a special residual allocation of income , which we refer to as a carried interest , in the event that specified investment returns are achieved by the fund . under u.s. generally accepted accounting principles ( “ u.s . gaap ” ) , we are required to consolidate some of the investment funds that we advise . however , for segment reporting purposes , we present revenues and expenses on a basis that deconsolidates these investment funds . accordingly , our segment revenues primarily consist of fund management and related advisory fees and other income , realized performance revenues ( consisting of incentive fees and carried interest allocations ) , realized principal investment income , including realized gains on our investments in our funds and other trading securities , as well as interest income . our segment expenses primarily consist of cash compensation and benefits expenses , including salaries , bonuses , and realized performance payment arrangements , and general and administrative expenses . while our segment expenses include depreciation and interest expense , our segment expenses exclude acquisition-related charges and amortization of intangibles and impairment . refer to note 16 to the consolidated financial statements included in this annual report on form 10-k for more information on the differences between our financial results reported pursuant to u.s. gaap and our financial results for segment reporting purposes . 89 trends affecting our business aggregate economic activity continued to improve through the fourth quarter of 2020 , and overall revenue growth among public companies was roughly flat , on average , for the year . however , the pandemic 's sharply discrepant impact has increased the dispersion in performance across businesses and industries . during 2020 , more than 10 % of public companies reported a peak-to-trough fall in revenues of more than 50 % , roughly twice the number of businesses reporting losses of this magnitude over any 12-month period during 2008-2009. on the other hand , over 5 % of businesses also reported revenue gains in excess of 50 % , as remote work and social distancing led businesses to make greater use of video communications technology and households substituted video streaming and durable goods purchases for travel , tourism and live events spending . overall , u.s. business spending , led by software and services , averaged nearly 8 % year-over-year growth in the fourth quarter of 2020 , and our proprietary portfolio data continue to suggest that growth in certain industries such as healthcare and technology also remained robust . in europe , there was continued growth in the business services and industrials sectors , but a large resurgence in coronavirus cases drove some retrenchment in affected industries and geographies . as has been the case since the onset of the pandemic , the travel , tourism , and hospitality sectors were particularly impacted . u.s. hotel occupancy fell to 37 % of capacity in december , the lowest rate since the spring , while new restrictions on movement and business activity in europe resulted in a modest quarter-over-quarter economic contraction . story_separator_special_tag the 10-year u.s. treasury yield rose more than 25 basis points over the quarter to its highest level since march on expectations of increased government spending under the new administration and closely divided congress . high yield spreads tightened a further 150 basis points . futures markets continue to expect short-term rates to remain near zero through 2025 due to the federal reserve 's new policy framework , which appears to allow inflation to overshoot its 2 % target for “ some time. ” within corporate credit , businesses have taken advantage of low interest rates through massive debt issuance and restructurings , building large cash piles as liquidity buffers . our carry fund portfolio continued to build on the strong momentum started in the second half of the year , appreciating 8 % in the fourth quarter and 10 % for the year . within our global private equity segment , our corporate private equity funds appreciated by 11 % in the fourth quarter and 19 % over the last twelve months , reflecting strong performance across the portfolio and our real estate funds appreciated by 3 % during the fourth quarter and 8 % over the last twelve months . our natural resources funds appreciated by 3 % in the fourth quarter despite continued pressure , with depreciation of 16 % over the last twelve months . in our global credit segment , our carry funds ( which represent approximately 14 % of the total global credit remaining fair value ) appreciated by 7 % in the fourth quarter , as tightening spreads led to an increase in value for many of our positions , and depreciated 2 % over the last twelve months . investment solutions appreciation was 7 % in the fourth quarter and 10 % for the year , though the valuations of our primary and secondary funds of funds generally reflect investment fair values on a one-quarter lag . with continued positive impact from valuations across the portfolio , net accrued performance revenues on our balance sheet increased to a record $ 2.3 billion at december 31 , 2020 , up 36 % since last year . significant ipo activity in our portfolio during 2020 has increased the portion of our traditional carry funds attributable to publicly traded companies to 15 % of fair value in the fourth quarter , compared to 6 % at the end of 2019. while these ipos have performed well to date overall , this shift may result in an increasing correlation to public market performance and a significant concentration of investment gains in individual investments for certain funds . to the extent that there is volatility in public equity markets and or the prices of our publicly-traded portfolio companies , there may be elevated volatility in our performance revenue accrual in the coming quarters . generally , the investment period of our funds enables us to be patient in deploying capital only in investments that meet our return criteria and the strategic objectives of our funds . during the fourth quarter , our carry funds invested $ 8.7 billion in new or follow-on transactions and we invested $ 18.3 billion for the full year 2020. we anticipate that increased market activity and opportunities for large buyouts will facilitate strong deployment activity as we move further into 2021. we also expect volume to remain robust across both growth and buyout opportunities , particularly in the healthcare , technology , and consumer sectors . however , challenges in specific industries could lead to a longer-term slowdown in certain sectors , such as traditional energy . we generated $ 6.9 billion in realized proceeds from our carry funds in the fourth quarter and realized $ 21.0 billion in 2020. we expect near-term exit activity in early 2021 to depend on the trajectory of multiple and varied macro environment factors , in addition to valuation multiples and access to capital markets . however , we believe that our recent ipo activity and maturing portfolio position us well to deliver higher levels of both realized proceeds and realized performance revenue over the long term . for example , during the fourth quarter we realized significant performance revenue for a second straight quarter from our sixth u.s. buyout fund , which reflects the value creation and advancing maturity profile of that flagship fund . fundraising has remained generally resilient since the onset of the pandemic . though we were not fundraising any of our flagship funds in global private equity during 2020 , we raised $ 27.5 billion in new capital in 2020 , well exceeding our goal for the year , with particular fundraising strength in investment solutions and global credit . at the beginning of the pandemic , many observers conflated a return to the office with a return to business as usual . instead , business volumes and productivity rose to pre-pandemic levels well in advance of full office reopening . since the start 91 of the pandemic , our employees have proven what they can accomplish while they are working remotely , and they remain well connected and engaged with each other and our stakeholders through our suite of teleconferencing and virtual meeting solutions . while we have generally reopened our offices around the globe , most employees continue to work remotely and we continue to successfully operate our business and address the needs of our shareholders , fund investors and portfolio companies . we are closely evaluating the financial and other proposals put forth by the new administration and congress and their potential impacts on our business . while there may be changes to current tax and regulatory regimes , additional fiscal stimulus packages could be followed by longer-term spending increases on infrastructure , climate , health care and education . the potential for policy changes may create regulatory uncertainty for our portfolio companies and our investment strategies and adversely affect the profitability of our portfolio companies .
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consolidated results of operations the following table and discussion sets forth information regarding our consolidated results of operations for the years ended december 31 , 2020 , 2019 and 2018. our consolidated financial statements have been prepared on substantially the same basis for all historical periods presented ; however , the consolidated funds are not the same entities in all periods shown due to changes in u.s. gaap , changes in fund terms and the creation and termination of funds . as further described above , the consolidation of these funds primarily had the impact of increasing interest and other income of consolidated funds , interest and other expenses of consolidated funds , and net investment gains of consolidated funds in the year that the fund is initially consolidated . the consolidation of these funds had no effect on net income attributable to the company for the periods presented . 102 replace_table_token_12_th 103 year ended december 31 , 2020 compared to year ended december 31 , 2019 and year ended december 31 , 2019 compared to year ended december 31 , 2018. revenues total revenues decreased $ 442.4 million , or 13 % , for the year ended december 31 , 2020 as compared to 2019 and increased $ 949.8 million , or 39 % , for the year ended december 31 , 2019 as compared to 2018. the following table provides the components of the changes in total revenues for the years ended december 31 , 2020 and 2019 : replace_table_token_13_th fund management fees .
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general our businesses founded in 1990 , apollo is a leading global alternative investment manager . we are a contrarian , value-oriented investment manager in private equity , credit and real estate with significant distressed expertise and a flexible mandate in the majority of our funds which enables our funds to invest opportunistically across a company 's capital structure . we raise , invest and manage funds on behalf of some of the world 's most prominent pension , endowment and sovereign wealth funds as well as other institutional and individual investors . apollo is led by our managing partners , leon black , joshua harris and marc rowan , who have worked together for more than 25 years and lead a team of 945 employees , including 353 investment professionals , as of december 31 , 2015 . apollo conducts its management and incentive businesses primarily in the united states and substantially all of its revenues are generated domestically . these businesses are conducted through the following three reportable segments : ( i ) private equity —primarily invests in control equity and related debt instruments , convertible securities and distressed debt instruments ; ( ii ) credit —primarily invests in non-control corporate and structured debt instruments including performing , stressed and distressed instruments across the capital structure ; and ( iii ) real estate —primarily invests in real estate equity for the acquisition and recapitalization of real estate assets , portfolios , platforms and operating companies , and real estate debt including first mortgage and mezzanine loans , preferred equity and commercial mortgage backed securities . these business segments are differentiated based on the varying investment strategies . the performance is measured by management on an unconsolidated basis because management makes operating decisions and assesses the performance of each of apollo 's business segments based on financial and operating metrics and data that exclude the effects of consolidation of any of the managed funds . our financial results vary since carried interest , which generally constitutes a large portion of the income we receive from the funds that we manage , as well as the transaction and advisory fees that we receive , can vary significantly from quarter to quarter and year to year . as a result , we emphasize long-term financial growth and profitability to manage our business . in addition , the growth in our fee-generating aum during the last year has primarily been in our credit segment . the average management fee rate for these new credit products is at market rates for such products and in certain cases is below our historical rates . also , due to the complexity of these new product offerings , the company has incurred and will continue to incur additional costs associated with managing these products . to date , these additional costs have been offset by realized economies of scale and ongoing cost management . - 75 - as of december 31 , 2015 , we had total aum of $ 170.1 billion across all of our businesses . more than 90 % of our total aum was in funds with a contractual life at inception of seven years or more , and 49 % of such aum was in permanent capital vehicles . on december 31 , 2013 , fund viii held a final closing raising a total of $ 17.5 billion in third-party capital and approximately $ 880 million of additional capital from apollo and affiliated investors , and as of december 31 , 2015 , fund viii had $ 13.0 billion of uncalled commitments remaining . additionally , fund vii held a final closing in december 2008 , raising a total of $ 14.7 billion , and as of december 31 , 2015 , fund vii had $ 2.5 billion of uncalled commitments remaining . we have consistently produced attractive long-term investment returns in our traditional private equity funds , generating a 39 % gross irr and a 25 % net irr on a compound annual basis from inception through december 31 , 2015 . apollo 's traditional private equity funds ' depreciation was ( 0.2 ) % for the year ended december 31 , 2015 . for our credit segment , total gross and net returns , excluding assets managed by athene asset management that are not directly invested in apollo funds and investment vehicles or sub-advised by apollo , were 1.3 % and 0.3 % , respectively , for the year ended december 31 , 2015 . for our real estate segment , total gross and net returns for u.s. re fund i including co-investment capital were 16.3 % and 12.0 % , respectively , for the year ended december 31 , 2015 . for further detail related to fund performance metrics across all of our businesses , see “ —the historical investment performance of our funds. ” holding company structure the diagram below depicts our current organizational structure : note : the organizational structure chart above depicts a simplified version of the apollo structure . it does not include all legal entities in the structure . ownership percentages are as of the date of the filing of this annual report on form 10-k. ( 1 ) the strategic investors hold 24.50 % of the class a shares outstanding and 11.25 % of the economic interests in the apollo operating group . the class a shares held by investors other than the strategic investors represent 39.08 % of the total voting power of our shares entitled to vote and 34.68 % of the economic interests in the apollo operating group . class a shares held by the strategic investors do not have voting rights . however , such class a shares will become entitled to vote upon transfers by a strategic investor in accordance with the agreements entered into in connection with the investments made by the strategic investors . - 76 - ( 2 ) our managing partners own brh holdings gp , ltd. , which in turn holds our only outstanding class b share . story_separator_special_tag regardless of the market or economic environment at any given time , apollo relies on its contrarian , value-oriented approach to consistently invest capital on behalf of its fund investors by focusing on opportunities that management believes are often overlooked by other investors . apollo had $ 4.1 billion and $ 13.1 billion of dollars invested during the fourth quarter of 2015 and full year ended december 31 , 2015 , respectively . we believe apollo 's expertise in credit and its focus on nine core industry sectors , combined with 25 years of investment experience , has allowed apollo to respond quickly to changing environments . apollo 's core industry sectors include chemicals , natural resources , consumer and retail , distribution and transportation , financial and business services , manufacturing and industrial , media and cable and leisure , packaging and materials and the satellite and wireless industries . apollo believes that these attributes have contributed to the success of its private equity funds investing in buyouts and credit opportunities during both expansionary and recessionary economic periods . managing business performance we believe that the presentation of economic income ( loss ) ( previously referred to as economic net income ) , or “ ei ” , supplements a reader 's understanding of the economic operating performance of each of our segments . economic income ( loss ) ei has certain limitations in that it does not take into account certain items included under u.s. gaap . ei represents segment income ( loss ) before income tax provision excluding transaction-related charges arising from the 2007 private placement , and any acquisitions . transaction-related charges include equity-based compensation charges , the amortization of intangible assets , contingent consideration and certain other charges associated with acquisitions . in addition , segment data excludes non-cash revenue and expense related to equity awards granted by unconsolidated affiliates to employees of the company , as well as the assets , liabilities and operating results of the funds and vies that are included in the consolidated financial statements . we believe the exclusion of the non-cash charges related to the 2007 reorganization for equity-based compensation provides investors with a meaningful indication of our performance because these charges relate to the equity portion of our capital structure and not our core operating performance . economic net income ( loss ) ( previously referred to as eni after taxes ) , or “ eni ” , represents ei adjusted to reflect income tax provision on ei that has been calculated assuming that all income is allocated to apollo global management , llc , which would occur following an exchange of all aog units for class a shares of apollo global management , llc . the economic assumptions and methodologies that impact the implied income tax provision are similar to those methodologies and certain assumptions used in calculating the income tax provision for apollo 's consolidated statements of operations under u.s. gaap . we further evaluate ei based on what we refer to as our “ management business ” and “ incentive business ” . our management business is generally characterized by the predictability of its financial metrics , including revenues and expenses . the management business includes management fee revenues , advisory and transaction fee revenues , carried interest income from one of our opportunistic credit funds and expenses , each of which we believe are more stable in nature . the financial performance of our incentive business is partially dependent upon quarterly mark-to-market unrealized valuations in accordance with u.s. gaap guidance applicable to fair value measurements . the incentive business includes carried interest income , income from equity method investments and profit sharing expense that are associated with our general partner interests in the apollo funds , which are generally less predictable and more volatile in nature . we believe that ei is helpful for an understanding of our business and that investors should review the same supplemental financial measure that management uses to analyze our segment performance . this measure supplements and should be considered in addition to and not in lieu of the results of operations discussed below in “ —overview of results of operations ” that have been prepared in accordance with u.s. gaap . see note 18 to the consolidated financial statements for more details regarding management 's consideration of ei . ei may not be comparable to similarly titled measures used by other companies and is not a measure of performance calculated in accordance with u.s. gaap . we use ei as a measure of operating performance , not as a measure of liquidity . ei should not be considered in isolation or as a substitute for operating income , net income , operating cash flows , investing and - 78 - financing activities , or other income or cash flow statement data prepared in accordance with u.s. gaap . the use of ei without consideration of related u.s. gaap measures is not adequate due to the adjustments described above . management compensates for these limitations by using ei as a supplemental measure to u.s. gaap results , to provide a more complete understanding of our performance as management measures it . a reconciliation of ei to its most directly comparable u.s. gaap measure of income ( loss ) before income tax provision can be found in the notes to our financial statements . during the first quarter of 2015 , the company redefined ei to exclude transaction-related charges related to contingent consideration associated with acquisitions , resulting in the following impact to our credit segment for the years ended december 31 , 2014 and 2013 : replace_table_token_5_th ( 1 ) see note 18 to our consolidated financial statements for further detail regarding the impact of the revised definition on economic income ( loss ) . additionally , interest expense , net of interest income ( “ net interest expense ” ) was reallocated from the management business to the incentive business to align with the earnings from our investments which are principally funded by our outstanding debt .
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results of operations below is a discussion of our consolidated results of operations for the years ended december 31 , 2015 , 2014 and 2013 . for additional analysis of the factors that affected our results at the segment level , see “ —segment analysis ” below : replace_table_token_30_th ( 1 ) apollo adopted new u.s. gaap consolidation and collateralized financing entity ( “ cfe ” ) guidance during the year ended december 31 , 2015 which resulted in the deconsolidation of certain funds as of january 1 , 2015 and a measurement alternative of the financial assets and liabilities of the remaining consolidated clos . see note 2 to the consolidated financial statements for details regarding the company 's adoption of the new consolidation and cfe guidance . revenues our revenues and other income include fixed components that result from measures of capital and asset valuations and variable components that result from realized and unrealized investment performance , as well as the value of successfully completed transactions . year ended december 31 , 2015 compared to year ended december 31 , 2014 advisory and transaction fees from affiliates , net , decreased by $ 301.4 million for the year ended december 31 , 2015 as compared to the year ended december 31 , 2014 . this change was primarily attributable to a decrease in monitoring fees from athene of $ 224.5 million as a result of the termination of the athene services agreement ( as described in note 15 to the consolidated financial statements ) as of december 31 , 2014 , a decrease in net advisory and transaction fees earned with respect to fund vii of $ 26.6 million and a legal reserve in connection with an ongoing sec regulatory matter recorded during the year ended december 31 , 2015 .
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comparative periods were not adjusted and will continue to be reported in accordance with prior lease guidance under asc 840. we elected the package of practical expedients , which permits us not to reassess our prior conclusions about lease identification , lease classification and initial direct costs . in addition , we have elected the short-term lease recognition whereby we will not recognize operating leases related assets or liabilities for leases with a lease term of less than one year . we have also elected the practical expedient to not separate lease and non-lease components in the lease payments for all asset classes . this adoption did not have an impact on our consolidated statements of operations , shareholders ' equity and cash flows , and there was no adjustment to retained earnings . as of april 28 , 2019 , we recognized a right of use asset for operating leases of $ 11,101 and a current and non-current lease liability for operating leases of $ 2,745 and $ 8,356 , respectively . the right of use operating assets are included in the `` investment in affiliates and other assets `` line item , the current lease liabilities are included in the `` accrued expenses `` story_separator_special_tag the following discussion provides our highlights and commentary related to factors impacting our financial conditions and further describes the results of operations . the most significant risks and uncertainties are discussed in `` item 1a . risk factors . '' this discussion should be read in conjunction with the accompanying consolidated financial statements and notes to the consolidated financial statements included in this form 10-k. executive overview our mission is to be the world leader at informing and entertaining audiences through dynamic audio-visual communication systems . we organize into business units to focus on customer loyalty over time to earn new and replacement business because our products have a finite lifetime . see `` note 3. segment reporting `` of the notes to our consolidated financial statements included in this form 10-k for further information . our strategies include the creation of a comprehensive line of innovative solutions and systems and our ability to create and leverage platform designs and technologies . these strategies align us to effectively deliver value to our varied customers and their market needs , while serving our stakeholders over the long-term . we focus on creating local capabilities for sales , service , and manufacturing in geographies with expected digital market opportunities . we believe consistently generating profitable growth will provide value to our stakeholders ( customers , employees , shareholders , suppliers , and communities ) . we measure our success using a variety of measures including : our percentage of market share by comparing our estimated revenue to the total estimated global digital display revenue ; our order growth compared to the overall digital market order change ; financial metrics such as annual order volume and profit change as compared to our previous financial results ; customer retention and expansion rates ; and our ability to generate profits over the long-term to provide a shareholder return . certain factors impact our ability to succeed in these strategies and impact our business units to varying degrees . for example , the overall cost to manufacture and the selling prices of our products have decreased over the years and are expected to continue to decrease in the future . our competitors outside the u.s. are impacted differently by the global trade environment allowing them to avoid tariff costs or reduce prices . as a result , additional competitors have entered the market , and each year we must sell more product to generate the same or greater level of net sales as in previous fiscal years . however , the decline of digital solution pricing over the years and increased user adoption and applications have increased the size of the global market . competitor offerings , actions and reactions also can vary and change over time or in certain customer situations . projects with multimillion-dollar revenue potential attracts competition , and competitors can use marketing or other tactics to win business . each business unit 's long-term performance can be impacted by economic conditions in different ways and to different degrees . the effects of an adverse economy are generally less severe on our sports related business as compared to our other businesses , although in severe economic downturns with social changes causing decreases in sporting event revenues , the sports business can also be seriously impacted . outlook : the covid-19 pandemic has created disruptions since its initial outbreak , first impacting our china operations . beginning in february , we created covid-19 response teams to manage our local and global response activities . using the guidance from the u.s. centers for disease control and prevention , the world health organization , and other applicable regulatory agencies , we enhanced or implemented robust health , safety , and cleaning protocols across our organization . employees are working from home where possible , and we have limited travel for the time being . when unable to work safely or within the various regulations in certain geographies and locations , our manufacturing and field service teams have reduced capacity and furloughed employees . our minnesota , ireland , and china production facilities were briefly closed and production has since resumed operations . our sales teams have continued to engage our customers , mostly virtually , across our diverse markets and geographies , with some customers continuing to place orders while others are choosing to delay purchases . our supply chain team has remained alert to potential short supply situations and shipping disruptions , and , if necessary , we are utilizing alternative sources and shipping methods . we expect the covid-19 pandemic to have an adverse impact on our revenue and our results of operations , the size and duration of which we are currently unable to predict . the global impact of covid-19 continues to rapidly evolve . story_separator_special_tag transportation business unit : in the near term , customers in the mass-transit and airport part of the market are expected to delay spending as a result of the limited use of this infrastructure during the covid-19 pandemic . in the long-term , roadway projects may be impacted due to reduced tax revenues . that impact will increase as the duration of the reduction in infrastructure usage continues . over the long-term , we believe growth in the transportation business unit will result from increasing applications and acceptance of electronic displays to manage transportation systems , including roadway , airport , parking , transit and other applications . effective use of the united states transportation infrastructure requires intelligent transportation systems . this growth is highly dependent on government spending , primarily by state and federal governments , along with the continuing acceptance of private/public partnerships as an alternative funding source . growth is also expected in dynamic messaging systems for advertising and wayfinding use in public transport and airport terminals due to expanded market usage and displays , with led technology replacing prior lcd installations and additional display offerings using micro-leds . international business unit : in the near-term , our customers who rely on advertising , retail , event revenues and governmental tax revenue availability are expected to delay spending on projects due to the covid-19 pandemic . changes to the ways people gather may change the long-term usage of our systems . over the long-term , we believe growth in the international business unit will result from achieving greater penetration in various geographies and building products more suited to individual markets . we continue to broaden our product offerings into the transportation segment in europe and the middle east . we also focus on sports facility , spectacular-type , ooh advertising products , and architectural lighting market opportunities and the factors listed in each of the other business units to the extent they apply outside of the united states and canada . additional opportunities exist with expanded market usage of led technology due to price considerations , usage of led technology replacing prior lcd installations and additional display offerings using micro-leds . critical accounting policies and estimates the following management 's discussion and analysis of financial condition and results of operations ( `` md & a '' ) are based upon our consolidated financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states ( `` gaap '' ) . this discussion should be read in conjunction with the accompanying consolidated financial statements and notes to the consolidated financial statements included in this report . the preparation of these financial statements requires us to make estimates and judgments affecting the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . although our significant accounting policies are described in `` note 1. nature of business and summary of significant accounting policies `` , the following discussion is intended to highlight and describe those accounting policies that are especially critical to the preparation of our consolidated financial statements . a critical accounting policy is defined as a policy that is both very important to the portrayal of a company 's financial condition and results and requires management 's most difficult , subjective or complex judgments . we regularly review our critical accounting policies and evaluate them based on these factors . we believe the estimation process for uniquely configured contracts and warranties are most material and critical . these areas contain estimates with a reasonable likelihood to change , and those changes could have a material impact on our financial condition and reported results of operations . the estimation processes for these areas are also difficult , subjective and use complex judgments . our critical accounting estimates are based on historical experience ; on our interpretation of gaap , current laws and regulations ; and on various other assumptions 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 not readily apparent from other sources . actual results may differ from these estimates . revenue recognition on uniquely configured contracts . revenue for uniquely configured ( custom ) or integrated systems is recognized over time using the cost incurred input method . over time revenue recognition is appropriate because we have no alternative use for the uniquely configured system and have an enforceable right to payment for work performed . the cost incurred input method measures cost incurred to date compared to estimated total costs for each contract . this method is the most faithful depiction of our performance because it measures the value of the contract transferred to the customer . costs to perform the contract include direct and indirect costs for contract design , production , integration , installation , and assurance-type warranty reserve . direct costs include material and components ; manufacturing , project management and engineering labor ; and subcontracting expenses . indirect costs include allocated 24 charges for such items as facilities and equipment depreciation and general overhead . provisions of estimated losses on uncompleted contracts are made in the period when such losses are capable of being estimated . we may have multiple performance obligations in these types of contracts ; however , a majority are treated as a combined single performance obligation . in our judgment , this accounting treatment is most appropriate because the substantial part of our promise to our customer is to provide significant integration services and incorporate individual goods and services into a combined output or system . often times the system is customized or significantly modified to the customer 's desired configurations and location , and the interrelated goods and services provide utility to the customer as a package .
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results of operations daktronics , inc. operates on a 52- or 53-week fiscal year , with our fiscal year ending on the saturday closest to april 30 of each year . when april 30 falls on a wednesday , the fiscal year ends on the preceding saturday . within each fiscal year , each quarter is comprised of 13-week periods following the beginning of each fiscal year . in each 53-week year , an additional week is added to the first quarter , and each of the last three quarters is comprised of a 13-week period . the fiscal years ended april 27 , 2019 and april 28 , 2018 contained operating results for 52 weeks , while the fiscal year ended may 2 , 2020 contained operating results for 53 weeks . net sales the following table shows information regarding net sales for the fiscal years ended may 2 , 2020 , april 27 , 2019 , and april 28 , 2018 : 25 replace_table_token_2_th fiscal year 2020 as compared to fiscal year 2019 sales and orders in all business units were impacted as a result of fiscal 2020 including 53 weeks compared to the more common 52 weeks . fiscal 2019 contained 52 weeks . for net sales , during fiscal 2020 , we achieved a $ 11.5 million per week average run rate as compared to $ 11.0 million per week during fiscal 2019 , or an approximate 4.5 % increase . this change was driven by the order volume reasons described below and the timing of order conversion based on our customer 's delivery schedules . for orders , during fiscal 2020 and fiscal 2019 , we achieved a $ 11.7 million per week average run rate .
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for the purposes of computing the percentage of outstanding shares of our common stock held by each person or group of persons named above , any shares that such person or persons has the right to acquire within 60 days is deemed to be outstanding , but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person . the inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership . 28 replace_table_token_13_th ( 1 ) based on 12,264,146 shares of our common stock issued and outstanding as of december 9 , 2013 as well as the exchange of all preferred shares of subco owned by the applicable holder into shares of our common stock . for clarity , the percentage ownership does not reflect the exchange of preferred shares of subco into shares of our common stock by any person other than the applicable holder . ( 2 ) based on the exchange of all 78,030,877 issued and outstanding preferred shares of subco for shares of our common stock . ( 3 ) john marmora was appointed as our president , chief executive officer , chief financial officer , principal accounting officer , secretary , treasurer and director on the closing date , is the trustee under the trust agreement , and is the only person who possesses the right to exchange preferred shares of subco for shares of our common stock within 60 days , since any such exchange can only be completed with the written consent of subco . ( 4 ) includes only shares of our common stock issuable upon the exchange of preferred shares of subco . pursuant to the exchangeable share provisions , the applicable holder may not exercise investment power over either the shares of our common stock or the preferred shares of subco until a redemption has occurred , but may exercise voting power over the shares of our common stock through the operation of the trust agreement . 29 ( 5 ) the special voting share confers on the trustee the number of votes equal to the number of outstanding preferred shares of subco , other than such shares held by us or our affiliates , on all matters on which the holders of shares of our common stock are entitled to vote . ( 6 ) gregory j. neely served as our secretary and treasurer from november 2007 until the closing date , our president , chief financial officer and principal accounting officer from june 18 , 2012 to the closing date , and our director on november 2007 to november 29 , 2013 . story_separator_special_tag the following discussion and analysis of our results of operations and financial condition has been derived from and should be read in conjunction with our audited consolidated financial statements and the related notes thereto that appear elsewhere in this annual report , as well as item 1 and the “ presentation of information ” section that appears at the beginning of this annual report . overview we are a development stage company in the business of developing and commercializing an innovative home mist tanning system . our goal is to market a unique system for convenient home use that delivers a full-body application and eliminates the harmful health effects associated with traditional tanning beds . to date , we have finalized the design of our product , applied for and acquired a united states patent for it entitled “ apparatus for spray application of a sunless tanning product ” and have patents pending which are in the process of being completed for australia , canada , china and the european union . we have also prepared our product for market and completed two phases of test marketing initiatives , and we are currently preparing to launch a comprehensive three-phase marketing strategy . our home mist tanning system delivers a full-body application in 12 seconds resulting in a tan that develops gradually over a period of five to eight hours and lasts from between five and eight days . the packages we market contain everything an individual needs to complete 10 full-body tans in the comfort of their own home . it consists of an application unit , a tanning kit and a pre-tan kit . on the closing date , we completed the share exchange whereby we acquired approximately 78 % of the issued and outstanding capital stock of tropic spa in exchange for 78,030,877 preferred shares of subco , our wholly owned subsidiary . as a result of the share exchange , tropic spa became our majority-owned subsidiary , we assumed the business and operations of tropic spa and we changed our business address from toronto , ontario to woodstock , ontario . in order to more accurately reflect our new business operations , on december 6 , 2013 , we changed our name from “ rockford minerals inc. ” to “ tropic international inc. ” as a result of a merger with tropic international inc. , our wholly-owned subsidiary that was incorporated solely to effect the name change . tropic spa was incorporated under the laws of the province ontario on september 17 , 2007. its operations to date have consisted of business formation , strategic development , test marketing , technology development and capital raising activities . the majority of tropic spa 's marketing efforts since its inception have focused on acquiring as much data as possible from its anticipated target markets in order to prepare for the launch of its three-phase marketing strategy described elsewhere in this report . story_separator_special_tag certain changes in our assets and liabilities , including our amounts receivable , inventory , accounts payable and accrued liabilities and unearned revenue . story_separator_special_tag we spent $ 23,680 in cash investing activities during the year ended august 31 , 2013 , all of which was associated with the advance of funds to us by tropic spa prior to the closing of the share exchange , whereas we did not spend any cash on investing activities during the prior year . during the year ended august 31 , 2013 , we received $ 552,000 in cash from financing activities , compared to $ 457,500 in cash receipts from financing activities during the prior year . all of our cash receipts during those two years were in the form of proceeds from the issuance of tropic spa 's common shares . during the year ended august 31 , 2013 , our cash decreased by $ 76,918 due to a combination of our operating , investing and financing activities . plan of operations our plan of operations over the next 12 months is to carry out our three-phase marketing strategy and continue to develop our business , and we anticipate that we will require a minimum of $ 1,629,200 to pursue those plans , as follows : replace_table_token_1_th 20 we intend to allocate the bulk of our proposed marketing expenses to producing and airing a new infomercial , and we expect interest in our home mist tanning system to increase as a result . such an increase will likely be accompanied by an increase in sales , which will require us to manufacture additional units and incur substantial production costs . the other expenses we anticipate occurring over the next 12 months are reasonably consistent with those from prior periods , as adjusted to reflect the expected increase in our operations and the costs of maintaining our status as a public company . we do not currently have sufficient funds to carry out our entire plan of operations , so we intend to meet the balance of our cash requirements for the next 12 months through a combination of debt financing and equity financing through private placements . currently we are active in contacting broker/dealers in canada and elsewhere regarding possible financing arrangements ; however , we do not currently have any arrangements in place to complete any private placement financings and there is no assurance that we will be successful in completing any such financings . if we are unsuccessful in obtaining sufficient funds through our capital raising efforts , we may review other financing options , although we can not provide any assurance that any such options will be available to us or on terms reasonably acceptable to us . further , if we are unable to secure any additional financing then we plan to reduce the amount that we spend on our operations , including our management-related consulting fees and other general expenses , so as not to exceed the capital resources available to us . regardless , our current cash reserves and working capital may not be sufficient to enable us to sustain our business for the next 12 months , even if we do decide to scale back our operations . critical accounting policies inventory inventory is stated at the lower of cost , computed using the first-in , first-out method , or market . if the cost of inventory exceeds its market value , a provision is made currently for the difference between the cost and market value . our inventory consists of finished goods , components and supplies . equipment , net equipment is stated at cost , net of accumulated depreciation . equipment is depreciated over the estimated useful life of the asset . mould equipment is depreciated at 20 % on a declining-balance basis . the website is depreciated on a straight-line basis over five years . one-half of these rates are used in the year of acquisition . replacements and major improvements are capitalized , while maintenance and repairs are charged to expense as incurred . upon retirement or sale , the cost of assets disposed of and related accumulated depreciation are removed from the accounts , and any resulting gain or loss is credited or charged to operations . intangible assets the patent is recorded at the value attributed to the shares issued to the originating companies and shareholders of tgsi less accumulated amortization . the patent was issued on september 29 , 2009 and is effective until september 29 , 2026. upon expiration , the patent can be extended subject to certain changes required to secure the extension . although the effects of obsolescence , demand , competition and other economic factors ( such as stability of the industry , technological advances and legislative action that results in an uncertain or changing regulatory environment ) can have an adverse effect on the industry and the company 's product , management is not currently aware of any known adverse factors that will affect the company in the future . 21 we do not believe that there are any limits to how long our home mist tanning units can sell in the market place . while we expect to be able to secure an extension to the patent in 2026 , this can not be predicted with certainty at this time . accordingly , management has determined that the best estimate of the useful life of the patent is 17 years . at this time , we do not believe that the patent will have a residual value at the end of its useful life . definite-lived intangible assets are required to be amortized using a method that reflects the pattern in which the economic benefits of the patents are consumed or utilized . at this time , management is not able to determine with any amount of certainty the number of home mist tanning units that will be sold over the useful life of the patent . accordingly , the patent is being amortized on a straight-line basis over the period of its useful life .
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results of operations revenue during the year ended august 31 , 2013 , we generated $ 31,799 in revenue , including $ 6,799 in sales revenue and $ 25,000 in revenue from flyer distribution . during the year ended august 31 , 2012 , we generated $ 25,387 in revenue , including $ 12,887 in sales revenue and $ 12,500 in revenue from flyer distribution . the revenue we generated from sales during both periods was due to sales of our home mist tanning units , whereas the revenue we generated from flyer distribution during both periods was attributable to an arrangement pursuant to which we agreed to insert a brochure advertising a fitness company 's locations in canada and related information into every home mist tanning unit package we ship in canada for a period of two years beginning on march 1 , 2012. the increase in our sales revenue between the two periods resulted largely from the completion of the second phase of our test marketing initiatives , which in turn directed increased traffic to our website . 18 production costs during the year ended august 31 , 2013 , we incurred production costs of $ 408,080 , which , when subtracted from the revenue we generated during that period , resulted in a gross loss of $ 376,281. during the year ended august 31 , 2012 , we incurred production costs of $ 502,211 and a gross loss of $ 476,824. our production costs during both years were attributable to a combination of amortization of the patent ( $ 373,075 in both the current year and the prior year ) , production-related consulting fees ( $ 31,200 in the current year vs. $ 38,425 in the prior year ) , depreciation ( $ 20,872 in the current year vs. $ 26,090 in the prior year ) and materials and supplies ( $ 17,067 recovered in the current year vs. $ 64,621 incurred in the prior year ) .
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story_separator_special_tag overview the following presents management 's discussion and analysis of the more significant factors that affected the company 's financial condition as of december 31 , 2019 and 2018 and results of operations for each of the years in the three-year period ended december 31 , 2019. this discussion should be read in conjunction with the financial statements and related notes included elsewhere in this annual report on form 10-k. results of operations for the periods included in this review are not necessarily indicative of results to be obtained during any future period . dollar amounts in tables are stated in thousands , except for per share amounts . nature of operations live oak bancshares , inc. is a financial holding company and a bank holding company headquartered in wilmington , north carolina , incorporated under the laws of north carolina in december 2008. the company conducts business operations primarily through its commercial bank subsidiary , live oak banking company . the bank was incorporated in february 2008 as a north carolina-chartered commercial bank . the bank specializes in providing lending to small businesses nationwide in targeted industries and deposit-related services to small businesses , consumers and other customers nationwide . the bank identifies and seeks to grow within selected industry sectors , or verticals , by leveraging expertise within those industries . a significant portion of the loans originated by the bank are guaranteed by the small business administration under the 7 ( a ) loan program and the u.s. department of agriculture ( “ usda ” ) rural energy for america program ( “ reap ” ) , water and environmental program ( “ wep ” ) and business & industry ( “ b & i ” ) loan programs . during the fourth quarter of 2018 , the company began implementing a strategic decision to retain a larger portion of its loans eligible for sale on its balance sheet . management believes this decision will reduce future earnings volatility and maximize long-term profitability . this strategic change had an immediate impact through the reclassification of $ 80.3 million in guaranteed loans from held-for-sale to held-for-investment status . other effects of this change began to be reflected in the financial statements in the fourth quarter of 2018 with significantly fewer loans sold during the quarter and the initial consequence of increased net interest income . in 2018 , the company formed canapi advisors , llc for the purpose of providing investment advisory services to a series of new funds focused on providing venture capital to new and emerging financial technology companies . in 2019 , live oak clean energy financing llc ( “ locef ” ) became a wholly owned subsidiary of the bank . locef was formed in november 2016 as a subsidiary of the company for the purpose of providing financing to entities for renewable energy applications . in 2018 , the bank formed live oak private wealth , llc , a registered investment advisor that provides high-net-worth individuals and families with strategic wealth and investment management services . in 2017 , the bank entered into a joint venture , apiture llc ( “ apiture ” ) , with first data corporation for the purpose of creating next generation technology for financial institutions . in august 2018 , the company exited the title insurance business by financing the sale of its entire ownership interest in reltco , inc. and national assurance title , inc. for $ 3.0 million . this divestiture was driven by lower expectations of future profitability for this business . the title insurance business was acquired in 2017. in addition to the bank , the company owns ; live oak ventures , inc. ( formerly known as `` canapi , inc. '' ) , formed in august 2016 for the purpose of investing in businesses that align with the company 's strategic initiative to be a leader in financial technology ; live oak grove , llc , formed in february 2015 for the purpose of providing company employees and business visitors an on-site restaurant location ; government loan solutions , inc. ( “ gls ” ) , a management and technology consulting firm that specializes in the settlement , accounting , and securitization processes for government guaranteed loans , including loans originated under the sba 7 ( a ) loan program and usda-guaranteed loans ; and 504 fund advisors , llc ( “ 504fa ” ) , formed to serve as the investment advisor to the 504 fund , a closed-end mutual fund organized to invest in sba section 504 loans . in 2019 , 504fa exited as advisor for the 504 fund and the company subsequently dissolved this legal entity . the company generates revenue primarily from net interest income and secondarily through origination and sale of government guaranteed loans . income from the retention of loans is comprised of interest income . income from the sale of loans is comprised of loan servicing revenue and revaluation of related servicing assets along with net gains on sales of loans . offsetting these revenues are the cost of funding sources , provision for loan and lease losses , any costs related to foreclosed assets and other operating costs such as salaries and employee benefits , travel , professional services , advertising and marketing and tax expense . 38 executive summary following is a summary of the company 's financial highlights and events for 2019 : loans and leases held for sale and investment increased by $ 1.08 billion , or 42.8 % , to $ 3.61 billion at the end of 2019 as a result of over $ 2.00 billion in loan originations in combination with executing the strategic decision to retain higher levels of loans . guaranteed loans eligible for sale increased by $ 564.0 million , or 157.9 % , as a result of robust government guaranteed loan origination volume and the aforementioned loan retention strategy . concurrent with the intentional lowering of guaranteed loan sale volumes in 2019 , the average gain per million on sold loans increased from $ 80.9 story_separator_special_tag other key factors partially offsetting the year-over-year decline in net income were composed of the following : increased net interest income of $ 32.0 million , or 29.7 % , predominately driven by significant growth in the combined held for sale and held for investment loan and lease portfolios along with higher investment security holdings ; and negative loan servicing revaluation decreased by $ 14.0 million , or 74.4 % , principally due to improving market conditions , such as increased premiums , for sold loans . years ended december 31 , 2018 vs. 2017 the company reported net income available to common shareholders totaling $ 51.4 million , or $ 1.24 per diluted share , for 2018 compared to $ 100.5 million , or $ 2.65 per diluted share , for 2017. this decrease in net income was primarily attributable to the following items : the decline in noninterest income due to the $ 68.0 million one-time pretax gain arising from the company 's equity method investment in apiture during the fourth quarter of 2017 ; 40 negative loan servicing revaluation increased by $ 5.6 million , or 42.5 % , due to the increased amortization speed of the serviced portfolio which was largely impacted by the rising rate environment and deterioration in premium markets for government guaranteed loans compared to 2017 ; and lower net gains on sales of loans of $ 3.4 million , or 4.4 % , principally driven by current year market conditions that reduced the average gain per million from $ 100.4 thousand in 2017 to $ 80.9 thousand in 2018. this decline in premium values during 2018 influenced the company 's strategic shift during the fourth quarter to hold substantially more production on the balance sheet . other key factors partially offsetting the year-over-year decline in net income were composed of the following : increased net interest income of $ 30.0 million , or 38.5 % , predominately driven by significant growth in the combined held for sale and held for investment loan and lease portfolios along with higher investment security holdings , reflecting the company 's ongoing initiative to grow recurring revenue sources ; increased loan servicing revenue of $ 4.5 million , or 18.4 % , as a result of continued growth in the servicing portfolio due to ongoing loan sales ; increased lease income of $ 6.1 million , or 329.2 % , due to business diversification and increased lease originations ; and decreased costs to retain and operate the title insurance business , net of income earned , that was exited in the third quarter of 2018. net interest income and margin net interest income represents the difference between the revenue that the company earns on interest-earning assets and the cost of interest-bearing liabilities . the company 's net interest income depends upon the volume of interest-earning assets and interest-bearing liabilities and the interest rates that the company earns or pays on them , respectively . net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities , referred to as “ volume changes. ” it is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds , referred to as “ rate changes. ” as a bank without a branch network , the bank gathers deposits over the internet and in the community in which it is headquartered . due to the nature of a branchless bank and the relatively low overhead required for deposit gathering , the rates the bank offers are generally above the industry average . years ended december 31 , 2019 vs. 2018 for 2019 , net interest income increased $ 32.0 million , or 29.7 % , to $ 140.1 million compared to $ 108.0 million in 2018. this increase was principally due to the significant growth in the combined held for sale and held for investment loan and lease portfolios along with higher investment security holdings reflecting the company 's ongoing initiative to grow recurring revenue sources and fortify its liquidity profile . average interest earning assets rose by $ 853.7 million , or 28.6 % , to $ 3.83 billion for 2019 compared to $ 2.98 billion for 2018 , while the yield on average interest earning assets rose by 49 basis points to 5.95 % for 2019 versus 5.46 % for 2018. a substantial portion of the company 's loan portfolio are variable rate loans that adjust regularly in accordance with changes in designated benchmark indices . the cost of funds on interest bearing liabilities for 2019 increased 46 basis points to 2.38 % , and the average balance in interest bearing liabilities increased by $ 843.1 million , or 29.7 % during the same period . as indicated in the rate/volume table below , the increase in interest bearing liabilities and corresponding cost of funds was outpaced by the positive effects of the increased volume of interest earning assets , resulting in increased interest income of $ 65.3 million versus increased interest expense of $ 33.4 million for 2019. for 2019 compared to 2018 , net interest margin increased from 3.62 % to 3.65 % . this increase in margin for the year was largely impacted by the cumulative impact of federal reserve rate cuts in the latter part of 2019 that favorably impacted deposit rates combined with the delayed repricing timing of the company 's variable rate loans . 41 years ended december 31 , 2018 vs. 2017 for 2018 , net interest income increased $ 30.0 million , or 38.5 % , to $ 108.0 million compared to $ 78.0 million in 2017. this increase was principally due to the significant growth in average interest earning assets and , to a lesser extent , by higher yields on these assets which outpaced the growth and change in the cost of interest-bearing liabilities .
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result of the reduction of the federal corporate income tax rate , the company revalued its net deferred tax liability , excluding after tax credits , as of december 31 , 2017 , and recorded a provisional net tax benefit of $ 18.9 million to reduce the net deferred tax liability balance , which was recorded as a reduction in income tax expense for the year ended december 31 , 2017. during 2018 , the company completed its accounting for the effects of the tax act which resulted in an increase to income tax expense of $ 244 thousand . discussion and analysis of financial condition years ended december 31 , 2019 vs. 2018 total assets at december 31 , 2019 were $ 4.81 billion , an increase of $ 1.14 billion , or 31.2 % , compared to total assets of $ 3.67 billion at december 31 , 2018. this increase was principally driven by the following : increased investment securities available-for-sale of $ 159.6 million which was driven by the company 's strategic plan to enhance liquidity and improve asset-liability repricing mix ; and growth in loan and leases held for sale and held for investment of $ 1.08 billion resulting from strong originations and higher levels of balances being retained to support the company 's strategic plan to hold more loans . cash and cash equivalents were $ 223.5 million at december 31 , 2019 , a decrease of $ 93.3 million , or 29.4 % , compared to $ 316.8 million at december 31 , 2018. this decrease was primarily the result of increased levels of loans held on books combined with the company 's maximization of returns on liquid assets by redeployment of funds into higher-yielding available-for-sale securities . total investment securities increased $ 159.6 million during 2019 , from $ 380.5 million at december 31 , 2018 to $ 540.0 million at december 31 , 2019 , an increase of 41.9 % .
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in this annual report on form 10-k. in addition to historical financial information , the following discussion may contain predictions , estimates and other forward-looking statements that involve a number of risks and uncertainties , including those discussed under item 1a and elsewhere in this form 10-k. these risks could cause our actual results to differ materially from any future performance suggested below . please see “ cautionary statement for purposes of the safe harbor provisions of the private securities litigation reform act of 1995 ” at the beginning of this form 10-k. overview we design , develop and market digital solutions for identity , security , and business productivity that protect and facilitate electronic transactions via mobile and connected devices . we are a global leader in providing anti-fraud and digital transaction management solutions to financial institutions and other businesses . our solutions secure access to online accounts , data , assets , and applications for global enterprises ; provide tools for application developers to easily integrate security functions into their web-based and mobile applications ; and facilitate end-to-end financial agreement automation including digital identity verification , customer due diligence , electronic signature , secure storage , and document management . our core technologies , multi-factor authentication , and transaction signing , strengthen the process of preventing hacking attacks against online and mobile transactions to allow companies to transact business safely with remote customers . we offer cloud based and on premises solutions using both open standards and proprietary technologies . some of our proprietary technologies are patented . our products and services are used for authentication , fraud mitigation , e-signing transactions and documents , and identity management in business-to-business ( “ b2b ” ) , business-to-employee ( “ b2e ” ) and business-to-consumer ( “ b2c ” ) environments . our target market is business processes using an electronic interface , particularly the internet , where there is risk of unauthorized access . our products can increase security associated with accessing business processes , reduce losses from unauthorized access , and reduce the cost of the process by automating activities previously performed manually . online and mobile application owners and publishers benefit from our expertise in multi-factor authentication , document signing , transaction signing , application security , and in mitigating hacking attacks . our convenient and proven security solutions enable low friction and trusted interactions between businesses , employees , and consumers across a variety of online and mobile platforms . our newest product offerings enhance our library of mobile application security solutions , expand our risk-based anti-fraud capabilities , and deliver broad-based e-signature capabilities that enable secure and simple digitized business transactions . our growth strategy includes : · expanding our portfolio of services that enable institutions to mitigate fraud , comply with regulations , easily on-board customers , and adaptively authenticate transactions ; · enabling secure digitization of business processes at banks and enterprises with esignature and identity verification solutions ; · leveraging our unique portfolio of hardware , software , and recurring services across a global footprint ; · driving increased demand for our products in new applications , new markets , and new territories ; and 30 · strategically acquiring companies that expand our technology portfolio or customer base and increase our recurring revenue . our business model we offer our products through a product sales and licensing model or through our services platform , which includes our cloud-based service offering . our solutions are sold worldwide through our direct sales force , as well as through distributors , resellers , systems integrators , and original equipment manufacturers . our sales force is able to offer customers a choice of an on-site implementation using our traditional on-premises model or a cloud implementation for some solutions using our services platform . industry growth we believe there are no reliable measurements of the industry size or growth rates for the segments that we serve . however , we believe the market for authentication , anti-fraud , and electronic signature solutions will continue to grow driven by new government regulations , growing awareness of the impact of cyber-crime , and the growth in electronic commerce . the issues driving growth are global however , the rate of adoption in each country is a function of culture , competitive position , economic conditions and use of technology . economic conditions our revenue may vary significantly with changes in the economic conditions in the countries in which we currently sell products . with our current concentration of revenue in europe and specifically in the banking and finance vertical market , significant changes in the economic outlook for the european banking market may have a significant effect on our revenue . cybersecurity risks our use of technology is increasing and is critical in three primary areas of our business : 1. software and information systems that we use to help us run our business more efficiently and cost effectively ; 2. the products we have traditionally sold and continue to sell to our customers for integration into their software applications contain technology that incorporates the use of secret numbers and encryption technology ; and 3. new products and services that we introduced to the market are focused on processing information through our servers or in the cloud . we believe that the risks and consequences of potential incidents in each of the above areas are different . in the case of the information systems we use to help us run our business , we believe that an incident could disrupt our ability to take orders or deliver product to our customers , but such a delay in these activities would not have a material impact on our overall results . to minimize this risk , we actively use various forms of security and monitor the use of our systems regularly to detect potential incidents as soon as possible . in the case of products that we have traditionally sold , we believe that the risk of a potential cyber incident is minimal . story_separator_special_tag we expect our gross margins to fluctuate over time depending on these factors . operating expenses our operating expenses are generally based on anticipated revenue levels and fixed over short periods of time . as a result , small variations in revenue may cause significant variations in the period-to-period comparisons of operating income or operating income as a percentage of revenue . generally , the most significant factor driving our operating expenses is headcount . direct compensation and benefit plan expenses generally represent between 55 % and 60 % of our operating expenses . in addition , a number of other expense categories are directly related to headcount . we attempt to manage our headcount within the context of the economic environments in which we operate and the investments we believe we need to make for our infrastructure to support future growth and for our products to remain competitive . in may 2018 , with the acquisition of dealflo , our headcount increased by 71. average headcount for the full-year 2018 , 2017 , and 2016 was 685 , 614 , and 595 , respectively . historically , operating expenses have been impacted by changes in foreign exchange rates . we estimate the change in currency rates in 2018 compared to 2017 resulted in an increase in operating expenses of approximately $ 0.3 million in 2018 . 33 the comparison of operating expenses can also be impacted significantly by costs related to our stock-based and long-term incentive plans . for full-year 2018 , 2017 , and 2016 , operating expenses included $ 6.1 million , $ 5.4 million , and $ 4.9 million , respectively , related to stock-based and long-term incentive plans . long-term incentive plan compensation expense includes both cash and stock-based incentives . · sales and marketing . sales and marketing expenses consist primarily of personnel costs , commissions and bonuses , trade shows , marketing programs and other marketing activities , travel , outside consulting costs , and long-term incentive compensation . we expect sales and marketing expenses to increase in absolute dollars as we continue to invest in sales resources in key focus areas , although our sales and marketing expenses may fluctuate as a percentage of total revenue . · research and development . research and development expenses consist primarily of personnel costs and long-term incentive compensation . we expect research and development expenses to increase in absolute dollars as we continue to invest in our future solutions , although our research and development expenses may fluctuate as a percentage of total revenue . · general and administrative . general and administrative expenses consist primarily of personnel costs , legal and other professional fees , and long-term incentive compensation . we expect general and administrative expenses to increase in absolute dollars although our general and administrative expenses may fluctuate as a percentage of total revenue . · amortization/impairment of intangible assets . acquired intangible assets are amortized over their respective amortization periods . as a result of the company rebranding , the value of certain intangible assets was written down during 2018 , and impairment charges of $ 0.5 million were recorded for the year ended december 31 , 2018. interest income , net interest income consists of income earned on our cash equivalents and short term investments . our cash equivalents and short term investments are invested in short-term instruments at current market rates . other income , net other income , net primarily includes exchange gains ( losses ) on transactions that are denominated in currencies other than our subsidiaries ' functional currencies , subsidies received from foreign governments in support of our research and development in those countries and other miscellaneous non-operational expenses . income taxes our effective tax rate reflects our global structure related to the ownership of our intellectual property ( “ ip ” ) . all our ip in our traditional authentication business is owned by two subsidiaries , one in the u.s. and one in switzerland . these two subsidiaries have entered into agreements with most of the other onespan entities under which those other entities provide services to our u.s. and swiss subsidiaries on either a percentage of revenue or on a cost plus basis or both . under this structure , the earnings of our service provider subsidiaries are relatively constant . these service provider companies tend to be in jurisdictions with higher effective tax rates . fluctuations in earnings tend to flow to the u.s. company and swiss company . in 2018 , earnings flowing to the u.s. company are expected to be taxed at a rate of 21 % to 25 % , while earnings flowing to the swiss company are expected to be taxed at a rate ranging from 11 % to 12 % . our canadian subsidiary currently sells and services global customers directly , as does a uk subsidiary . as the majority of our revenues are generated outside of the u.s. , our consolidated effective tax rate is strongly influenced by the effective tax rate of our foreign operations . changes in the effective rate related to foreign operations reflect changes in the geographic mix of earnings and the tax rates in each of the countries in which it is earned . the statutory tax rate for the primary foreign tax jurisdictions ranges from 11 % to 35 % . 34 the geographic mix of earnings of our foreign subsidiaries primarily depends on the level of pretax income of our service provider subsidiaries and the benefit realized in switzerland through the sales of product . the level of pretax income in our service provider subsidiaries is expected to vary based on : 1. the staff , programs and services offered on a yearly basis by the various subsidiaries as determined by management , or 2. the changes in exchange rates related to the currencies in the service provider subsidiaries , or 3. the amount of revenues that the service provider subsidiaries generate .
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results of operations the following tables summarize our consolidated results of operations for the periods presented . comparison of the years ended december 31 , 2018 and 2017 as described in note 4 – revenue , the company adopted asc 606 on january 1 , 2018. as a result the company has changed its accounting policy for revenue recognition . the company adopted asc 606 using the modified retrospective method . therefore , the comparative information has not been adjusted and continues to be reported under asc 605 and asc 985-605 . 35 replace_table_token_3_th * prior period amounts are presented under asc 605 and asc 985-605. total revenue increased $ 19.0 million or 10 % , during the year ended december 31 , 2018 compared to the year ended december 31 , 2017. product and license revenue increased by $ 5.7 million , or 4 % during the year ended december 31 , 2018. the increase in product and license revenue was primarily due to an increase in software licenses revenue . higher product and license revenue was partially offset by the $ 2.4 million impact from the adoption of asc 606 for the year ended december 31 , 2018. services and other revenue increased by $ 13.3 million , or 29 % during the year ended december 31 , 2018. the increase was due to an increase in saas and maintenance revenue , as well as a $ 5.8 million impact of adopting asc 606 for the year ended december 31 , 2018. revenue generated in emea increased $ 10.4 million , or 11 % during the year ended december 31 , 2018. the increase in revenue was primarily driven by an increase in software and maintenance revenue , partially driven by dealflo . revenue generated in the americas increased $ 2.0 million , or 4 % during the year ended december 31 , 2018. the increase in revenue was driven by higher subscription and maintenance revenue .
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we were incorporated in delaware in august 2004 and our headquarters are in boston , massachusetts . our suite of products and services reduce the cost and complexity associated with publishing , distributing , measuring and monetizing video across devices . brightcove video cloud , or video cloud , our flagship product released in 2006 , is the world 's leading online video platform . video cloud enables our customers to publish and distribute video to internet-connected devices quickly , easily and in a cost-effective and high-quality manner . brightcove zencoder , or zencoder , is a cloud-based video encoding service . brightcove once , or once , is an innovative , cloud-based ad insertion and video stitching service that addresses the limitations of traditional online video ad insertion technology . brightcove gallery , or gallery , released in may 2014 , is a cloud-based service that enables customers to create and publish video portals . brightcove perform , or perform , released in september 2014 , is a cloud-based service for creating and managing video player experiences . brightcove video marketing suite , or video marketing suite , released in may 2014 , is a comprehensive suite of video technologies designed to address the needs of marketers to drive awareness , engagement and conversion . our philosophy for the next few years will continue to be to invest in our product strategy and development , sales , and go-to-market to support our long-term revenue growth . we believe these investments will help us address some of the challenges facing our business such as demand for our products by customers and potential customers , rapid technological change in our industry , increased competition and resulting price sensitivity . these investments include support for the expansion of our infrastructure within our hosting facilities , the hiring of additional technical and sales personnel , the innovation of new features for existing products and the development of new products . we believe this strategy will help us retain our existing customers , increase our average annual subscription revenue per premium customer and lead to the acquisition of new customers . additionally , we believe customer growth will enable us to achieve economies of scale which will reduce our cost of goods sold , research and development and general and administrative expenses as a percentage of total revenue . as of december 31 , 2013 , we had 347 employees and 6,318 customers , of which 4,556 used our volume offerings and 1,762 used our premium offerings . as of december 31 , 2014 , we had 410 employees and 5,770 customers , of which 3,907 used our volume offerings and 1,863 used our premium offerings . during 2013 , we decided to prioritize our premium product editions over our volume product editions . our premium product editions have higher prices , the customers of our premium product editions use more of our solutions , and we believe that our premium customers represent a greater opportunity for our solutions . we generate revenue by offering our products to customers on a subscription-based , software as a service , or saas , model . our revenue grew from $ 109.9 million in the year ended december 31 , 2013 to $ 125.0 million in the year ended december 31 , 2014 , primarily as a result of continued adoption of video cloud across our customer base . on january 31 , 2014 , we acquired substantially all of the assets of unicorn media , inc. ( and certain of its subsidiaries ) , or unicorn , a provider of cloud-based video ad insertion technology . the unicorn once service , re-branded as brightcove once , or once , contributed $ 6.5 million in revenue during 2014. in the third quarter of 2014 , one of our major customers , rovio entertainment limited , or rovio , did not renew its agreement with us , which impacted our revenue and revenue growth rates . the combination of losses generated by once , and the lost revenue from rovio , contributed to a higher loss on a year-over-year basis . as a result , our consolidated net loss was $ 16.9 million and $ 10.2 million for the years ended december 31 , 2014 and 2013 , respectively . included in consolidated net loss for the year ended december 31 , 2013 was stock-based compensation expense and amortization of acquired intangible assets of $ 6.4 million and $ 1.7 million , respectively . included in consolidated net loss for the year ended december 31 , 2014 was stock-based compensation expense and amortization of acquired intangible assets of $ 6.4 million and $ 3.2 million , respectively . for the years ended december 31 , 2014 and 2013 , our revenue derived from customers located outside north america was 40 % and 41 % , respectively . we expect the percentage of total net revenue derived from outside north america to increase in future periods as we continue to expand our international operations . acquisitions on august 14 , 2012 , we acquired zencoder , a cloud-based media processing service and html5 video player technology provider , for total consideration of approximately $ 27.4 million . this transaction was accounted for under the purchase method of accounting . accordingly , the results of operations of zencoder have been included in our consolidated financial statements since the date of acquisition . all of the assets acquired and liabilities assumed in the transaction have been recognized at their acquisition date fair values , which were finalized at december 31 , 2012. the acquisition did not result in the addition of any reportable segments . on january 8 , 2013 , we acquired the remaining 37 % interest of our majority-owned subsidiary , brightcove kabushiki kaisha , or brightcove kk , a japanese joint venture which was formed on july 18 , 2008. the purchase price of the remaining equity interest was approximately $ 1.1 million and was funded by cash on hand . story_separator_special_tag the pricing for our premium editions is based on the number of users , accounts and usage , which is comprised of video streams , bandwidth and managed content . should a customer 's usage exceed the contractual entitlements , the contract will provide the rate at which the customer must pay for actual usage above the contractual entitlements . the second product line is comprised of our volume product edition , which we refer to as our express edition . our express edition targets small and medium-sized businesses , or smbs . the express edition provides customers with the same basic functionality that is offered in our premium product editions but has been designed for customers who have lower usage requirements and do not typically seek advanced features and functionality . we are discontinuing the lower level pricing options for the express edition and expect the total number of customers using the express edition to continue to decrease . customers who purchase the express edition generally enter into month-to-month agreements . express customers are generally billed on a monthly basis and pay via a credit card . zencoder is offered to customers on a subscription basis , with either committed contracts or pay-as-you-go contracts . the pricing is based on usage , which is comprised of minutes of video processed . the committed contracts include a fixed number of minutes of video processed . should a customer 's usage exceed the contractual entitlements , the contract will provide the rate at which the customer must pay for actual usage above the contractual entitlements . customers of zencoder on annual contracts are considered premium customers . customers on month-to-month contracts , pay-as-you-go contracts , or contracts for a period of less than one year , are considered volume customers . once is offered to customers on a subscription basis , with varying levels of functionality , usage entitlements and support based on the size and complexity of a customer 's needs . gallery is offered to customers of our premium video cloud editions on a subscription basis . a customer 's usage of gallery counts against the pre-determined amount of video streams , bandwidth and managed content included with their video cloud pro or enterprise contract . should a customer 's usage exceed the contractual entitlements , the contract will provide the rate at which the customer must pay for actual usage above the contractual entitlements . we also offer gold support to our gallery customers for an additional fee , which includes extended phone support . perform is offered to customers on a subscription basis . customer arrangements are typically one year contracts , which include a subscription to perform , basic support and a pre-determined amount of video streams . we also offer gold support to our perform customers for an additional fee , which includes extended phone support . the pricing for perform is based on the number of users , accounts and usage , which is comprised of video streams . should a customer 's usage exceed the contractual entitlements , the contract will provide the rate at which the customer must pay for actual usage above the contractual entitlements . video marketing suite is offered to customers on a subscription basis . customer arrangements are typically one year contracts , which include a subscription to video cloud , the video cloud live module , gallery , basic support and a pre-determined amount of video streams or plays , bandwidth and managed content . we also offer gold support to our video marketing suite customers for an additional fee , which includes extended phone support . the pricing for video marketing suite is based on the number of users , accounts and usage , which is comprised of video streams or plays , bandwidth and managed content . should a customer 's usage exceed the contractual entitlements , the contract will provide the rate at which the customer must pay for actual usage above the contractual entitlements . all once , gallery , perform and video marketing suite customers are considered premium customers . professional services and other revenue — professional services and other revenue consists of services such as implementation , software customizations and project management for customers who subscribe to our premium editions . these arrangements are priced either on a fixed fee basis with a portion due upon contract signing and the remainder due when the related services have been completed , or on a time and materials basis . our backlog consists of the total future value of our committed customer contracts , whether billed or unbilled . as of december 31 , 2014 , we had backlog of approximately $ 68 million compared to backlog of approximately $ 59 million as of december 31 , 2013. of the approximately $ 68 million in backlog as of december 31 , 2014 , between $ 61 million and $ 63 million is expected to be recognized as revenue during the year ended december 31 , 2015. because revenue for any period is a function of revenue recognized from backlog at the beginning of the period as well as from contract renewals and new customer contracts executed during the period , backlog at the beginning of any period is not necessarily indicative of future performance . our presentation of backlog may differ from that of other companies in our industry . 29 cost of revenue cost of subscription , support and professional services revenue primarily consists of costs related to supporting and hosting our product offerings and delivering our professional services . these costs include salaries , benefits , incentive compensation and stock-based compensation expense related to the management of our data centers , our customer support team and our professional services staff . in addition to these expenses , we incur third-party service provider costs such as data center and content delivery network , or cdn , expenses , allocated overhead , depreciation expense and amortization of capitalized internal-use software development costs and acquired intangible assets .
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results of operations the following tables set forth our results of operations for the periods presented . the period-to-period comparison of financial results is not necessarily indicative of future results . 34 replace_table_token_8_th overview of results of operations for the years ended december 31 , 2014 and 2013 total revenue increased by 14 % , or $ 15.1 million , in 2014 compared to 2013 due to an increase in subscription and support revenue of 17 % , or $ 17.2 million , respectively , which was offset in part by a decrease in professional services and other revenue of 31 % , or $ 2.1 million , respectively . the increase in subscription and support revenue resulted primarily from an increase in the number of our premium customers , which was 1,863 as of december 31 , 2014 an increase of 6 % from 1,762 customers as of december 31 , 2013 , as well as a 7 % increase in the average annual subscription revenue per premium customer and a $ 6.5 million contribution of revenue from the acquisition of unicorn . our ability to continue to provide the product functionality and performance that our customers require will be a major factor in our ability to continue to increase revenue . our gross profit increased by $ 8.2 million , or 11 % , in 2014 compared to 2013 , primarily due to an increase in revenue . with the continued growth in our total revenue , our ability to continue to maintain our overall gross profit will depend on our ability to continue controlling our costs of delivery . loss from operations was $ 15.2 million in 2014 compared to $ 9.5 million in 2013. loss from operations in 2014 included stock-based compensation expense , amortization of acquired intangible assets and merger-related expenses of $ 6.4 million , $ 3.2 million and $ 3.1 million , respectively .
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expenditures for major renewals and betterments , story_separator_special_tag “ management 's discussion and analysis of financial condition and results of operations ” contains “ forward-looking statements ” within the meaning of section 27a of the securities act and section 21e of the exchange act that are based on management 's current expectations , estimates and projections about our business operations . please read “ cautionary statement regarding forward looking statements. ” our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of numerous factors , including the known material factors set forth in item 1a , “ risk factors. ” you should read the following discussion and analysis together with our consolidated financial statements and the notes to those statements in item 8 of this annual report . spin- o ff on may 30 , 2014 , oil states international , inc. ( oil states ) spun-off its accommodations segment ( accommodations ) into a standalone , publicly traded delaware corporation ( civeo us ) . in accordance with the separation and distribution agreement , the two companies were separated by oil states distributing to its stockholders all 106,538,044 shares of common stock of civeo us it held after the market closed on may 30 , 2014 ( the spin-off ) . in connection with the spin-off , on may 28 , 2014 , we made a special cash distribution to oil states of $ 750 million . following the spin-off , oil states retained no ownership interest in civeo us , and each company now has separate public ownership , boards of directors and management . redomiciling to canada on july 17 , 2015 , we completed our change in place of incorporation from delaware to british columbia , canada ( the redomicile transaction ) . in the redomicile transaction , civeo corporation , a british columbia , canada limited company formerly named civeo canadian holdings ulc ( civeo canada ) , became the publicly traded parent company of the civeo group of companies , and our former publicly traded delaware parent , civeo us , became a wholly owned subsidiary of civeo canada . each issued share of civeo us common stock , other than those shares of civeo us common stock held by civeo us in treasury , was effectively transferred to civeo canada and converted into one common share , no par value , of civeo canada . an aggregate of approximately 107.5 million civeo canada common shares were issued in the redomicile transaction . the civeo canada common shares are listed on the nyse under the symbol “ cveo , ” the same symbol under which the civeo us common stock traded prior to the effective time . the redomicile transaction qualified as a “ self-directed redomiciling ” of the company as permitted under the u.s. internal revenue code . u.s. federal income tax laws permit a company to change its domicile to a foreign jurisdiction without corporate-level u.s. federal income taxes provided that such company has “ substantial business activity ” in the relevant jurisdiction . “ substantial business activity ” is defined as foreign operations consisting of over 25 % of the company 's total ( i ) revenues , ( ii ) assets , ( iii ) employees and ( iv ) employee compensation . with approximately 50 % or more of our operations in canada based on these metrics , we qualified for a self-directed redomiciling . we incurred costs related to the redomicile transaction totaling $ 1.3 million , $ 7.0 million and $ 2.6 million for the years ended december 31 , 2016 , 2015 and 2014 , respectively . description of the business we are one of the largest integrated providers of workforce accommodations , logistics and facility management services to the natural resource industry . our scalable modular facilities provide long-term and temporary accommodations where traditional accommodations and related infrastructure is insufficient , inaccessible or not cost effective . once facilities are deployed in the field , we also provide catering and food services , housekeeping , laundry , facility management , water and wastewater treatment , power generation , communications and redeployment logistics . our accommodations support our customers ' employees and contractors in the canadian oil sands and in a variety of oil and natural gas drilling , mining and related natural resource applications as well as disaster relief efforts , primarily in canada , australia and the united states . we operate in three principal reportable business segments – canada , australia and u.s. 53 basis of presentation unless otherwise stated or the context otherwise indicates , all references in these consolidated financial statements to “ civeo , ” “ the company , ” “ us , ” “ our ” or “ we ” for the time period prior to the spin-off mean the accommodations business of oil states . for time periods after the spin-off , but prior to july 17 , 2015 , these terms refer to civeo us and its consolidated subsidiaries . for time periods after july 17 , 2015 , these terms refer to civeo canada and its consolidated subsidiaries . prior to the spin-off , our financial position , results of operations and cash flows consisted of the oil states ' accommodations business and an allocable portion of its corporate costs , which represented a combined reporting entity . the combined financial statements for periods prior to the spin-off have been prepared on a stand-alone basis and are derived from the consolidated financial statements and accounting records of oil states . the combined financial statements reflect our historical financial position , results of operations and cash flows as we were historically managed , in conformity with accounting principles generally accepted in the u.s. ( u.s. gaap ) . the combined financial statements include certain assets and liabilities that have historically been held at the oil states corporate level , but are specifically identifiable or otherwise attributable to us . story_separator_special_tag period of time , and the discount between wcs crude prices and wti crude prices could widen . the depressed price levels through the first quarter of 2016 negatively impacted exploration , development , maintenance and production spending and activity by canadian operators and , therefore , demand for our services in late 2014 , 2015 and 2016. our canadian oil sands customers could continue to delay maintenance spending and additional investments in their oil sands assets as well . in australia , approximately 80 % of our rooms are located in the bowen basin and primarily serve met coal mines in that region . met coal pricing and growth in production in the bowen basin region is predominantly influenced by the levels of global steel production , which increased by 0.7 % during 2016 compared to 2015. as of february 20 , 2017 , contract met coal prices were approximately $ 285 per metric tonne , significantly higher than the september 2016 contract price of $ 92.50 per metric tonne , due to supply side factors that have restricted met coal volumes . despite the increase , we have not yet seen a significant impact on customers ' willingness to increase activity . we expect that spot prices for met coal will need to be sustained at levels above $ 150 per metric tonne for at least nine to twelve months before we see an impact on customer activity levels , and therefore , the demand for accommodations . long-term demand for steel will be driven by increased steel consumption per capita in developing economies , such as china and india , whose current consumption per capita is a fraction of developed countries . our customers continue to actively implement cost , productivity and efficiency measures to drive down their cost base . natural gas and wti crude oil prices , discussed above , have an impact on the demand for our u.s. accommodations business . with limited export capabilities , u.s. natural gas prices are primarily influenced by domestic supply/demand dynamics and resultant inventory levels . u.s. natural gas production has continued to outpace demand , which has caused prices to continue to be weak relative to historical prices over the past decade . u.s. natural gas inventory levels at december 31 , 2016 were 3.31 tcf , 12 % lower than inventory levels from december 31 , 2015 and 1 % under seasonally comparable average inventory levels over the past five years . prices for natural gas in the u.s. averaged $ 2.55 per mcf in 2016 , a 3 % decrease from the average price in 2015. although the prices have increased slightly in the fourth quarter of 2016 and into 2017 , at these levels , it is uneconomic to increase development in several domestic , gas-focused basins . if natural gas production growth continues to surpass demand in the u.s. and or the supply of natural gas were to increase , whether the supply comes from conventional or unconventional production or associated natural gas production from oil wells , prices for natural gas could be constrained for an extended period and result in fewer rigs drilling for natural gas in the near-term . 55 recent wti crude , wcs crude , met coal and natural gas pricing trends are as follows : replace_table_token_9_th ( 1 ) source : wti crude and natural gas prices are from u.s. energy information administration ( eia ) , and wcs crude prices and seaborne hard coking coal contract prices are from bloomberg . overview as noted above , demand for our services is primarily tied to the outlook for crude oil and met coal prices . other factors that can affect our business and financial results include the general global economic environment and regulatory changes in canada , australia , the u.s. and other markets . our business is predominantly located in northern alberta , canada and queensland , australia , and we derive most of our business from resource companies who are developing and producing oil sands and met coal resources and , to a lesser extent , other hydrocarbon and mineral resources . more than three-fourths of our revenue is generated by our large-scale lodge and village facilities . where traditional accommodations and infrastructure are insufficient , inaccessible or cost ineffective , our lodge and village facilities provide comprehensive accommodations services similar to those found in an urban hotel . we typically contract our facilities to our customers on a fee per day basis that covers lodging and meals and that is based on the duration of their needs which can range from several weeks to several years . generally , our customers are making multi-billion dollar investments to develop their prospects , which have estimated reserve lives ranging from ten years to in excess of thirty years . consequently , these investments are dependent on those customers ' longer-term view of commodity demand and prices . in response to decreases in crude oil prices beginning in late 2014 , many of our customers in canada curtailed their operations and spending , and most major oil sands mining operators are continuing to seek to reduce their costs and limit capital spending , accordingly limiting the demand for accommodations like we provide . in australia , approximately 80 % of our rooms are located in the bowen basin and primarily serve met coal mines in that region where our customers continue to actively implement cost productivity and efficiency measures to drive down their cost base . 56 in recent months , however , several catalysts have emerged that we believe could have favorable intermediate to long-term implications for our core end markets .
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results of operations – year ended december 31 , 2015 compared to year ended december 31 , 2014 replace_table_token_14_th we reported net loss attributable to civeo for the year ended december 31 , 2015 of $ 131.8 million , or $ 1.24 per diluted share . as further discussed below , net loss included the following items : ● an $ 80.7 million pre-tax loss ( $ 56.0 million after-tax , or $ 0.52 per diluted share ) resulting from the impairment of fixed assets and intangible assets , included in impairment expense below ; ● a $ 43.2 million pre-tax loss ( $ 43.2 million after-tax , or $ 0.40 per diluted share ) resulting from the impairment of goodwill in our canadian reporting unit , included in impairment expense below ; ● a $ 7.0 million pre-tax loss ( $ 4.6 million after-tax , or $ 0.05 per diluted share ) from costs incurred in connection with the redomicile transaction , included in selling , general and administrative ( sg & a ) expense below ; and 64 ● a $ 1.5 million pre-tax loss ( $ 1.5 million after-tax , or $ 0.01 per diluted share ) from the write off of debt issuance costs , included in interest expense and income , net below . we reported net loss attributable to civeo for the year ended december 31 , 2014 of $ 189.0 million , or $ 1.77 per diluted share .
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we serve the needs of various federal and regional government agencies in the u.s. and allied nations around the world with products and services that have both defense and civil applications . through september 30 , 2017 , our principal lines of business were transportation payments and information systems and services , defense systems , and defense services . on may 31 , 2018 , we sold the cubic global defense services ( cgd services ) business . in march 2018 , all of the criteria were met for the classification of cgd services as a discontinued operation . as a result , the operating results , assets , liabilities , and cash flows of cgd services have been classified as discontinued operations and have been excluded from amounts described below . in addition , we concluded that cubic mission solutions became a separate operating segment and reportable segment beginning on october 1 , 2017. as a result , we now operate in three reportable business segments : cubic transportation systems ( cts ) , cubic global defense systems ( cgd ) , and cubic mission solutions ( cms ) . all of our business segments share a common mission of increasing situational awareness to create enhanced value for our customers worldwide through common technologies . our defense customers benefit from increased readiness and effectiveness , while our transportation customers benefit from enhanced efficiency and reduced congestion . we organize our business segments based on the nature of the products and services offered . for the fiscal year ended september 30 , 2018 , 56 % of sales were derived from cts , 27 % were derived from cgd and 17 % were derived from cms . the u.s. government remains our largest customer , accounting for approximately 30 % of sales in 2018 , compared to 30 % and 25 % of sales in 2017 and 2016 , respectively . in fiscal year 2018 , 59 % of our total sales were derived from products , with services sales accounting for the remaining 41 % . we are operating in an environment that is characterized by continuing economic pressures in the u.s. and globally . a significant component of our strategy in this environment is to focus on innovative solutions , program execution , improving the quality and predictability of the delivery of our products and services , and providing opportunities for customers to outsource services where we can provide a lower cost and more effective solution . our international sales , including foreign military sales ( fms ) , comprised 48 % of our total sales for fiscal year 2018. sales to countries outside the u.s. amounted to 59 % , 52 % and 3 % of the total sales of cts , cgd and cms , respectively , for fiscal year 2018. to the extent our business and contracts include operations in countries outside the u.s. , other risks are introduced into our business , including changing economic conditions , fluctuations in relative currency rates , regulation by foreign countries , and the potential for deterioration of political relations . we continuously strive to strengthen our portfolio of products and services through innovation to meet the current and future needs of our customers . we accomplish this in part by our independent r & d activities , and through acquisitions . company-sponsored r & d spending totaled $ 52.4 million in 2018. in 2018 , cts continued to make r & d investments in new transportation product development , including fare collection technologies , real-time passenger information and development of tolling , intelligent transport systems ( its ) and analytic technologies . cgd 's r & d expenditures increased in 2018 due to the acceleration of our development of next generation live , virtual , constructive , and game-based training systems . cms has increased r & d expenditures between 2017 and 2018 , primarily driven by development of our software definable antenna technology that will bring network wideband communications to our defense customers and support the development of the dod 's joint area layer network . we selectively pursue the acquisition of businesses that complement our current portfolio and allow access to new customers or technologies . in pursuing our business strategy , we routinely conduct discussions , evaluate targets , and enter into agreements regarding possible acquisitions . as part of our business strategy , we seek to identify acquisition opportunities that will expand or complement our existing products and services , or customer base , at attractive valuations . from 2015 through 2018 we acquired gatr , dtech , teralogics , vocality , motiondsp , and shield 42 aviation in connection with our strategic efforts to build and expand our c4isr business . these businesses provide wideband ultra-portable expeditionary satellite communication terminal solutions , secure video delivery , real time processing and enhancement , exploitation and dissemination of full motion video in the cloud , computer vision analytics , deployable secure computing tactical cloud and networking solutions equipment , and communication gateways . we have also made niche acquisitions of businesses during the past several years , including deltenna in 2017. generally , our business acquisitions are dilutive to earnings in the short-term due to acquisition-related costs , integration costs , retention payments and often higher amortization of purchased intangibles in the early periods after acquisition and expenses related to earn-outs . however , we expect that each of these recent acquisitions will be accretive to earnings in the long-term . industry considerations the u.s. government continues to focus on discretionary spending , tax , and other initiatives to control spending and reduce the deficit . more than 40 years since the budget act created the existing framework congress has rarely followed the required process and deadlines . regular order has not been fully followed since fiscal year 1995—the last time congress passed a budget conference agreement followed by all 12 appropriations bills before the beginning of the new fiscal year . the trend over the past decades has been reliance on continuing resolutions . story_separator_special_tag in fiscal 2016 we were awarded a contract by the new hampshire state department of transportation to deploy our back-office system for the purposes of toll revenue collection . we provide a modern tolling alternative that uses best-in-breed tools that are flexible and modular compared to the proprietary , legacy systems that the industry views as their only option . through our nextbus and itms businesses we provide advanced transportation operational management capabilities and related services to over 95 customers including organizations such as transport for london , transport scotland , highways england , transport for greater manchester , los angeles metro , san francisco muni and the toronto transit commission . in august 2018 , we were awarded an intelligent congestion management platform contract by transport for new south wales to provide sydney , australia with one of the world 's most advanced transport management systems . the new system will enhance monitoring and management of the road network across new south wales , coordinate the public transport network across all modes , improve management of clearways , planning of major events and improve incident clearance times , while providing real-time information and advice to the public about disruptions . in addition to helping us secure similar projects in new markets , our comprehensive suite of new technologies and capabilities enables us to benefit from a recurring stream of revenues in established markets resulting from operations , innovative new services , technology refresh , equipment refurbishment and the introduction of new or adjacent applications . 44 in 2018 , revenues from services provided by cts were $ 382.6 million , or 57 % of cts sales , and revenues from product sales were $ 288.1 million , or 43 % of cts sales . we are currently designing and building major new systems in new york , boston , brisbane , and the bay area . profit margins during the design and build phase of major projects can be slightly lower than during the operate-and-maintain phase . this has in the past caused , and may in the future cause , swings in profitability from period to period . in addition , cash flows are often negative during portions of the design-and-build phase , until major milestones are reached and cash payments are received . cash payment terms offered by our transportation customers in a competitive environment are sometimes not favorable to us . the customers ' budget constraints often result in less funding available for the build of a new system , with more funds becoming available when the system becomes operational . this , coupled with the inherent risks in managing large infrastructure projects , can yield negative cash flows and lower and less predictable profit margins on contracts during the design and build phase . conversely , during the operate-and-maintain phase , revenues and costs are typically more predictable and profit margins tend to be higher . gross profit margins from services sales in cts were 25 % and 28 % for fiscal years 2018 and 2017 , respectively , and gross profit margin from product sales was 25 % and 29 % in 2018 and 2017 , respectively . the mix of product and services sales can produce fluctuations in margin from period-to-period and is generally caused by the mobilization or completion of project system delivery ; however , as system delivery projects complete they generally transition to recurring service sales which add to a recurring services sales base which will increase over time . most of our sales in cts for fiscal year 2018 were from fixed-price contracts . however , some of our service contracts provide for variable payments , in addition to the fixed payments , based on meeting certain service level requirements and , in some cases , based on system usage . service level requirements are generally contingent upon factors that are under our control , while system usage payments are contingent upon factors that are generally not under our control , other than basic system availability . development and system integration contracts in cts are usually accounted for on a percentage-of-completion basis using the cost-to-cost method to measure progress toward completion , which requires us to estimate our costs to complete these contracts on a regular basis . our actual results can vary significantly from these estimates and changes in estimates can result in significant swings in revenues and profitability from period to period . generally , we are at risk for increases in our costs , unless an increase results from customer-requested changes . at times , there can be disagreement with a customer over who is responsible for increases in costs . in these situations we must use judgment to determine if it is probable that we will recover our costs and any profit margin . revenue under contracts for services in cts is generally recognized either as services are performed or when a contractually required event has occurred , depending on the contract . revenue under such contracts is generally recognized on a straight-line basis over the period of contract performance , unless evidence suggests that the revenue is earned or the obligations are fulfilled in a different pattern . costs incurred under these services contracts are expensed as incurred , and may vary from period to period . incentive fees included in some of our cts service contracts are recognized when they become fixed and determinable based on the provisions of the contract . as described above , often these fees are based on meeting certain contractually required service levels or based on system usage levels . contractual terms can also result in variation of both revenues and expenses , resulting in fluctuations in earnings from period to period . for certain cts contracts for which we develop a system for a customer and subsequently operate and maintain the customer 's system , the contract specifies that we will not be paid during system development , but rather we will be paid over the period that we operate and maintain the system .
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operating overview cubic corporation sales increased 9 % to $ 1.203 billion in fiscal year 2018 from $ 1.108 billion in 2017. the increases in sales for cts and cms of 16 % and 23 % , respectively , were partially offset by a decrease in cgd sales of 10 % . the average exchange rates between the prevailing currencies in our foreign operations and the u.s. dollar between 2017 and 2018 had a positive impact on sales of $ 11.9 million , which was 1 % of 2018 sales . the impacts of changes in foreign currency exchange rates on sales from 2017 to 2018 predominantly affected our cts segment results . see the segment discussions below for further analysis of segment sales . cubic corporation sales increased 3 % to $ 1.108 billion in fiscal year 2017 from $ 1.071 billion in 2016. the increase in sales for cms of 54 % , was partially offset by decreases in cts and cgd sales of 1 % and 4 % , respectively . revenues from businesses we acquired in 2017 and 2016 , within our cgd and cms segments , increased our consolidated sales by 5 % from 2016 to 2017. organic sales decreased slightly between fiscal years 2016 and 2017 primarily due to the negative impact of changes in foreign currency exchange rates . the average exchange rates between the prevailing currencies in our foreign operations and the u.s. dollar had a negative impact on sales of 2 % , or $ 19.9 million in 2017 compared to 2016. the impacts of changes in foreign currency exchange rates on sales from 2016 to 2017 predominantly affected our cts segment results . operating income increased to $ 24.4 million in 2018 compared to $ 2.6 million in 2017 driven by improved profitability in our cts and cms businesses .
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overview we are one of the largest distributors of residential and non-residential roofing materials in the united states and canada . we are also a distributor of other building materials , including siding , windows , specialty lumber products and waterproofing systems for residential and nonresidential building exteriors . we purchase products from a large number of manufacturers and then distribute these goods to a customer base consisting of contractors and , to a lesser extent , general contractors , retailers and building material suppliers . depending on the market , each of our branches carries from about 2,000 to 11,000 skus , totaling to more than 200,000 skus throughout our network of 236 branches across the united states and canada . in fiscal year 2013 , approximately 92 % of our net sales were in the united states . we stock one of the most extensive assortments of high-quality branded products in the industry , enabling us to deliver products to our customers on a timely basis . execution of the operating plan at each of our branches drives our financial results . revenues are impacted by the relative strength of the residential and non-residential roofing markets we serve . we strive for an appropriate mix of residential , non-residential and complementary product sales in all of our regions but allow each of our branches to influence its own marketing plan and mix of products based upon its local market . we differentiate ourselves from the competition by providing many customer services such as job site delivery , tapered insulation layouts and design and metal fabrication , and by providing credit . we consider customer relations and our employees ' knowledge of roofing and exterior building materials to be important to our ability to increase customer loyalty and maintain customer satisfaction . we invest significant resources in training our employees in sales techniques , management skills and product knowledge . while we consider these attributes important drivers of our business , we also continually pay close attention to controlling operating costs . our growth strategy includes both internal growth ( opening branches , growing sales with existing customers , adding new customers and introducing new products ) and acquisition growth . our main acquisition strategy is to target market leaders in geographic areas that we do not service or that complement our existing operations in an area . the following transactions highlight our recent success delivering on our growth strategy : · we have continued to focus on organic greenfield growth with the opening of 10 new branches in 2013 , four new branches in 2012 and three new branches in 2011. these 17 new branch locations in the past three years have allowed us to strategically penetrate deeper into many of our existing markets and enter into new markets . additionally in october 2013 , we continued to accelerate our greenfield activity by opening two new branches bringing our branch count as of november 1 , 2013 to 238 . · in december 2012 , we acquired ford wholesale co. , a distributor of residential and commercial roofing and related accessories with three locations in northern california . this acquisition provided entry into a new geographic market with no branch overlap with our existing operations . · in november 2012 , we acquired mcclure-johnston a distributor of residential and commercial roofing products and related accessories , which was headquartered in the pittsburgh area and had 14 branches at the time of acquisition , including eight in pennsylvania , three in west virginia , one in western maryland and two in georgia . this acquisition complemented an existing market in which we previously had operations , allowing us to capture more of the localized market share . · in july 2012 , we acquired structural materials co. ( `` structural '' ) , a distributor of residential and commercial roofing products and related accessories headquartered in santa ana , ca . structural has six locations in los angeles and orange counties and in the surrounding areas , which we integrated into our existing pacific supply region in southern california . · in may 2011 , we acquired enercon products inc. ( “ enercon ” ) , a roofing distributor with six locations in western canada . headquartered within its branch in edmonton , enercon also has branches in calgary , regina and saskatoon and two branches in vancouver . this acquisition provided entry into a new geographic market with no branch overlap with our existing operations . 20 general we sell all materials necessary to install , replace and repair residential and non-residential roofs , including : · shingles ; · single-ply roofing ; · metal roofing and accessories ; · modified bitumen ; · built up roofing ; · insulation ; · slate and tile ; · fasteners , coatings and cements ; and · other roofing accessories . we also sell complementary building products such as : · vinyl siding ; · doors , windows and millwork ; · wood and fiber cement siding ; · residential insulation ; and · waterproofing systems . the following is a summary of our net sales by product group ( in thousands ) for the last three full fiscal years ( “ 2013 ” , “ 2012 ” and “ 2011 ” ) . percentages may not total due to rounding . replace_table_token_5_th we have over 47,000 customers , none of which individually represent more than 2 % of our total net sales . many of our customers are small to mid-size contractors with relatively limited capital resources . we maintain strict credit review and approval policies , which has helped to keep losses from uncollectible customer receivables within our expectations . bad debt expense in 2013 was less than 0.1 % due primarily to continued improvement in the economy and credit environment . story_separator_special_tag the 2011 existing markets sales of $ 1,792.4 million plus the sales from acquired markets of $ 25.0 million agrees to our reported total 2011 sales of $ 1,817.4 million . prior year sales by product group are presented in a manner consistent with the current year 's product classifications . we believe the existing markets information is useful to investors because it helps explain organic growth or decline . gross profit replace_table_token_13_th our existing markets gross profit increased $ 50.9 million or 12.3 % in 2012 , while our acquired markets gross profit increased $ 30.9 million . our overall and existing markets gross margins increased to 24.5 % and 24.4 % in 2012 , respectively , from 23.1 % in 2011. the higher gross margins in 2012 were due primarily to improved gross margins in residential roofing product sales and an increase in our mix of those residential product sales , which generally have higher gross margins than our other products . direct sales ( products shipped by our vendors directly to our customers ) , which typically have substantially lower gross margins than our warehouse sales , represented 17.7 % and 20.4 % of our net sales in 2012 and 2011 , respectively . this decrease was primarily attributable to the lower mix of non-residential roofing product sales , which are more commonly facilitated by direct shipment . there were no material divisional impacts from changes in the direct sales mix of our geographical regions . operating expenses replace_table_token_14_th operating expenses in our existing markets increased $ 9.8 million or 3.1 % in 2012 to $ 321.1 million , compared to $ 311.3 million in 2011 , while our acquired markets expenses increased by $ 32.1 million to $ 36.7 million . the following factors were the leading causes of the higher operating expenses in our existing markets : · increased payroll and related costs of $ 12.3 million primarily due to higher incentive-based pay , overtime pay , certain benefits and payroll taxes ; 26 · increased selling expenses of $ 1.4 million from higher fuel and transportation costs and credit card fees ; and · increases in general and administrative costs of $ 3.6 million principally from higher professional fees , severance costs , general insurance costs and travel expenses ; partially offset by : · decreased depreciation and amortization expense of $ 4.3 million from lower amortization of intangibles and reduced depreciation from the impact of low capital expenditures in recent years ; and · decreased bad debts of $ 3.9 million due primarily to a lower percentage of past-due accounts as improvement in the roofing industry enabled more of our customers to stay current with their required payments . in 2012 and 2011 , we expensed a total of $ 9.4 million and $ 8.6 million , respectively , for the amortization of intangible assets recorded under purchase accounting , including the impact from acquired markets . our existing markets operating expenses as a percentage of the related net sales decreased to 16.8 % in 2012 from 17.4 % in 2011 due to the positive impact from the higher sales , partially offset by the impact from the above increases . interest expense , financing costs and other interest expense , financing costs and other were $ 17.2 million in 2012 compared to $ 13.4 million in 2011. the 2012 expense includes a charge of $ 2.6 million for the recognition of the fair value of certain interest rate derivatives and $ 1.2 million resulting from the refinancing of our debt . these negative factors on interest expense , financing costs and other in 2012 were partially offset by the benefit from lower outstanding total debt . interest expense , financing costs and other would have been $ 7.5 and $ 5.1 million lower in 2012 and 2011 , respectively , without the impact of our interest rate derivatives . income taxes income tax expense was $ 50.9 million in 2012 , an effective tax rate of 40.3 % , compared to $ 31.2 million in 2011 , which was an effective tax rate of 34.5 % . the 2011 income tax expense includes the beneficial impact of $ 5.1 million , $ 0.11 diluted earnings per share , from the reversal of the net deferred tax liability associated with a change in the tax status of our canadian operations as discussed below . without that benefit , our effective tax rate would have been approximately 40.1 % in 2011.we expect our future annual income tax rate to average approximately 39.5 % to 40.5 % , excluding any discrete items . seasonality and quarterly fluctuations in general , sales and net income are highest during our first , third and fourth fiscal quarters , which represent the peak months of construction and re-roofing , especially in our branches in the northern and mid-western u.s. and in canada . we have historically incurred low net income levels or net losses during the second quarter when our sales are substantially lower . we generally experience an increase in inventory , accounts receivable and accounts payable during the third and fourth quarters of the year as a result of the seasonality of our business . our peak cash usage generally occurs during the third quarter , primarily because accounts payable terms offered by our suppliers typically have due dates in april , may and june , while our peak accounts receivable collections typically occur from june through november . we generally experience a slowing of our accounts receivable collections during our second quarter , mainly due to the inability of some of our customers to conduct their businesses effectively in inclement weather in certain of our divisions . we continue to attempt to collect those receivables , which require payment under our standard terms . we do not provide material concessions to our customers during this quarter of the year .
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results of operations the following discussion compares our results of operations for 2013 , 2012 and 2011. the following table presents information derived from our consolidated statements of operations expressed as a percentage of net sales for each of the respective the periods indicated . percentages may not total due to rounding . replace_table_token_6_th 2013 compared to 2012 the following table shows a summary of our results of operations for 2013 and 2012 , broken down by existing markets and acquired markets . replace_table_token_7_th the operating expenses in acquired markets above for 2013 and 2012 include $ 7.9 and $ 2.1 million of amortization of intangible assets recorded under purchase accounting , respectively . 22 net sales consolidated net sales increased $ 197.1 million , or 9.6 % , to $ 2.24 billion in 2013 from $ 2.04 billion in 2012. existing market sales increased $ 22.7 million or 1.2 % ( 0.4 % based on the same number of business days ) . acquired market sales increased $ 174.4 million due to a full year 's sales impact from the 2012 acquisitions and the partial year impact from our 2013 acquisitions . we attribute the existing market sales increase primarily to the following factors : · better weather conditions in the fourth quarter of this year allowed for an increase in roofing activities , especially residential roofing ; and · strong growth in complementary building product sales . partially offset by : · by heavy rains in several regions during the third quarter and fewer hail storms in 2013 ; · last year 's very high level of re-roofing activities , including the beneficial impact from mild weather in december 2011 and strong carry over business from the significant storm activity in 2011 ; and · a slowdown in non-residential roofing activity in 2013 , primarily in the first half of the year . in 2013 , we acquired 19 branches , opened 10 new branches , and closed two branches .
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a summary of sars outstanding as of september 30 , 2017 and changes during the year then ended is as follows : replace_table_token_34_th a summary of sars exercised 2017 , 2016 and 2015 is as follows : replace_table_token_35_th stock options the company has not granted stock options since 2005. as previously discussed , certain pre-acquisition equity awards of carefusion were converted on march 17 , 2015 into bd stock options with accelerated vesting terms . a summary of these stock options outstanding as of september 30 , 2017 and changes during the year then ended is as follows story_separator_special_tag the following commentary should be read in conjunction with the consolidated financial statements and accompanying notes . within the tables presented throughout this discussion , certain columns may not add due to the use of rounded numbers for disclosure purposes . percentages and earnings per share amounts presented are calculated from the underlying amounts . references to years throughout this discussion relate to our fiscal years , which end on september 30. company overview description of the company and business segments becton , dickinson and company ( “ bd ” ) is a global medical technology company engaged in the development , manufacture and sale of a broad range of medical supplies , devices , laboratory equipment and diagnostic products used by healthcare institutions , life science researchers , clinical laboratories , the pharmaceutical industry and the general public . the company 's organizational structure is based upon two principal business segments , bd medical ( “ medical ” ) and bd life sciences ( “ life sciences ” ) . bd 's products are manufactured and sold worldwide . our products are marketed in the united states and internationally through independent distribution channels and directly to end-users by bd and independent sales representatives . we organize our operations outside the united states as follows : europe ; ema ( which includes the commonwealth of independent states , the middle east and africa ) ; greater asia ( which includes japan and asia pacific ) ; latin america ( which includes mexico , central america , the caribbean , and south america ) ; and canada . we continue to pursue growth opportunities in emerging markets , which include the following geographic regions : eastern europe , the middle east , africa , latin america and certain countries within asia pacific . we are primarily focused on certain countries whose healthcare systems are expanding , in particular , china and india . strategic objectives bd remains focused on delivering sustainable growth and shareholder value , while making appropriate investments for the future . bd management operates the business consistent with the following core strategies : to increase revenue growth by focusing on our core products , services and solutions that deliver greater benefits to patients , healthcare workers and researchers ; 23 to continue investment in research and development for platform extensions and innovative new products ; to make investments in growing our operations in emerging markets ; to improve operating effectiveness and balance sheet productivity ; to drive an efficient capital structure and strong shareholder returns . our strategy focuses on four specific areas within healthcare and life sciences : enabling safer , simpler and more effective parenteral drug delivery ; improving clinical outcomes through new , more accurate and faster diagnostics ; providing tools and technologies to the research community that facilitate the understanding of the cell , cellular diagnostics and cell therapy ; enhancing disease management in diabetes , women 's health and cancer , infectious disease and other targeted conditions . we continue to strive to improve the efficiency of our capital structure and follow these guiding principles : to operate the company consistent with an investment grade credit profile ; to ensure access to the debt market for strategic opportunities ; to optimize the cost of capital based on market conditions . in assessing the outcomes of these strategies as well as bd 's financial condition and operating performance , management generally reviews quarterly forecast data , monthly actual results , segment sales and other similar information . we also consider trends related to certain key financial data , including gross profit margin , selling and administrative expense , investment in research and development , return on invested capital , and cash flows . definitive agreement to acquire c.r . bard , inc. on april 23 , 2017 , we announced that we entered into a definitive agreement under which bd will acquire c. r. bard , inc. ( `` bard '' ) for an implied value of $ 317.00 per bard common share in cash and stock , for estimated total consideration of approximately $ 24 billion . the combination will create a highly differentiated medical technology company uniquely positioned to improve both the process of care and the treatment of disease for patients and healthcare providers . additional discussion regarding the acquisition agreement and the related financing the company has secured , through equity and debt issuances , is provided in notes 3 , 9 and 15 to the consolidated financial statements contained in item 8. financial statements and supplementary data . the transaction is subject to regulatory approval and customary closing conditions , and is expected to close in the fourth calendar quarter of 2017. acquisition of carefusion on march 17 , 2015 , bd acquired a 100 % interest in carefusion corporation ( `` carefusion '' ) . carefusion 's operating results were included in bd 's consolidated results of operations beginning on april 1 , 2015 and as such , the consolidated results of operations for the first six months of fiscal year 2015 referenced in the commentary provided further below did not include carefusion 's results . carefusion operates as part of our medical segment . story_separator_special_tag accepted accounting principles ( `` gaap '' ) . story_separator_special_tag selling and administrative expense as a percentage of life sciences revenues in 2017 was higher compared to 2016 primarily due to slightly higher administrative costs . selling and administrative expense as a percentage of life sciences revenues decreased in 2016 compared with 2015 , primarily due to the suspension of the medical device excise tax . research and development expense as a percentage of revenues in 2017 was relatively flat compared with 2016 , which increased compared to 2015 due to increased investment in new products and platforms . geographic revenues bd 's worldwide revenues by geography are provided below . replace_table_token_10_th u.s. revenues in 2017 were unfavorably impacted by the medical segment 's divestiture of the respiratory solutions business and the modification to dispensing equipment lease contracts with customers in the medical segment 's medication management solutions unit , as previously discussed . these impacts to u.s. revenues in 2017 were partially offset by growth in sales in the medical segment 's medication management solutions and diabetes care units , as well as in all of the life sciences segment 's units . u.s. revenue growth in 2016 primarily reflected the inclusion of carefusion 's u.s. sales for the full fiscal year . u.s. revenues also reflected growth in sales of the medical segment 's legacy products , particularly in the medication and procedural solutions and pharmaceutical systems units . u.s. revenue growth in 2016 was also driven by sales in the life science 's segment 's preanalytical systems and biosciences units . international revenues in 2017 were driven by sales in the medical segment 's medication and procedural solutions , medication management solutions and pharmaceutical systems units , as well as by sales in the life sciences segment 's preanalytical systems and diagnostic systems units . international revenue growth in 2017 was partially offset by the impact of the medical segment 's divestiture of the respiratory solutions business . 28 international revenue growth in 2016 primarily reflected the inclusion of carefusion 's sales for the full fiscal year , as well as growth attributable to the medical segment 's legacy products in the medication and procedural solutions unit . international revenue growth in 2016 also reflected the life sciences segment 's preanalytical systems unit 's sales , primarily in western europe and asia pacific . the life sciences segment 's international revenue growth in 2016 was negatively impacted by a decrease in certain sales in its biosciences unit in africa , as previously discussed . emerging market revenues were $ 1.95 billion , $ 1.9 billion and $ 1.8 billion in 2017 , 2016 and 2015 , respectively . emerging market revenues in 2016 related to divested businesses , primarily the respiratory solutions business , were approximately $ 105 million . unfavorable foreign currency translation impacted emerging market revenues in 2017 and 2016 by an estimated $ 29 million and $ 156 million , respectively . emerging market revenue growth in 2017 was driven by sales in greater asia , including china , and latin america . emerging market revenue growth in 2016 reflected the inclusion of carefusion 's sales for the full fiscal year , as well as growth in china and latin america , partially offset by declines in the middle east and africa . specified items reflected in the financial results for 2017 , 2016 and 2015 were the following specified items : replace_table_token_11_th ( a ) represents integration , restructuring and transaction costs , recorded in acquisitions and other restructurings , which are further discussed below . ( b ) the amount in 2017 represents financing costs incurred in connection with the agreement to acquire bard , including bridge financing commitment fees of $ 79 million , which were recorded in interest expense . the amount in 2015 represents financing costs incurred in connection with the carefusion acquisition , including bridge financing commitment fees . ( c ) primarily represents non-cash amortization expense associated with acquisition-related identifiable intangible assets . bd 's amortization expense is primarily recorded in cost of products sold . the adjustment in 2015 also included a fair value step-up adjustment of $ 293 million recorded relative to carefusion 's inventory on the acquisition date . ( d ) represents a non-cash charge , which was recorded in other operating expense , net resulting from a modification to our dispensing equipment lease contracts with customers , as further discussed below . ( e ) the amount in 2017 largely represents the reversal of certain reserves related to an appellate court decision recorded in other operating expense , net as further discussed below . ( f ) represents losses recognized in other ( expense ) income , net upon our extinguishment of certain long-term senior notes in the first and third quarters , as further discussed below . 29 gross profit margin the comparison of gross profit margins in 2017 and 2016 and the comparison of gross profit margins in 2016 and 2015 reflected the following impacts : replace_table_token_12_th the operating performance impacts in 2017 and 2016 primarily reflected lower manufacturing costs resulting from the continuous operations improvement projects discussed above . gross profit margin in 2017 was favorably impacted by businesses divestitures , primarily the divestiture of the respiratory solutions business which had products with relatively lower gross profit margins . gross profit margin in 2016 benefited from a favorable comparison to 2015 , which reflected the fair value step-up adjustment recorded relative to carefusion 's inventory on the acquisition date , as previously discussed , partially offset by the recognition in 2016 of a full year of amortization relating to carefusion 's intangible assets . operating expenses operating expenses in 2017 , 2016 and 2015 were as follows : replace_table_token_13_th selling and administrative selling and administrative expense as a percentage of revenues in 2017 was relatively flat compared with 2016 .
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summary of financial results worldwide revenues in 2017 of $ 12.093 billion decreased 3.1 % from the prior-year period . the decrease reflected an approximate 7 % reduction in revenues due to the divestiture of the respiratory solutions business in october 2016. volume growth in 2017 of more than 4 % for our continuing businesses was partially offset by an unfavorable impact of foreign currency translation of less than 1 % . pricing did not materially impact 2017 revenues . additional disclosures regarding our divestiture of the respiratory solutions 24 business are provided in note 10 to the consolidated financial statements contained in item 8. financial statements and supplementary data . volume growth in 2017 reflected the following : medical segment volume growth in 2017 was driven by sales growth in all of the segment 's units , particularly by growth in the medication and procedural solutions , medication management solutions and pharmaceutical systems units . life sciences segment volume growth in 2017 was driven by growth in all three of its organizational units , particularly in its preanalytical and diagnostic systems units . u.s. volume growth in 2017 primarily reflected growth in sales in the medical segment 's medication management solutions and diabetes care units , as well as in all of the life sciences segment 's units . international volume growth in 2017 was driven by sales in the medical segment 's medication and procedural solutions , medication management solutions and pharmaceutical systems units , as well as by sales in the life sciences segment 's preanalytical systems and diagnostic systems units . we continue to invest in research and development , geographic expansion , and new product promotions to drive further revenue and profit growth .
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fair value of rsus the fair value of restricted stock units ( rsus ) is determined on the grant date of the award as the market price of the company 's common stock on the date of grant , reduced by the present value of estimated dividends foregone during the vesting period . judgment is required in determining the present value of estimated dividends foregone during the vesting period . the company estimates the dividends for purposes of story_separator_special_tag introduction the following discussion should be read in conjunction with our consolidated financial statements and notes to consolidated financial statements included in item 15 of this annual report on form 10-k. business overview qad ( qad , the company , we or us ) is a leader in cloud-based enterprise software solutions for global manufacturing companies . our solutions , called qad adaptive applications , are designed specifically for automotive suppliers , life sciences , consumer products , food and beverage , high technology and industrial products manufacturers . qad software offers a full set of core manufacturing enterprise resource planning and supply chain planning capabilities . our architecture , called the qad enterprise platform , allows manufacturers to upgrade existing functionality by module ; and extend or create new applications , providing manufacturers with the flexibility they need to innovate and rapidly adapt to change . we have four principal sources of revenue : subscription of qad adaptive applications through our cloud offering in a software as a service ( saas ) model as well as other hosted applications ; license purchases of qad adaptive applications ; maintenance and support , including technical support , training materials , product enhancements and upgrades ; and professional services , including implementations , technical and application consulting , training , migrations and upgrades . we operate primarily in the following four geographic regions : north america , latin america , emea and asia pacific . in fiscal 2020 , approximately 49 % of our total revenue was generated in north america , 29 % in emea , 15 % in asia pacific and 7 % in latin america . the majority of our revenue is generated from global customers who have operations in multiple countries throughout the world . a significant portion of our revenue and expenses are derived from international operations which are primarily conducted in foreign currencies . as a result , changes in the value of foreign currencies relative to the u.s. dollar have impacted our results of operations and may impact our future results of operations . at january 31 , 2020 , we employed approximately 1,920 employees worldwide , of which 630 employees were based in north america , 610 employees in emea , 570 employees in asia pacific and 110 employees in latin america . our customer base and our target markets are primarily global manufacturing companies ; therefore , our results are heavily influenced by the state of the manufacturing economy on a global basis . as a result , our management team monitors several economic indicators , with particular attention to the global and country purchasing managers ' indexes ( pmi ) . the pmi is a survey conducted on a monthly basis by polling businesses that represent the makeup of respective sectors . since most of our customers are manufacturers , our revenue has historically correlated with fluctuations in the manufacturing pmi . global macro-economic trends and manufacturing spending are important barometers for our business , and the health of the u.s. , western european and asian economies have a meaningful impact on our financial results . we are transitioning our business model from selling perpetual licenses to providing access to our software on a subscription basis as part of our cloud offering . during fiscal 2020 , we closed most of our new customer deals in the cloud . subscription revenue grew 17 % in fiscal 2020 compared to fiscal 2019 and our twelve-month trailing subscription billings grew by 23 % , with a three-year compound annual growth rate ( cagr ) of 29 % . in addition , we have converted approximately 20 % of our existing customers from on-premises licenses to our cloud solutions . recurring revenue , which we define as subscription revenue plus maintenance revenue , accounted for 73 % of total revenue for fiscal 2020. by reducing our customers ' up-front costs and providing qad adaptive applications with continuous application and infrastructure support in secure and resilient environments , we expect our cloud business model will be more attractive than perpetual licenses . we expect recurring revenue to remain a majority of total revenue as our subscription revenue continues to grow . in december 2019 , a strain of coronavirus ( covid-19 ) was reported in wuhan , china and by january 24 , 2020 the chinese government announced mandatory home confinement and the closure of all workplaces , schools and public establishments . given that our fiscal year end is january 31st and china represents 4 % of our revenue , the coronavirus had a minimal impact on our fiscal 2020 results . as the coronavirus has spread , it has significantly impacted the health and economic environment around the world and many governments have closed most public establishments , including restaurants , workplaces and schools . our customers are global manufacturers and the closure of manufacturing sites , country borders and the increase in unemployment are having and will continue to have negative implications on demand for goods , the supply chain , production of goods and transportation . a negative impact on our manufacturing customers may cause them to request extended payment terms , delayed invoicing , higher discounts , lower renewal amounts or cancelations . any of these actions will have a negative impact on our financial results and liquidity in fiscal 2021. we deliver our products under a saas subscription model that allows us to deliver our services remotely and support our customers around the world at all times , so they receive uninterrupted services and support from qad during these challenging times . story_separator_special_tag when customers convert to the cloud they no longer pay for maintenance as those support services are included as a component of the subscription offering . though we continue to see renewal rates above 90 % , conversions from on-premises to cloud have resulted in decreases in maintenance revenue and we expect this trend to continue in the future . 34 on a constant currency basis , maintenance revenue was $ 122.9 million for fiscal 2019 , representing a $ 6.0 million , or 5 % , decrease from $ 128.9 million for fiscal 2018. on a constant currency basis , maintenance revenue decreased across all regions during fiscal 2019 when compared to the prior year . we track our retention rate of maintenance by calculating the annualized revenue of customer sites with contracts up for renewal at the beginning of the period compared to the annualized revenue associated with the customer sites that have canceled during the period . the percentage of revenue not canceled is our retention rate . over the last three years , our maintenance retention rate has remained in excess of 90 % . professional services revenue . our professional services business includes technical and application consulting in addition to training , implementations , migrations and upgrades related to our solutions . although our professional services are optional , our customers use these services when planning , implementing or upgrading our solutions whether in the cloud or on-premises . professional services revenue growth is contingent upon subscription and license revenue growth and customer upgrade cycles , which are influenced by the strength of general economic and business conditions . in the first quarter of fiscal 2021 , we have seen services projects delay or elongate due to the covid-19 pandemic . this has negatively impacted our services revenue and margins in the first quarter of fiscal 2021 and we expect it will negatively impact both services revenue and margins for the fiscal year . on a constant currency basis , professional services revenue was $ 69.1 million for fiscal 2020 , representing a $ 21.3 million , or 24 % , decrease from $ 90.4 million for fiscal 2019. on a constant currency basis , professional services revenue decreased across all regions during fiscal 2020 when compared to the prior year . the decrease primarily related to a reduction in professional services revenue following the completion of a large , multisite global implementation project . on a constant currency basis , professional services revenue was $ 92.7 million for fiscal 2019 , representing an $ 11.4 million , or 14 % , increase from $ 81.3 million for fiscal 2018. on a constant currency basis , professional services revenue increased in our north america , latin america and emea regions and remained relatively flat in our asia pacific region during fiscal 2019 when compared to the prior year . the increase in professional services revenue period over period can be attributed to personnel augmentation services we performed for one of our cloud customers , mainly through third-party contractors at low margins . for fiscal 2019 , personnel augmentation services revenue was $ 7.3 million , compared to $ 1.1 million for fiscal 2018. augmentation services consists of providing our employees or third-party contractors to assist the customer with the implementation tasks the customer needs to perform by supplementing their workforce . in addition , fiscal 2019 results reflected a higher amount of revenue per customer and a higher number of engagements compared to the prior year . total cost of revenue replace_table_token_11_th replace_table_token_12_th 35 total cost of revenue consists of cost of subscription , cost of license , cost of maintenance and cost of professional services . cost of subscription includes salaries , benefits , bonuses and other personnel expenses of our cloud operations employees , stock-based compensation for those employees , hosting and hardware costs , third-party contractor expense , royalties , professional fees , travel expense , and an allocation of information technology and facilities costs . cost of license includes license royalties and amortization of capitalized software costs . cost of maintenance includes salaries , benefits , bonuses and other personnel expenses of our support group , stock-based compensation for those employees , travel expense , royalties , professional fees and an allocation of information technology and facilities costs . cost of professional services includes salaries , benefits , bonuses and other personnel expenses of our services employees , stock-based compensation for those employees , third-party contractor expense , travel expense and an allocation of information technology and facilities costs . total cost of revenue . on a constant currency basis , total cost of revenue was $ 139.9 million and $ 153.4 million for fiscal 2020 and 2019 , respectively and as a percentage of total revenue was 45 % for fiscal 2020 and 47 % for fiscal 2019. the decrease in total cost of revenue as a percentage of total revenue was mainly due to the shift of our revenue mix from professional services to subscription . the non-currency related decrease in cost of revenue of $ 13.5 million , or 9 % , in fiscal 2020 compared to fiscal 2019 was primarily due to lower professional services third-party contractor costs , lower travel costs and lower salaries and related costs resulting from a decrease in headcount of 116 people associated with decreased professional services revenue , partially offset by higher hosting costs and salaries and related costs associated with the increase in subscription revenue . on a constant currency basis , total cost of revenue was $ 155.9 million and $ 149.1 million for fiscal 2019 and 2018 , respectively and as a percentage of total revenue was 47 % for fiscal 2019 and 49 % for fiscal 2018. the decrease in total cost of revenue as a percentage of total revenue was due to improved subscription and professional services margins .
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results of operations we operate in several geographical regions as described in note 13 “ business segment information ” within the notes to consolidated financial statements . in order to present our results of operations without the effects of changes in foreign currency exchange rates , we provide certain financial information on a “ constant currency basis ” , which is in addition to the actual financial information presented in the following tables . in order to calculate our constant currency results , we apply the current foreign currency exchange rates to the prior period results . revenue replace_table_token_6_th replace_table_token_7_th 32 total revenue . on a constant currency basis , total revenue was $ 310.8 million for fiscal 2020 , representing a $ 16.0 million , or 5 % , decrease from $ 326.8 million for fiscal 2019. the primary reason for the decrease in total revenue was due to lower professional services revenue . our results for fiscal 2020 also included decreases in license revenue and maintenance revenue . as our existing customers convert from on-premises licenses to using our software in the cloud , we expect license revenue and maintenance revenue will continue to decline . these decreases were offset by an 18 % increase in subscription revenue , on a constant currency basis , as we are focused on selling our software solutions to new customers in the cloud . revenue outside the north america region as a percentage of total revenue was 51 % and 52 % for fiscal 2020 and 2019 , respectively . on a constant currency basis , total revenue decreased across all regions during fiscal 2020 when compared to the prior year . in fiscal 2020 and fiscal 2018 , no single customer accounted for more than 10 % of total revenue . in fiscal 2019 , one customer accounted for 10 % of total revenue and no other customer accounted for 10 % or more of total revenue .
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see part iv , item 15. exhibits , financial statement schedules — note 3 — acquisitions for more information . ilx and castex acquisition — on february 28 , 2020 we acquired the outstanding limited liability interests in certain wholly owned subsidiaries of ilx holdings , llc , ilx holdings ii , llc , ilx holdings iii llc and castex energy 2014 , llc , each a related party and an affiliate with the entities controlled by or affiliated with riverstone energy partners v , l.p. ( the “ riverstone sellers ” ) , and castex energy 2016 , lp ( together with the riverstone sellers , the “ sellers ” ) , for $ 459.3 million ( comprised of $ 303.1 million in net cash paid and $ 156.2 million in 110,000 shares of a series of the company 's preferred stock , which subsequently converted to an aggregate 11.0 million shares of our common stock ) ( collectively , the “ ilx and castex acquisition ” ) . see part iv , item 15. exhibits , financial statement schedules — note 3 — acquisitions for more information . gunflint acquisition — on january 11 , 2019 , pursuant to a purchase sale agreement with samson offshore mapleleaf , llc , we acquired an approximate 9.6 % non-operated working interest in the gunflint field located in the mississippi canyon area for $ 29.6 million ( $ 27.9 million after customary purchase price adjustments ) . see part iv , item 15. exhibits , financial statement schedules — note 3 — acquisitions for more information . transaction expenses — we have incurred and will continue to incur transaction related and restructuring costs associated with our business development activities that may vary significantly in our comparative historical results of operations . see part iv , item 15. exhibits , financial statement schedules — note 3 — acquisitions for more information . hurricanes and tropical storms — during 2020 , production from the u.s. gulf of mexico was impacted due to precautionary shut-ins of facilities and evacuations associated with hurricanes hanna , laura , marco , sally , delta and zeta and tropical storms cristobal and beta . although there was no major storm-related damage to our facilities , we incurred production downtime associated with the shut-ins for the storms . for the year ended december 31 , 2020 , we estimate deferred production related to these storms was approximately 4.1 mboepd . 68 ram powell shut-i n — production at our ram powell facil ity was shut-in since late june 2020 while waiting on the repair of the platform 's oil export riser . we received final regulatory approvals and completed the repair of the export riser . production commenced on november 21 , 2020 . for the year ended december 31 , 2020 , the ram powell facility shut-in resulted in deferred production of 2.1 mboepd . third party planned downtime — since our operations are offshore , we are vulnerable to third party downtime events impacting the transportation , gathering and processing of production . we produce the phoenix field through the hp-i that is operated by helix energy solutions group , inc. ( “ helix ” ) . helix is required to disconnect and dry-dock the hp-i every two to three years for inspection as required by the united states coast guard , during which time we are unable to produce the phoenix field . during the first quarter of 2019 , helix dry-docked the hp-i . after conducting sea trials , production resumed in late march 2019 , resulting in a total shut-in period of 57 days . known trends and uncertainties volatility in oil , natural gas and ngl prices — historically , the markets for oil and natural gas have been volatile , and prices experienced a steep decline in march and april 2020. in march 2020 , saudi arabia and russia failed to reach a decision to cut production of oil and gas along with the opec countries . subsequently , saudi arabia significantly reduced the prices at which it sells oil and announced plans to increase production . these events , combined with the continued outbreak of covid-19 , contributed to a sharp drop in prices for oil and natural gas during the year ended december 31 , 2020. for example , from january 1 , 2020 through december 31 , 2020 , the daily spot prices for nymex wti crude oil ranged from a high of $ 63.27 per bbl to a low of $ ( 36.98 ) per bbl and the daily spot prices for nymex henry hub natural gas ranged from a high of $ 3.14 per mmbtu to a low of $ 1.33 per mmbtu . our revenue , profitability , access to capital and future rate of growth depends upon the price we receive for our sales of oil , natural gas and ngl production . oil , natural gas and ngl prices are subject to wide fluctuations in supply and demand , and we can not predict whether or when oil production and economic activities will return to normalized levels . impairment of oil and natural gas properties — under the full cost method of accounting that we use for our oil and gas operations , our capitalized costs are limited to a ceiling based on the present value of future net revenues from proved reserves , computed using a discount factor of 10 percent , plus the lower of cost or estimated fair value of unproved oil and natural gas properties not being amortized less the related tax effects . any costs in excess of the ceiling are recognized as a non-cash “ write-down of oil and natural gas properties ” on the consolidated statements of operations and an increase to “ accumulated depreciation , depletion and amortization ” on our consolidated balance sheets . story_separator_special_tag the expense may not be reversed in future periods , even though higher oil , natural gas and ngl prices may subsequently increase the ceiling . we perform this ceiling test calculation each quarter . in accordance with the sec rules and regulations , we utilize sec pricing when performing the ceiling test . we also hold prices and costs constant over the life of the reserves , even though actual prices and costs of oil and natural gas are often volatile and may change from period to period . during 2020 and 2019 the company 's ceiling test computations resulted in a write down of $ 267.9 million and nil , respectively . at december 31 , 2020 , the company 's ceiling test computation was based on sec pricing of $ 39.47 per bbl of oil , $ 1.97 per mcf of natural gas and $ 9.89 per bbl of ngls . if the unweighted average first-day-of-the-month commodity price for crude oil or natural gas for the period beginning january 1 , 2020 and ending december 1 , 2020 used in the determination of the sec pricing was 10 % lower , resulting in $ 35.51 per bbl of oil , $ 1.76 per mcf of natural gas and $ 8.90 per bbl of ngls , while all other factors remained constant , our oil and natural gas properties would have been impaired by an additional $ 446.7 million . as part of our period end reserves estimation process for future periods , we expect changes in the key assumptions used , which could be significant , including updates to future pricing estimates and differentials , future production estimates to align with our anticipated five-year drilling plan and changes in our capital costs and operating expense assumptions , which we expect to decrease further as a result of sustained lower commodity prices . there is a significant degree of uncertainty with the assumptions used to estimate future undiscounted cash flows due to , but not limited to the risk factors referred to in part i , item 1a . risk factors . any decrease in pricing , negative change in price differentials , or increase in capital or operating costs could negatively impact the estimated undiscounted cash flows related to our proved oil and natural gas properties . 69 boem bonding requirements — in order to cover the various decommissioning obligations of lessees on the ocs , the boem generally requires that lessees post some form of acceptable financial assurances that such obligations will be met , such as surety bonds . the cost of such bonds or other financial assurance can be substantial , and we can provide no assurance that we can continue to obtain bonds or other surety in all cases . as many boem regulations are being reviewed by the agency , we may be subject to additional financial assurance requirements in the future . for example , in 2016 , the boem under the obama administration issued the 2016 ntl to clarify the procedures and guidelines that boem regional directors use to determine if and when additional financial assurances may be required for ocs leases , rows and rues . the 2016 ntl , which bolstered supplemental bonding requirements , became effective in september 2016 , but was not fully implemented as the boem under the trump administration first paused , and then in 2020 rescinded , the implementation of this ntl while the boem and bsee issued a jointly proposed rulemaking in october 2020 in which boem proposed amendments to its financial assurance program . the october 2020 rulemaking proposes to clarify and provide greater transparency to decommissioning and related financial assurance requirements imposed on oil and gas lessees ( record title owners ) , sublessees ( operating rights owners ) and rue and row grant holders conducting operations on the federal ocs . however , with president biden taking office in january 202 1 , it is possible that the new a dministration will reconsider regulatory actions undertaken by the former a dministration with respect to financial assurance requirements , including rescission of the 2016 ntl and publication of the october 2020 proposed rule , and may adopt and implement more stringent supplemental bonding requirements . the future cost of compliance with respect to supplemental bonding , including the obligations imposed on us , whether as current or predecessor lessee or grant holder , as a result of the 2016 ntl , to the extent re-implemented or the october 2020 proposed rule , to the extent finalized , as well as to the provisions of any new , more stringent ntls or final rules on supplemental bonding published by the boem under the biden administration , could materially and adversely affect our financial condition , cash flows and results of operations . moreover , the boem has the right to issue liability orders in the future , including if it determines there is a substantial risk of nonperformance of the interest holder 's decommissioning liabilities . deepwater operations — we have interests in deepwater fields in the u.s. gulf of mexico . operations in the deepwater can result in increased operational risks as has been demonstrated by the deepwater horizon disaster in 2010. despite technological advances since this disaster , liabilities for environmental losses , personal injury and loss of life and significant regulatory fines in the event of a disaster could be well in excess of insured amounts and result in significant current losses on our statements of operations as well as going concern issues . oil spill response plan — we maintain a regional oil spill response plan that defines our response requirements , procedures and remediation plans in the event we have an oil spill . oil spill response plans are generally approved by bsee bi-annually , except when changes are required , in which case revised plans are required to be submitted for approval at the time
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results of operations revenues and other the information below provides a discussion of , and an analysis of significant variance in , our oil , natural gas and ngl revenues , production volumes and sales prices for the years ended december 31 , 2020 and 2019 ( in thousands ) : replace_table_token_17_th the information below provides an analysis of the change in our oil , natural gas and ngl revenues , due to changes in sales prices and production volumes for the years ended december 31 , 2020 and 2019 ( in thousands ) : replace_table_token_18_th volumetric analysis — production volumes increased by 2.7 mboepd to 54.7 mboepd . the increase in production was primarily attributable to 15.5 mboepd in production from the oil and natural gas assets acquired in the ilx and castex acquisition and castex 2005 acquisition . the increase in production volumes was partially offset by a 3.2 mboepd , 2.9 mboepd and 1.4 mboepd reduction in production from the ram powell field , phoenix field and pompano field , respectively . the decline in the ram powell field was primarily a result of a shut-in for repairs and maintenance on the platform 's oil export riser . the ram powell field returned to production during the fourth quarter of 2020. the decline in production volumes in the phoenix field and pompano field were associated with deferred production for weather related events , rig work , other miscellaneous shut-ins and natural declines , partially offset by first quarter 2019 downtime for the helix hp-i dry-dock repairs and maintenance in the phoenix field . 73 expenses lease operating expense the following table highlights lease operating expense items in total and on a cost per boe production basis .
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f-7 seaworld entertainment , inc. and subsidiaries notes to consolidated financial statements story_separator_special_tag the following discussion contains management 's discussion and analysis of our financial condition and results of operations and should be read together with “ selected financial data ” and the historical consolidated financial statements and the notes thereto included in “ financial statements and supplementary data ” . this discussion contains forward-looking statements that reflect our plans , estimates and beliefs and involve numerous risks and uncertainties , including but not limited to those described in the “ risk factors ” section of this annual report on form 10-k. actual results may differ materially from those contained in any forward-looking statements . you should carefully read “ special note regarding forward-looking statements ” and “ risk factors. ” business overview we are a leading theme park and entertainment company providing experiences that matter and inspiring guests to protect animals and the wild wonders of our world . we own or license a portfolio of recognized brands , including seaworld , busch gardens , aquatica , discovery cove , sesame place and sea rescue . over our more than 50-year history , we have developed a diversified portfolio of 12 highly differentiated theme parks and water parks that are grouped in key markets across the united states . many of our parks showcase our one-of-a-kind zoological collection and all of our parks feature a diverse array of thrill and family rides , shows , educational demonstrations and or other attractions with broad demographic appeal which deliver memorable experiences and a strong value proposition for our guests . principal factors and trends affecting our results of operations revenues our revenues are driven primarily by attendance in our theme parks and the level of per capita spending for admission and per capita spending for culinary , merchandise and other in-park products . we define attendance as the number of guest visits . attendance drives admissions revenue as well as total in-park spending . admissions revenue primarily consists of single-day tickets , annual or season passes ( collectively referred to as season passes ) or other multi-day or multi-park admission products . total revenue per capita , defined as total revenue divided by total attendance , consists of admission per capita and in-park per capita spending : admission per capita . we calculate admission per capita as total admissions revenue divided by total attendance . admission per capita is primarily driven by ticket pricing , the admissions product mix and the park attendance mix , among other factors . the admissions product mix , also referred to as the visitation mix , is defined as the mix of attendance by ticket category such as single day , multi-day , annual passes or complimentary tickets and the park attendance mix is defined as the mix of theme parks visited . the mix of theme parks visited can impact admission per capita based on the theme park 's respective pricing which on average is lower for our water parks compared to our other theme parks . in-park per capita spending . we calculate in-park per capita spending as total food , merchandise and other revenue divided by total attendance . food , merchandise and other revenue primarily consists of culinary , merchandise and other in-park products and also includes other miscellaneous revenue not necessarily generated in our parks , which is not significant in the periods presented , including revenue related to our international agreements . in-park per capita spending is primarily driven by pricing changes , penetration levels ( percentage of guests purchasing ) , new product offerings , the mix of guests ( such as local , domestic or international guests ) and the mix of in-park spending , among other factors . see further discussion in the “ results of operations ” section which follows . for other factors affecting our revenues , see the “ risk factors ” section of this annual report on form 10-k. attendance the level of attendance in our theme parks is a function of many factors , including affordability , the opening of new attractions and shows , competitive offerings , weather , fluctuations in foreign exchange rates and global and regional economic conditions , travel patterns of both our domestic and international guests , marketing and sales efforts , awareness of park offerings , consumer confidence and external perceptions of our brands and reputation , among other factors beyond our control . attendance patterns have significant seasonality , driven by the timing of holidays , school vacations and weather conditions ; in addition , seven of our theme parks are seasonal and only open for part of the year . 39 we believe attendance in recent years was impacted by a variety of factors at some of our parks , including the external perceptions of our brands and reputation , which also impacted relationships with some of our business partners . given current attendance results , we do not believe these factors have had a significant impact on our current 2018 attendance trends ; however , we continuously monitor our external perceptions , making strategic marketing and sales adjustments as necessary , to address these or any other items that could impact attendance . costs and expenses the principal costs of our operations are employee wages and benefits , advertising , maintenance , animal care , utilities and insurance . factors that affect our costs and expenses include competitive wage pressures including minimum wage legislation , commodity prices , costs for construction , repairs and maintenance , other inflationary pressures and attendance levels , among other factors . we continue to actively work to find additional cost savings opportunities . as part of these efforts , on august 7 , 2018 , we implemented a new restructuring program ( the “ 2018 restructuring program ” ) focused on reducing costs , improving operating margins and streamlining our management structure to create efficiencies and better align with our strategic business objectives . story_separator_special_tag as of december 31 , 2018 , the company has calculated the impact of the tax act in accordance with its current interpretation and available guidance , particularly as it relates to the future deductibility of executive compensation items and state conformity to the tax act . see discussion in note 14–income taxes in our notes to the consolidated financial statements included elsewhere in this annual report on form 10-k. story_separator_special_tag style= '' margin-top:12pt ; margin-bottom:0pt ; text-indent:4.54 % ; font-style : italic ; font-family : times new roman ; font-size:10pt ; font-weight : normal ; text-transform : none ; font-variant : normal ; '' > depreciation and amortization . depreciation and amortization expense for the year ended december 31 , 2018 decreased by $ 2.3 million , or 1.4 % to $ 161.0 million as compared to $ 163.3 million for the year ended december 31 , 2017. the decrease primarily relates to the impact of asset retirements and fully depreciated assets , partially offset by new asset additions . interest expense . interest expense for the year ended december 31 , 2018 increased $ 2.9 million , or 3.7 % to $ 80.9 million as compared to $ 78.0 million for the year ended december 31 , 2017. the increase primarily relates to increased libor rates and the impact of amendments no . 8 and no . 9 to our senior secured credit facilities entered into on march 31 , 2017 and october 31 , 2018 , respectively , partially offset by the impact of interest rate swap agreements . see note 12 –long-term debt to our consolidated financial statements included elsewhere in this annual report on form 10-k and the “ our indebtedness ” section which follows for further details . loss on early extinguishment of debt and write-off of discounts and debt issuance costs . loss on early extinguishment of debt and write-off of discounts and debt issuance costs of $ 8.2 million for the year ended december 31 , 2018 primarily relates to a write-off of discounts and debt issuance costs resulting from amendment no . 9 to our senior secured credit facilities entered into on october 31 , 2018. loss on early extinguishment of debt and write-off of discounts and debt issuance costs of $ 8.1 million for the year ended december 31 , 2017 primarily relates to a write-off of discounts and debt issuance costs resulting from amendment no . 8 to our senior secured credit facilities entered into on march 31 , 2017. see note 12–long-term debt to our consolidated financial statements included elsewhere in this annual report on form 10-k and the “ our indebtedness ” section which follows for further details . provision for ( benefit from ) income taxes . provision for income taxes for the year ended december 31 , 2018 was $ 17.9 million compared to a benefit from income taxes of $ 85.0 million in the year ended december 31 , 2017. the change primarily resulted from pretax income in 2018 compared to a pretax loss in 2017. our consolidated effective tax rate was 28.6 % for 2018 compared to 29.6 % for 2017. the decrease primarily results from a reduction in the corporate federal tax rate from 35 % to 21 % effective january 1 , 2018 due to the tax act mostly offset by the reduced tax benefit in 2017 related to nondeductible equity compensation and a goodwill impairment charge . see note 14–income taxes in our notes to the consolidated financial statements included elsewhere in this annual report on form 10-k for further details . 43 comparison of the years ended december 31 , 2017 and 2016 the following table presents key operating and financial information for the years ended december 31 , 2017 and 2016 : replace_table_token_6_th nd-not determinable nm-not meaningful admissions revenue . admissions revenue for the year ended december 31 , 2017 decreased $ 52.7 million , or 6.4 % , to $ 765.1 million as compared to $ 817.8 million for the year ended december 31 , 2016. the decrease in admissions revenue primarily relates to a decline in attendance of 1.2 million guests , or 5.5 % . attendance in 2017 was primarily impacted by a decline in u.s. domestic and international attendance , largely concentrated at our parks in orlando and san diego . in addition , seaworld san diego was further impacted by a decline in attendance from the southern california market . we believe the decline in u.s. domestic attendance , particularly in orlando , results primarily from the combined impact of reduced national advertising and competitive pressures . among other factors , we believe the decline in attendance at our seaworld san diego park partly results from public perception issues , which resurfaced since we reduced marketing spend on our national reputation campaign . admission per capita decreased by 1.0 % to $ 36.79 in 2017 from $ 37.17 in 2016. the decrease results primarily from the mix of guests , including a higher mix of season pass attendance and free promotional ticket offerings . these factors were partially offset by price increases in our admission products . food , merchandise and other revenue . food , merchandise and other revenue for the year ended december 31 , 2017 decreased $ 28.2 million , or 5.4 % to $ 498.3 million as compared to $ 526.5 million for the year ended december 31 , 2016 , primarily due to a decline in attendance . in-park per capita spending increased slightly by 0.1 % , to $ 23.96 in 2017 from $ 23.93 in 2016. costs of food , merchandise and other revenues . costs of food , merchandise and other revenues for the year ended december 31 , 2017 decreased $ 4.7 million , or 4.7 % , to $ 95.9 million as compared to $ 100.6 million for the year ended december 31 , 2016 , primarily due to a decline in related revenues .
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results of operations the following discussion provides an analysis of our consolidated financial data for the years ended december 31 , 2018 and 2017. this data should be read in conjunction with our consolidated financial statements and the notes thereto included in “ financial statements and supplementary data ” included elsewhere in this annual report on form 10-k. 41 comparison of the years ended december 31 , 20 18 and 2017 the following table presents key operating and financial information for the years ended december 31 , 2018 and 2017 : replace_table_token_5_th nm-not meaningful admissions revenue . admissions revenue for the year ended december 31 , 2018 increased $ 33.7 million , or 4.4 % , to $ 798.8 million as compared to $ 765.1 million for the year ended december 31 , 2017. the increase in admissions revenue was primarily a result of an overall increase in attendance of approximately 1.8 million guests , or 8.6 % , which was partially offset by a decline in admission per capita . we believe the improved attendance results from a combination of factors including new pricing strategies , new marketing and communications initiatives and the anticipation and positive reception of our new rides , attractions and events . attendance , in the fourth quarter , also benefited from the popularity and expansion of special event days for our christmas events at some of our parks . these factors were slightly offset by negative impacts from unfavorable weather in 2018 compared to 2017. admission per capita decreased by 3.9 % to $ 35.37 in 2018 compared to $ 36.79 in 2017. this decrease was more than offset by an increase in in-park per capita spending as discussed below . among other factors , the decline in admission per capita results primarily from the impact of new pricing strategies when compared to the prior year . food , merchandise and other revenue .
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forward-looking statements all statement , trend analyses and other information contained in this report and elsewhere ( such as in filings by us with the securities and exchange commission , press releases , presentations by us or our management or oral statements ) relative to markets for our products and trends in our operations or financial results , as well as other statements including words such as “ anticipate , ” “ believe , ” “ plan , ” “ estimate , ” “ expect , ” “ intend , ” and other similar expressions , constitute forward-looking statements under the private securities litigation reform act of 1995. these forward-looking statements are subject to known and unknown risks , uncertainties and other factors which may cause actual results to be materially different from those contemplated by the forward-looking statements . such factors include , among other things : ( i ) general economic conditions and other factors , including prevailing interest rate levels and stock and credit market performance which may affect ( among other things ) our ability to sell our products , our ability to access capital resources and the costs associated therewith , the market value of our investments and the lapse rate and profitability of policies ; ( ii ) world conflict , including but not limited to the war in iraq , which may affect consumers spending trends and priorities ( iii ) customer response to new products and marketing initiatives : ( iv ) mortality , morbidity and other factors which may affect the profitability of our products ( v ) changes in the federal income tax laws and regulations which may affect the relative income tax advantages of our products ( vi ) regulatory changes or actions , including those relating to regulation of financial services affecting ( among other things ) bank sales and underwriting of insurance products and regulation of the sale , underwriting and pricing of products ( vii ) the risk factors or uncertainties listed from time to time in our filings with the securities and exchange commission . management believes the company 's current critical accounting policies are comprised of the following : liabilities for unpaid policy claims are a sensitive accounting estimate unique to the insurance industry . management uses an independent actuary to formulate this estimate . differences in the estimates and actual results may result in revised claims expense which is recognized in the period in which the difference is determined . see note 1 , 7 and 11 to our financial statements for the effect on the year 2007. claim liability methodology the company , through its wholly owned subsidiary , bnlac , has a single line of business which is life and accident and health insurance . the company 's sic code is 6311 which is a standard industrial classification used by the united states securities and exchange commission ( “ sec ” ) . using such sic code , an interested person can research the internet website of the sec , www.sec.gov , to find and review business and financial information of other companies which are in the same line of business . the following is a summary description of the company 's methodology for estimating its claim liabilities for its insurance policies . the company and management believe that this discussion constitutes forward-looking statements and , therefore , this discussion is given full safe-harbor . it should be understood that there is no assurance that anything which the company and its management have done in the past regarding its claim liability methodology will be done in the future . the company and its management are afforded full and complete authority and judgment in determining and implementing its claim liability methodology which includes any and all changes which may be made from time to time . the company 's significant insurance product types are presently dental ( group and individual ) , life ( group and individual ) , and annuities . in the life and accident and health insurance industry , the liabilities for claims and the related expensing of those liabilities are evaluated and recorded using estimates of claim liabilities . the company estimates its claim liabilities using the general methodology described herein . 12 the liability for claims generally consists of the following : ( 1 ) due and unpaid claims , ( 2 ) claims in the course of settlement , and ( 3 ) claims incurred but unreported . the company records the actual liability for all claims that are due but unpaid , item ( 1 ) . but , with regard to the last items ( 2 ) and ( 3 ) , the company must make estimates . the estimates are based on actuarial principles . the company 's independent consulting actuary works with company financial personnel and management in determining the estimates and the independent consulting actuary annually gives the company a certification as to the amounts of the liabilities . the company calculates and maintains claim liabilities for the estimated future payments on claims incurred before the statement date . these calculations are based on actuarial principles in accordance with industry standards and applicable gaap requirements . development of such liabilities is done with company financial personnel and management working with the company 's independent consulting actuary . these liabilities involve many considerations including but not limited to economic and social conditions , inflation , and healthcare costs . the claim liabilities developed include significant estimates and assumptions based on management 's review of historical experience in consultation with its independent actuary . the extent to which future payments match the claims liabilities is dependent on how well actual future experience matches the assumptions management makes regarding the future experience . the company 's liabilities are estimates that require significant judgment and , therefore , are inherently uncertain . story_separator_special_tag notes 7 and 11 are limited to the most recent fiscal year being reported , december 31 , 2007 , and the previous fiscal years of 2006 and 2005. life insurance – group and individual – and annuities the company reinsures a substantial portion of its life insurance and the associated risks and liabilities . see item 1 , business , reinsurance ; and note 8 , reinsurance , to the company 's financial statements . the company determines its life insurance claim liabilities by recording three items : ( 1 ) actual claims due and unpaid ; ( 2 ) the claims received during the 30 day period following year end ( this is done by taking an inventory of claims received during the thirty day period ) ; and ( 3 ) estimating a liability amount for claims which have been incurred but not yet reported by the end of the thirty day period . the company 's annuity policies are simple deferred annuities . the company does not explicitly establish a claim liability for its annuities since the liability is already held in the annuity deposit liability . trends in completion factors , loss ratio and claims per insured per month claim liabilities for the group dental line are the most significant part of the company 's claim liability . as stated above , the company uses the completion factor method for calculating the liability . two main assumptions are made in this approach . first , for months the claims are incurred where the completion factor is credible , the company uses that completion factor to calculate the liability associated with that month the claim occurred . second , for the most recent months before the company 's financial statement date where it is determined that the completion factors are not fully credible , the company reviews loss ratios and claims per insured per month to determine the liability for those months . the discussion in this paragraph relates to the months where the completion factors are deemed to be fully credible which are typically the months prior to november and december . the completion factors have been relatively stable in the recent past . in the future , there could be changes in the trend of completion factors . the company and its independent consulting actuary review the trends in the completion factors and when necessary make judgments as to the single point estimate value for these items . such estimates are based on observable trends and would also reflect any known major changes . professional judgments are made based on the experience of the actuary and company 's financial personnel and management . to observe the possible sensitivity of assuming 100 % reliance on completion factors for claims incurred during the months for which completion factors are believed to be fully credible , if the associated claim liabilities for those months had increased by 5 % , the year-end december 31 , 2007 , claim liabilities would have been increased by approximately $ 19,000 . 14 the discussion in this paragraph relates to the months where the completion factors are deemed to be not fully credible which are typically the months of november and december . the choice of the loss ratio assumption or claims per insured per month assumption for the most recent month of the claim was incurred may also have an impact on the liability estimate . these assumptions are monitored for trends . the company and its consulting actuary monitor the loss ratio and claims per insured month and override the completion factor approach for the most recent months before the company 's financial statement date where the completion factors are not fully credible , i.e . november and december . to observe the possible sensitivity of assuming 100 % reliance on loss ratio or claims per insured per month factors for claims incurred during the months for which completion are believed to be not fully credible ( typically november and december of a fiscal year ) , if the loss ratio or claims per insured per month had increased by 3 % for those months ( a multiple of 1.03 ) , the associated claim liabilities for those months and the year end december 31 , 2007 , claim liability would have been increased by approximately $ 127,000. the company believes that its recorded claim liabilities are reasonable and adequate to satisfy its ultimate claims liability . the company 's recorded claim liabilities are , in accordance with industry practice , estimates of such liabilities . the reader must recognize that the completion factors , loss ratios and claims per insured per month may , and probably will , be affected by events and conditions which are or will be unknown to the company 's financial personnel or management or the company 's consulting actuary . the reader must also recognize that any trending of the completion factors , loss ratios or claims per insured per month may not be indicative of changes in the company 's financial condition . while a presentation such as described above provides some mathematical and hypothetical numerical calculations , such calculations may or may not have any relevance to the company 's future financial condition , earnings or cash flow . deferred tax asset the valuation allowance against deferred taxes is a sensitive accounting estimate . the company follows statement of financial accounting standards ( sfas ) no . 109 , “ accounting for income taxes , ” which prescribes the liability method of accounting for deferred income taxes . under the liability method , companies establish a deferred tax liability or asset for the future tax effects of temporary differences between book and tax basis of assets and liabilities .
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results of operations premium income was $ 44,564,173 in 2007 , $ 44,646,393 in 2006 and $ 44,303,827 in 2005. the decrease in 2007 was due to a decrease in first year group and individual insurance premiums . new sales of dental insurance were down in 2007 primarily due to increased competition from additional companies marketing dental insurance the increase in 2006 was due to new sales of group dental insurance which was offset by approximately a $ 1.1 million reduction in group dental premium due to the termination of an agreement between the company and southeast managers , inc. ( “ semi ” ) . this agreement allowed semi to market a dental product of bnlac 's in tennessee and the company received 5.0 % of premium revenue with no exposure to underwriting losses . as part of the termination agreement , the block of business was transferred to another company associated with semi . net investment income was $ 1,320,614 in 2007 , $ 1,191,583 in 2006 and $ 1,003,613 in 2005 , an increase of 11 % in 2007 , and an increase of 18 % in 2006. the increase in 2007 was due to an increase in investment in fixed maturities and an increase in interest rates . the increase in 2006 was primarily due to delinquent interest received on bonds previously in default and an increase in fixed maturities investment yield . interest rates declined in the fourth quarter of 2007 , resulting in several government agency bonds called in the first quarter of 2008. the decrease in interest rates and the challenged financial markets has made it difficult to purchase investment grade bonds with yields equivalent to bonds purchased over the last few years . 19 the company receives marketing fees from ebi per the marketing agreement mentioned above .
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discrete semiconductors and passive components manufactured by vishay are used in virtually all types of electronic products , including those in the industrial , computing , automotive , consumer electronic products , telecommunications , power supplies , military/aerospace , and medical industries . we operate in six segments based on product functionality : mosfets , diodes , optoelectronic components , resistors , inductors , and capacitors . the current six segment alignment reflects a change in reporting structure made during the fourth fiscal quarter of 2019. prior periods have been recast to separately present resistors and inductors . we are focused on enhancing stockholder value by growing our business and improving earnings per share . since 1985 , we have pursued a business strategy of growth through focused research and development and acquisitions . we plan to continue to grow our business through intensified internal growth supplemented by opportunistic acquisitions , while at the same time maintaining a prudent capital structure . to foster intensified internal growth , we have increased our worldwide r & d and engineering technical staff ; we are expanding critical manufacturing capacities ; we are increasing our technical field sales force in asia to increase our market access to the industrial segment and increase the design-in of our products in local markets ; and we are directing increased funding and focus on developing products to capitalize on the connectivity , mobility , and sustainability growth drivers of our business . in addition to our growth plan , we also have opportunistically repurchased our stock and , as further described below , reduced dilution risks by repurchasing a portion of our convertible senior debentures . in 2014 , our board of directors instituted a quarterly dividend payment program and declared the first cash dividend in the history of vishay . we have paid dividends each quarter since the first fiscal quarter of 2014 , and further increased the quarterly cash dividend by 12 % to $ 0.095 per share in the second fiscal quarter of 2019. during 2018 we reacted quickly to the opportunities created by the enactment of the u.s. tax cuts and jobs act ( “ tcja ” ) in december 2017. during 2018 we repatriated approximately $ 724.0 million of cash to the u.s. , net of taxes , and further simplified our balance sheet by refinancing some of our debt . in june 2018 , we used the net proceeds from issuing $ 600 million principal amount of new convertible senior notes to repurchase some of our outstanding convertible senior debentures , which had become less tax-efficient because of the tcja . during the fourth quarter of 2018 , we utilized repatriated cash to repurchase additional convertible senior debentures in open market and privately-negotiated transactions with holders . in 2019 , we continued to repurchase convertible senior debentures in open market and privately-negotiated transactions with holders . as a result of these transactions , we reduced the principal amount of outstanding convertible senior debentures due 2040 , 2041 , and 2042 from $ 575 million to $ 17.2 million . we continued to re-shape our capital structure in 2019. we replaced our existing credit agreement that was due to expire in december 2020 with a new agreement that will expire in june 2024. the new credit facility increases the aggregate commitment of revolving loans from $ 640 million to $ 750 million ; provides us with the ability to request up to $ 300 million of incremental facilities , subject to the satisfaction of certain conditions , which could take the form of additional revolving commitments , incremental “ term loan a ” or “ term loan b ” facilities , or incremental equivalent debt ; reduces the undrawn commitment fee while maintaining the same borrowing rates ; and provides greater operating flexibility , including with respect to intercompany funding and other transactions , to enable us to continue to streamline our complex subsidiary structure . we repatriated $ 188.7 million to the united states , and paid withholding and foreign taxes of approximately $ 38.8 million during 2019. substantially all of these amounts are being used to repay certain intercompany indebtedness , to repay the outstanding balance on the revolving credit facility , to pay the u.s. transition tax , and to fund capital expansion projects . our business and operating results have been and will continue to be impacted by worldwide economic conditions . our revenues are dependent on end markets that are impacted by consumer and industrial demand , and our operating results can be adversely affected by reduced demand in those global markets . for several years , we implemented aggressive cost reduction programs . we continue to monitor the current economic environment and its potential effects on our customers and the end markets that we serve . additionally , we continue to closely monitor our costs , inventory , and capital resources to respond to changing conditions and to ensure we have the management , business processes , and resources to meet our future needs . in the third fiscal quarter of 2019 , we announced global cost reduction and management rejuvenation programs as part of our continuous efforts to improve efficiency and operating performance . our cost reduction programs are more fully described in note 4 to the consolidated financial statements and in `` cost management '' below . see additional information regarding our competitive strengths and key challenges as disclosed in part 1 . 30 we utilize several financial metrics , including net revenues , gross profit margin , segment operating income , end-of-period backlog , book-to-bill ratio , inventory turnover , change in average selling prices , net cash and short-term investments ( debt ) , and free cash generation to evaluate the performance and assess the future direction of our business . see further discussion in “ financial metrics ” and “ financial condition , liquidity , and capital resources ” below . story_separator_special_tag if demand falls below customers ' forecasts , or if customers do not control their inventory effectively , they may cancel or reschedule the shipments that are included in our backlog , in many instances without the payment of any penalty . therefore , the backlog is not necessarily indicative of the results to be expected for future periods . an important indicator of demand in our industry is the book-to-bill ratio , which is the ratio of the amount of product ordered during a period as compared with the product that we ship during that period . a book-to-bill ratio that is greater than one indicates that our backlog is building and that we are likely to see increasing revenues in future periods . conversely , a book-to-bill ratio that is less than one is an indicator of declining demand and may foretell declining revenues . we focus on our inventory turnover as a measure of how well we are managing our inventory . we define inventory turnover for a financial reporting period as our costs of products sold for the four fiscal quarters ending on the last day of the reporting period divided by our average inventory ( computed using each fiscal quarter-end balance ) for this same period . a higher level of inventory turnover reflects more efficient use of our capital . pricing in our industry can be volatile . using our and publicly available data , we analyze trends and changes in average selling prices to evaluate likely future pricing . the erosion of average selling prices of established products is typical for semiconductor products . we attempt to offset this deterioration with ongoing cost reduction activities and new product introductions . our specialty passive components are more resistant to average selling price erosion . all pricing is subject to governing market conditions and is independently set by us . 33 the quarter-to-quarter trends in these financial metrics can also be an important indicator of the likely direction of our business . the following table shows net revenues , gross profit margin , operating margin , end-of-period backlog , book-to-bill ratio , inventory turnover , and changes in asp for our business as a whole during the five fiscal quarters beginning with the fourth fiscal quarter of 2018 through the fourth fiscal quarter of 2019 ( dollars in thousands ) : replace_table_token_7_th _ ( 1 ) operating margin for the third and fourth fiscal quarters of 2019 includes $ 7.3 million and $ 16.9 million , respectively , of restructuring and severance expenses ( see note 4 to our consolidated financial statements ) . see “ financial metrics by segment ” below for net revenues , book-to-bill ratio , and gross profit margin broken out by segment . revenues decreased versus the prior fiscal quarter and the fourth fiscal quarter of 2018. in periods where customers , particularly distributors , have high levels of inventory , backlog is less indicative of future revenues . distributors , particularly of semiconductor products in asia , began to normalize their backlogs in the third fiscal quarter of 2018 and we experienced a further normalization of demand throughout 2019. inventory in the supply chain remains at a relatively high level , which continues to negatively impact orders . average selling prices , particularly of commodity semiconductor products , have begun to decrease consistent with the decrease in demand . gross profit margin decreased versus the prior fiscal quarter and the fourth fiscal quarter of 2018. the decreases are primarily volume-driven , and include temporary manufacturing inefficiencies as we adapt manufacturing capacities . the book-to-bill ratio increased to 0.94 in the fourth fiscal quarter of 2019 from 0.72 in the third fiscal quarter of 2019. the book-to-bill ratios for distributors and original equipment manufacturers ( `` oem '' ) were 0.94 and 0.95 , respectively , versus ratios of 0.55 and 0.90 , respectively , during the third fiscal quarter of 2019 . 34 financial metrics by segment the following table shows net revenues , book-to-bill ratio , gross profit margin , and segment operating margin broken out by segment for the five fiscal quarters beginning with the fourth fiscal quarter of 2018 through the fourth fiscal quarter of 2019 ( dollars in thousands ) : replace_table_token_8_th _ 35 acquisition activity as part of our growth strategy , we seek to expand through targeted acquisitions of other manufacturers of electronic components that have established positions in major markets , reputations for product quality and reliability , and product lines with which we have substantial marketing and technical expertise . this includes exploring opportunities to acquire targets to gain market share , penetrate different geographic markets , enhance new product development , round out our existing product lines , or grow our high margin niche market businesses . acquisitions of passive components businesses would likely be made to strengthen and broaden our position as a specialty product supplier ; acquisitions of discrete semiconductor businesses would be made to increase market share and to generate synergies . to limit our financial exposure , we have implemented a policy not to pursue acquisitions if our post-acquisition debt would exceed 2.5x our pro forma earnings before interest , taxes , depreciation , and amortization ( “ ebitda ” ) . for these purposes , we calculate pro forma ebitda as the adjusted ebitda of vishay and the target for vishay 's four preceding fiscal quarters , with a pro forma adjustment for savings which management estimates would have been achieved had the target been acquired by vishay at the beginning of the four fiscal quarter period . on january 3 , 2019 , we acquired substantially all of the assets and liabilities of bi-metallix , inc. ( `` bi-metallix '' ) , a u.s.-based , privately-held provider of electron beam continuous strip welding services for $ 11.9 million . we were a major customer of bi-metallix , and the acquired business has been vertically integrated into our resistors segment .
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results of operations statement of operations ' captions as a percentage of net revenues and the effective tax rates were as follows : replace_table_token_10_th net revenues net revenues were as follows ( dollars in thousands ) : replace_table_token_11_th changes in net revenues were attributable to the following : replace_table_token_12_th we experienced a substantial , broad-based increase in demand for our products beginning in the first fiscal quarter of 2017 that continued through the third fiscal quarter of 2018. demand started to decrease in the fourth fiscal quarter of 2018 and the decrease accelerated through 2019 as customers , particularly distributors , reduced orders as they decreased their inventory . the decrease in demand resulted in decreased net revenues compared to the prior year periods . gross profit and margins gross profit margins for the year ended december 31 , 2019 were 25.2 % , as compared to 29.3 % for the year ended december 31 , 2018. the decrease is primarily due to decreased sales volume , temporary manufacturing inefficiencies , and the impact of tariffs on products imported from china . we were not able to completely offset the normal negative impacts of inflation and average selling price decline by cost reductions and innovation due to the negative impact of manufacturing inefficiencies caused by capacity adaptations . as a result , our contributive margin decreased in 2019. gross profit margins for the year ended december 31 , 2018 were 29.3 % , as compared to 27.0 % for the year ended december 31 , 2017. the increase is primarily due to increased sales volume . we were able to offset the negative impacts of inflation by cost reductions and innovation , and maintain our contributive margin . 42 segments analysis of revenues and gross profit margins for our segments is provided below .
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results of operations ( in thousands except percentages ) fiscal year ended november 1 , 2019 ( 52 weeks ) compared to fiscal year ended november 2 , 2018 ( 52 weeks ) net sales-consolidated net sales in fiscal year 2019 increased $ 14,528 ( 8.3 % ) when compared to the prior fiscal year . the changes in net sales were comprised as follows : replace_table_token_3_th net sales-frozen food products segment net sales in the frozen food products segment in fiscal year 2019 increased $ 3,968 ( 8.4 % ) compared to the prior fiscal year . the changes in net sales were comprised as follows : replace_table_token_4_th the increase in net sales in fiscal year 2019 was attributable to higher unit sales volume and higher selling price per pound . the increase in net sales was primarily driven by a significant increase in volume in our shelf-stable sandwich business to institutional and retail customers . other institutional frozen food product sales , including sheet dough and rolls , increased 3 % by volume while retail sales volume decreased 4 % . changes in returns were slightly higher compared to the prior fiscal year . promotional activity increased due to higher bid price reductions , rebates and menu allowances as a percentage of sales . 11 net sales-snack food products segment net sales in the snack food products segment in fiscal year 2019 increased $ 10,560 ( 8.3 % ) compared to the prior fiscal year . the changes in net sales were comprised as follows : replace_table_token_5_th the increase in net sales in fiscal year 2019 was attributable to a significant increase in new product offerings including smokehouse sausage sticks introduced during the second quarter of fiscal year 2018. the increase in net sales occurred mainly in our direct store delivery distribution channel while warehouse shipments decreased . the weighted average selling price per pound increased compared to the prior fiscal year due to higher per pound selling prices for new items . promotional offers increased corresponding to the increase in unit sales volume . returns activity increased slightly compared to the 2018 fiscal year . cost of products sold and gross margin-consolidated cost of products sold from continuing operations increased by $ 9,370 ( 8.0 % ) compared to the prior fiscal year . higher unit sales volume in the snack food products segment was the primary contributing factor to the increase in cost of products sold . overhead spending increased due to significant increases in hourly wages and bonus , insurance expenses , repairs and maintenance , healthcare expenses and indirect operating supplies . costs related to an additional production facility currently under construction also increased overhead expenses . a decrease in commodity costs during fiscal year 2019 partially offset the increase in cost of goods sold . the gross margin increased from 32.4 % to 32.7 % during fiscal year 2019 compared to the prior fiscal year . replace_table_token_6_th cost of products sold and gross margin–frozen food products segment cost of products sold in the frozen food products segment increased by $ 2,452 ( 7.9 % ) to $ 33,444 in fiscal year 2019 compared to the prior fiscal year . increased volume and changes in product mix were the primary contributing factors to the increase . cost of products sold was partially offset by lower flour commodity costs of approximately $ 111. the gross margin percentage increased from 34.4 % to 34.7 % during fiscal year 2019 compared to the prior fiscal year . cost of products sold and gross margin–snack food products segment cost of products sold in the snack food products segment increased by $ 6,918 ( 8.0 % ) compared to the prior fiscal year due primarily to a substantial increase in sales volume . higher hourly wages including increased production labor impacted the cost of products sold as did higher healthcare , insurance and repair and maintenance expense . the cost of meat commodities decreased approximately $ 1,725 during fiscal year 2019 compared to the prior fiscal year . the gross margin earned in this segment increased from 31.7 % to 31.9 % during fiscal year 2019 primarily as a result of lower commodity costs . selling , general and administrative expenses-consolidated selling , general and administrative expenses ( “ sg & a ” ) in fiscal year 2019 increased $ 2,908 ( 5.8 % ) when compared to the prior fiscal year . the increase in this category did not directly correspond to the change in sales . the table below summarizes the primary expense variances in this category : replace_table_token_7_th 12 higher profit-sharing accruals resulted in higher wages and bonus expense in fiscal year 2019 compared to the prior year . the decrease in pension expense was due to higher pension discount rates being used to compute the future liability estimate . insurance costs increased due to higher claim activity and the addition of a new production and warehousing facility . repairs and maintenance expense decreased as the company prepared its chicago facility in fiscal year 2018 to comply with food safety certification requirements created and managed by the sqf institute . healthcare benefit expense has increased due to recent unfavorable claim activity compared to fiscal year 2018. travel expenses increased due to research related to construction of the new plant as well as increased travel by business development managers . costs for product advertising increased mainly as a result of higher payments under brand licensing agreements in the snack food products segment during fiscal year 2019. other income/expense increased due to a miscellaneous gain that did not reoccur in the current fiscal year . story_separator_special_tag the gain on cash surrender value of life insurance policies decreased substantially due to lower stock market gains compared to fiscal year 2018. the major components comprising the increase of “ other sg & a ” expenses were outside consulting fees , utilities and property taxes . selling , general and administrative expenses-frozen food products segment sg & a expenses in the frozen food products segment increased by $ 641 ( 4.5 % ) to $ 14,867 during fiscal year 2019 compared to the prior fiscal year . the overall increase in sg & a expenses was due to higher unit sales volume , profit-sharing accruals and product advertising . selling , general and administrative expenses-refrigerated and snack food products segment sg & a expenses in the snack food products segment increased by $ 2,267 ( 6.3 % ) to $ 37,970 during fiscal year 2019 compared to the prior fiscal year . most of the increase was due to higher unit sales volume in pounds and higher expenses related to wages and bonuses including an increase in sales commissions . gain on sale of property , plant and equipment on march 7 , 2018 , the company sold a parcel of land in chicago , illinois for approximately $ 5,977 and recognized a non-recurring pre-tax gain in fiscal year 2018. the cost basis of the land was insignificant . any gain or loss during fiscal year 2019 was due to ordinary gain or loss on disposal of assets . story_separator_special_tag 6pt ; border-bottom : black 1.5pt solid '' > 14 our stock repurchase program was approved by the board of directors in november 1999 and was expanded in june 2005. under the stock repurchase program , we were authorized , at the discretion of management and the board of directors , to purchase up to an aggregate of 2,000,000 shares of our common stock on the open market . as of the end of fiscal year 2019 , 120,113 shares remained authorized for repurchase under the program . however , our agreement with citigroup lapsed on its own ( by its terms ) on october 14 , 2019. we invested in otr ( over-the-road ) tractors during fiscal year 2012 financed by a capital lease obligation in the amount of $ 1,848. the total capital lease obligation was settled as of november 1 , 2019 with no remaining lease liability . we bought several of the tractors and converted to month-to-month arrangements on other tractors as needed . we plan to invest in new capital lease arrangements in fiscal 2020. we maintain a line of credit with wells fargo bank , n.a . that expires on march 1 , 2020. under the terms of this line of credit , we may borrow up to $ 7,500 at an interest rate equal to the bank 's prime rate or libor plus 1.5 % . the borrowing agreement contains various covenants , the more significant of which require us to maintain a minimum tangible net worth , a minimum quick ratio , a minimum net income after tax and total capital expenditures less than $ 7,500. the company was in violation of the capital expenditure covenant which was subsequently waived by letter dated december 16 , 2019. the company was in compliance with all other covenants as of november 1 , 2019. on december 26 , 2018 , we entered into a master collateral loan and security agreement with wells fargo bank , n.a for up to $ 15,000 in equipment financing . pursuant to the loan agreement , we made two borrowings of $ 7,500 each , to purchase specific equipment for our new chicago processing facility at a fixed rate of 4.13 % and 3.98 % , respectively , per annum . the loan terms are seven years and are secured by the purchased equipment . the first funding of $ 7,500 was received on december 28 , 2018. the second funding was received on april 23 , 2019. the master collateral loan and security agreement with wells fargo bank , n.a . contains various affirmative and negative covenants that limit the use of funds and define other provisions of the loan . the main financial covenants are listed below : ● total liabilities divided by tangible net worth ( as defined ) not greater than 2.5 to 1.0 at each fiscal quarter , ● quick ratio ( as defined ) not less than 1.0 to 1.0 at each fiscal quarter end , and ● net income after taxes not less than one dollar on a quarterly basis , determined as of each fiscal quarter end . the company was in compliance with all covenants under the master collateral loan and security agreement as of november 1 , 2019. impact of inflation our operating results are heavily dependent upon the prices paid for raw materials . the marketing of our value-added products does not lend itself to instantaneous changes in selling prices . changes in selling prices are relatively infrequent and do not compare with the volatility of commodity markets . while fluctuations in significant cost structure components , such as ingredient commodities and fuel prices , have had a significant impact on profitability over the last two fiscal years , the impact of general price inflation on our financial position and results of operations has not been significant . however , future volatility of general price inflation or deflation and raw material cost and availability could adversely affect our financial results . management is of the opinion that our strong financial position and our capital resources are sufficient to provide for our operating needs and capital expenditures for fiscal year 2020. off-balance sheet arrangements we do not currently have any off-balance sheet arrangements within the meaning of item 303 ( a ) ( 4 ) of regulation s-k. contractual obligations we had no other debt or other contractual obligations within the meaning of item 303 ( a )
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income taxes the company 's effective income tax rate was 24.0 % and 49.1 % in fiscal years 2019 and 2018 , respectively . in fiscal year 2019 , the effective income tax rate differed from the applicable mixed statutory rate of approximately 23.1 % primarily due to tax reform adjustment of deferred income taxes , the domestic production activities deduction and a change in the liability on unrecognized benefits related to research and development tax credits ( refer to note 4 of notes to the consolidated financial statements for more information ) . liquidity and capital resources ( in thousands except share amounts , percentages and ratios ) the principal source of our operating cash flow is cash receipts from the sale of our products , net of costs to manufacture , store , market and deliver such products . we normally fund our operations from cash balances and cash flow generated from operations . we borrowed $ 7,500 during the first quarter of fiscal year 2019 to purchase specific equipment for our new chicago processing facility . we borrowed a second $ 7,500 subsequent to the end of the second quarter of fiscal year 2019. historically , we expect positive operating cash flows in the first quarter of our fiscal year from the liquidation of inventory and accounts receivable balances related to holiday season sales . anticipated commodity price trends may affect future cash balances . certain commodities may be purchased in advance of our immediate needs to lower the ultimate cost of processing .
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the unamortized balance of these costs as of december 31 , 2014 is included in “ other assets ” in the consolidated balance sheets . these costs are being amortized to interest expense over a period of 37 months , the term of the credit agreement . $ 500.0 million 9.75 % senior unsecured notes on may 30 , 2014 , the company issued and sold $ 500.0 million in aggregate principal amount of 9.75 % senior notes due 2021 ( the “ senior notes ” ) . the senior notes bear interest at a rate of 9.75 % annually on the principal amount payable semi-annually in arrears on june 1 and december 1 of each year , beginning on story_separator_special_tag separation from cash america on april 10 , 2014 , the board of directors of cash america international , inc. , or cash america , authorized management to review potential strategic alternatives , including a tax-free spin-off , for our separation . after evaluating alternatives for enova , cash america 's management recommended that cash america 's board of directors pursue a tax-free spin-off for the separation . on october 22 , 2014 , after receiving a private letter ruling from the internal revenue service , an opinion from cash america 's tax counsel and a solvency opinion from an independent financial advisor , cash america 's board of directors approved the spin-off . the distribution occurred at 12:01 am et on november 13 , 2014 ( the “ spin-off ” ) . cash america 's shareholders received 0.915 shares of our stock for every one share of cash america common stock held at the close of business november 3 , 2014 , which was the record date for the distribution . following the spin-off , we became an independent , publicly traded company , and our shares of common stock are listed on the new york stock exchange under the symbol “ enva. ” since 2011 , we have owned all of the assets and incurred all of the liabilities related to cash america 's e-commerce business , with some limited exceptions , in which case such assets were transferred to us and such liabilities were assumed by us pursuant to a separation and distribution agreement upon completion of the spin-off . on the spin-off date , we entered into several other agreements with cash america that govern the relationship between us and cash america after completion of the spin-off and provide for the allocation between us and cash america of various assets , liabilities , rights and obligations ( including insurance and tax-related assets and liabilities ) . our guarantees of cash america 's long-term indebtedness were also released in connection with the spin-off . these agreements also include arrangements with respect to transitional services to be provided by cash america to us and vice versa . recent regulatory developments financial conduct authority during the years ended december 31 , 2014 and december 31 , 2013 , our u.k. operations generated 40.1 % and 47.1 % , respectively , of our consolidated total revenue . regulatory changes in the united kingdom during 2014 significantly affected previous results and will significantly affect future results from our u.k. operations as described below . in the united kingdom , supervision of consumer credit was transferred on april 1 , 2014 to the financial conduct authority , or the fca , and pursuant to new legislation , the fca is authorized to adopt prescriptive rules and regulations . on february 28 , 2014 , the consumer credit sourcebook was issued as part of the fca handbook and incorporates prescriptive regulations for lenders such as us , including mandatory affordability assessments on borrowers , limiting the number of rollovers to two , restricting how lenders can advertise , banning advertisements the fca deems misleading , and introducing a limit of two unsuccessful attempts on the use of continuous payment authority ( which provides a creditor the ability to directly debit a customer 's account for payment when authorized by the customer to do so ) to pay off a loan . on july 15 , 2014 , the fca issued a consultation paper that proposed a cap on the total cost of high-cost short-term credit and requested comments on the proposal . the consultation paper proposed a maximum rate of 0.8 % of principal per day , and the proposal limits the total fees , interest ( including post-default interest ) and charges ( including late fees which are capped at £15 ) to an aggregate amount not to exceed 100 % of the principal amount loaned . the fca requested comments on the proposal and issued its final rule on november 11 , 2014. the final rule was largely the same as the proposed rule and required us to make changes to all of our high-cost short-term products in the united kingdom . the final rule became effective on january 2 , 2015 , as required by the 2013 amendment to the financial services and markets act 2000. as a result of the final rule , we discontinued offering line of credit accounts to new customers in the united kingdom and effective january 1 , 2015 , we discontinued draws on existing accounts in the united kingdom . once u.k. customers have paid off their outstanding line of credit balance , they may apply for either a short-term or installment loan . we also expect to introduce additional short-term and installment loan products during 2015. we expect revenue from these new and existing products to offset the lost revenue from our discontinued line of credit offerings in the united kingdom . on february 24 , 2015 , the fca issued a consultation paper that , among other things , proposes to require that providers of high-cost short-term credit include a risk warning in all financial promotions and to amend the fca rules to allow firms to introduce continuous payment authority to collect repayments where a customer is in arrears or default and the lender is exercising forbearance . story_separator_special_tag ” consumer financial protection bureau on november 20 , 2013 , cash america consented to the issuance of a consent order by the consumer financial protection bureau , or the cfpb , pursuant to which it agreed , without admitting or denying any of the facts or conclusions made by the cfpb from its 2012 review of cash america and us , to pay a civil money penalty of $ 5 million , of which we and cash america agreed to allocate $ 2.5 million of this penalty to us , or the regulatory penalty . the consent order also relates to issues self-disclosed to the cfpb during its 2012 examination of cash america and us , including the making of a limited number of loans to consumers who may have been active duty members of the military at the time of the loan at rates in excess of the annual percentage rate permitted by the federal military lending act due in part to system errors , and for which we have made refunds of approximately $ 33,500 ; and for certain failures to timely provide and preserve records and information in connection with the cfpb 's examination of us and cash america . in addition , as a result of the cfpb 's review , we have enhanced and continue to enhance our compliance management programs and have implemented additional procedures to address the issues identified by the cfpb . we are also required to provide periodic reports to the cfpb . we are subject to the restrictions and obligations of the consent order , including the cfpb 's order that we ensure compliance with federal consumer financial laws and develop more robust compliance policies and procedures . basis of presentation and critical accounting policies enova international , inc. was formed on september 7 , 2011 by cash america to hold the assets of cash america 's online lending business . on september 13 , 2011 , cash america contributed to enova international , inc. all of the stock of its wholly-owned subsidiary , enova online services , inc. , in exchange for 33 million shares of our common stock . as of december 31 , 2014 , enova offered or arranged consumer and small business loans ( collectively referred to as “ consumer loans ” throughout this management 's discussion and analysis of financial condition and results of operations ) through a number of its subsidiaries to customers in 35 states in the united states , united kingdom , australia , canada , brazil and china . 51 prior to the spin-off , we operated as a division of cash america and not as a stand-alone company . our historical consolidated financial statements include the assets , liabilities , revenue and expenses directly attributable to our operations carved out of cash america 's consolidated financial statements . in addition , the historical financial statements for periods prior to the spin-off include allocations of costs relating to certain functions historically provided by cash america , including corporate services such as executive oversight , insurance and risk management , government relations , internal audit , treasury , licensing , and to a limited extent finance , accounting , tax , legal , human resources , compensation and benefits , compliance and support for certain information systems related to financial reporting . the expense allocations have been determined on a basis that cash america and we consider to be reasonable reflections of the utilization of services provided by cash america . the amounts recorded for these transactions and allocations are not , however , necessarily representative of the amounts that would have been incurred had we been a separate , stand-alone entity that operated independently of cash america . as a separate stand-alone public company , our future results of operations will include costs and expenses for us to operate as a stand-alone company , and , consequently , these costs may be materially different than as reflected in our historical results of operations . accordingly , the financial statements for these years may not be indicative of our future results of operations , financial position and cash flows . upon our separation from cash america , we entered into a transition services agreement with cash america . the expiration date of the agreement varies by service provided but is generally no longer than 12 months from the separation date . under the agreement , cash america provides support for certain information systems related to financial reporting and payment processing to us for a period of time following the completion of the spin-off for which we will compensate cash america . in addition , we will reimburse cash america for all out-of-pocket costs and expenses it pays or incurs in connection with providing such services . see “ certain relationships and related transactions , and director independence—agreements between us and cash america ” in part iii , item 13 of this report for additional information regarding the spin-off and agreements entered into between us and cash america in connection with the spin-off . revenue recognition we recognize revenue based on the loan products and services we offer . “ revenue ” in the consolidated statements of income includes : interest income , finance charges , fees for services provided through the cso programs , or cso fees , service charges , draw fees , minimum fees , late fees , nonsufficient funds fees and any other fees or charges permitted by applicable laws and pursuant to the agreement with the borrower . for short-term loans that we offer , interest and finance charges are recognized on an effective yield basis over the term of the loan , and fees are recognized when assessed to the customer . cso fees are recognized on an effective yield basis over the term of the loan . for line of credit accounts , interest is recognized over the reporting period based upon the balance outstanding and the contractual interest rate , and fees are recognized when assessed to the customer .
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highlights the company 's financial results for the year ended december 31 , 2014 , or 2014 , are summarized below . · consolidated total revenue increased $ 44.5 million , or 5.8 % , to $ 809.8 million in 2014 compared to $ 765.3 million for the year ended december 31 , 2013 , or 2013 . · consolidated gross profit increased $ 92.8 million to $ 543.1 million in 2014 compared to $ 450.3 million in 2013 . · consolidated income from operations was $ 215.0 million in 2014 , compared to $ 142.6 million in 2013 . · consolidated net income was $ 111.7 million in 2014 compared to $ 78.0 million in 2013. consolidated diluted earnings per share were $ 3.38 in 2014 compared to $ 2.36 in 2013. our results from operations for 2014 do not include the full impact of changes in our u.k. operations resulting from regulatory and legislative changes and our results from operations for 2013 do not include any impact of these changes . as a result , such results are not indicative of our future results of operations and cash flow from our u.k. operations . we expect our future results of operations will continue to be adversely affected as a result of modifying many of our business practices to satisfy the requirements of the fca , including stricter underwriting and affordability assessment guidelines , changes to our collection practices and increased compliance costs , including the cost of operating an office in the united kingdom . see “ —recent regulatory developments—financial conduct authority ” above for further information .
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the following discussion and analysis of our financial condition and results of operations is provided as a supplement to , and should be read in conjunction with , our historical consolidated financial statements and the notes thereto included elsewhere in this document . overview we are a growth-oriented limited partnership formed in may 2010 by members of management and further capitalized by arclight to own , operate , develop and acquire a diversified portfolio of midstream energy assets . our operations currently consist of four business segments : ( i ) crude oil pipelines and storage , ( ii ) crude oil supply and logistics , ( iii ) refined products terminals and storage and ( iv ) ngl distribution and sales , which together provide midstream infrastructure solutions for the growing supply of crude oil , refined products and ngls in the united states . since our formation , our primary business strategy has been to focus on : · owning , operating and developing midstream assets serving two of the most prolific shale plays in the united states , as well as serving key crude oil , refined product and ngl distribution hubs ; · providing midstream infrastructure solutions to users of liquid petroleum products in order to capitalize on changing product flows between producing and consuming markets resulting from the significant growth in hydrocarbon production across the united states ; and · operating one of the largest propane cylinder exchange businesses in the united states and capitalizing on the increase in demand and extended applications for portable propane cylinders . we are focused on growing our business through organic development , acquiring and constructing additional midstream infrastructure assets and by increasing the utilization of our existing assets to gather , transport , store and distribute crude oil , refined products and ngls . general trends and outlook our business is subject to the key trends discussed below . we have based our expectations on assumptions made by us and on the basis of information currently available to us . to the extent our underlying assumptions about our interpretation of available information prove to be incorrect , our actual results may vary from our expected results . production over the past several years , there has been a fundamental shift in crude oil production in the united states towards unconventional resources . according to the eia , this includes crude oil produced from shale formations , tight gas and coal beds . the emergence of unconventional crude oil plays , such as in the permian basin , and advances in technology have been crucial factors that have allowed producers to efficiently extract significant volumes of crude oil from these plays . according to the eia , the dual application of horizontal drilling and hydraulic fracturing has been the primary driver of increases in shale production . the development of these unconventional sources has offset declines in other , more traditional hydrocarbon supply sources , which has helped meet growing demand and lowered the need for imported crude oil . while crude oil production in the united states has been strong in recent years , the steep decline in crude oil prices has reduced the incentive for producers to expand production . several major producers have reported that they plan to reduce their capital expansion budgets , and several oilfield services companies have announced reductions in staffing . various media outlets have reported that , with prices at current levels , it may become uneconomical to drill new crude oil wells in certain basins . if crude oil prices remain low , declines in crude oil production may adversely impact volumes in our crude oil supply and logistics segment and crude oil pipelines and storage segment . production of refined products access to lower cost crude oil supplies has enabled inland refineries to produce refined petroleum products at a cost that allows them to compete over a much broader geographic area with supply from refineries located on the gulf coast . this dynamic has significantly diminished the flow of crude oil from the gulf coast to the midwest and increased the flow of refined petroleum products from the midwest to the gulf coast . we believe the changing dynamics of crude oil production may offer opportunities to grow the throughput and value of our refined products terminals by completing projects to connect them to additional , less-expensive sources of product supply . 47 in the third quarter of 2014 , we discovered that our product measurement and quality control processes at our refined products terminal in north little rock , arkansas were resulting in excessive product gains for jp energy . we have undertaken procedures to improve and remediate our measurement and quality control processes to be in compliance with industry standards , and we returned a certain amount of refined products to the majority of our customers in the fourth quarter of 2014. we have recorded a charge of $ 2.3 million for the year ended december 31 , 2014 , of which $ 2.1 million represents the value of refined products we have returned to our customers and $ 0.2 million represents the estimated value of refined products we will return to our customers . we believe it is reasonably likely that the new processes and procedures that we are undertaking will result in a decrease in revenues from product sales in our refined products terminals and storage segment in future periods relative to historical periods , although this reduction may be partially offset by an operational excellence initiative that we are undertaking at both of our refined products terminals . supply of crude oil storage capacity an important factor in determining the value of our crude oil storage capacity and the rates we are able to charge for new contracts or contract renewals is whether a surplus or shortfall of crude oil storage capacity exists relative to the overall demand for crude oil storage services in a given market area . story_separator_special_tag these metrics include volumes , revenues , cost of sales , excluding depreciation and amortization , operating expenses , adjusted ebitda and distributable cash flow . · volumes and revenues . · crude oil pipelines and storage . the amount of revenue we generate from our crude oil pipelines business depends primarily on throughput volumes . we generate a substantial majority of our crude oil pipeline revenues through long-term contracts containing acreage dedications or minimum volume commitments . throughput volumes on our pipeline system are affected primarily by the supply of crude oil in the market served by our assets . the volume of crude oil stored at our crude oil storage facility in cushing , oklahoma has no impact on the revenue generated by our crude oil storage business because we receive a fixed monthly fee per barrel of shell capacity that is not contingent on the usage of our storage tanks . · crude oil supply and logistics . the revenue generated from our crude oil supply and logistics business depends on the volume of crude oil we purchase from producers , aggregators and traders and then sell to producers , traders and refiners as well as the volumes of crude oil that we gather and transport . the volume of our crude oil supply and logistics activities and the volumes transported by our crude oil gathering and transportation trucks are affected by the supply of crude oil in the markets served directly or indirectly by our assets . accordingly , we actively monitor producer activity in the areas served by our crude oil supply and logistics business and other producing areas in the united states to compete for volumes from crude oil producers . revenues in this segment are also impacted by changes in the market price of commodities that we pass through to our customers . · refined products terminals and storage . the amount of revenue we generate from our refined products terminals depends primarily on the volume of refined products that we handle . these volumes are affected primarily by the supply of and demand for refined products in the markets served directly or indirectly by our refined products terminals , which we believe are strategically located to take advantage of infrastructure development opportunities resulting from growing markets . · ngl distribution and sales . the amount of revenue we generate from our ngl distribution and sales segment depends on the gallons of ngls we sell through our cylinder exchange and ngl sales businesses . in addition , our ngl transportation operations generate revenue based on the number of gallons of ngls we gather and the distance we transport those gallons for our customers . revenues in 49 this segment are also impacted by changes in the market price of commodities that we pass through to our customers . · cost of sales , excluding depreciation and amortization . our management attempts to minimize cost of sales , excluding depreciation and amortization , in order to enhance the profitability of our operations . cost of sales , excluding depreciation and amortization , includes the costs to purchase the product and any costs incurred to transport the product to the point of sale and to store the product until it is sold . we seek to minimize cost of sales , excluding depreciation and amortization , by attempting to acquire the products which we use in each of our segments at times and prices which are most optimal based on our knowledge of the industry and the regions in which we operate . · operating expenses . our management seeks to maximize the profitability of our operations in part by minimizing operating expenses . these expenses are comprised of payroll , wages and benefits , utility costs , fleet costs , repair and maintenance costs , rent , fuel , insurance premiums , taxes and other operating costs , some of which are independent of the volumes we handle . · adjusted ebitda and adjusted gross margin . our management uses adjusted ebitda and adjusted gross margin to analyze our performance . we define adjusted ebitda as net income ( loss ) plus ( minus ) interest expense ( income ) , income tax expense ( benefit ) , depreciation and amortization expense , asset impairments , ( gains ) losses on asset sales , certain non-cash charges such as non-cash equity compensation , non-cash vacation expense , non-cash ( gains ) losses on commodity derivative contracts ( total ( gain ) loss on commodity derivatives less net cash flow associated with commodity derivatives settled during the period ) and selected ( gains ) charges and transaction costs that are unusual or non-recurring . we define adjusted gross margin as total revenues minus cost of sales , excluding depreciation and amortization , and certain non-cash charges such as non-cash vacation expense and non-cash gains ( losses ) on derivative contracts ( total gain ( losses ) on commodity derivatives less net cash flow associated with commodity derivatives settled during the period ) . adjusted ebitda and adjusted gross margin are supplemental , non-gaap financial measures used by management and by external users of our financial statements , such as investors and commercial banks , to assess : · our operating performance as compared to those of other companies in the midstream sector , without regard to financing methods , historical cost basis or capital structure ; · the ability of our assets to generate sufficient cash flow to make distributions to our unitholders ; · our ability to incur and service debt and fund capital expenditures ; and · the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities . adjusted ebitda and adjusted gross margin are not financial measures presented in accordance with gaap . we believe that the presentation of these non-gaap financial measures provides information useful to investors in assessing our financial condition and results of operations .
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segment operating results crude oil pipelines and storage replace_table_token_7_th ( 1 ) represents the average daily throughput volume in our crude oil pipelines operations . the volumes in our crude oil storage operations have no effect on operations as we receive a set fee per month that does not fluctuate with the volume of crude oil stored . ( 2 ) includes intersegment revenues of $ 1.2 million in the year ended december 31 , 2014. the intersegment revenues were eliminated upon consolidation . 56 ( 3 ) includes intersegment cost of sales , excluding depreciation and amortization of $ 49.8 million and $ 5.6 million in the years ended december 31 , 2014 and 2013 , respectively . the intersegment cost of sales , excluding depreciation and amortization were eliminated upon consolidation . ( 4 ) certain non-cash or non-recurring expenses have been excluded from cost of sales , excluding depreciation and amortization , operating expenses and general and administrative expenses for the purpose of calculating segment adjusted ebitda . adjusted gross margin . adjusted gross margin increased to $ 24.4 million for the year ended december 31 , 2014 from $ 16.5 million for the year ended december 31 , 2013. the increase was primarily due to an $ 8.6 million increase as a result of the acquisition of wildcat permian in october 2013 , which owns the silver dollar pipeline system . this amount is partially offset by a $ 0.7 million decrease in storage fees from a service outage that occurred to make repairs to a portion of our storage tanks in december 2014. operating expenses . operating expenses increased to $ 3.6 million for the year ended december 31 , 2014 from $ 3.0 million for the year ended december 31 , 2013. the increase was primarily due to the acquisition of wildcat permian in october 2013. general and administrative .
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( 9 ) shareholders ' equity common stock the company currently has authorized 100,000,000 shares of undesignated capital stock , of which 65,192,314 shares were issued and outstanding as common stock as of january 28 , 2017 . the board of directors may establish new classes and series of capital stock by resolution without shareholder approval ; however , in certain circumstances the company is required to obtain approval under our credit facilities . preferred stock the story_separator_special_tag introduction the following discussion and analysis of financial condition and results of operations is qualified by reference to and should be read in conjunction with our audited consolidated financial statements and notes thereto included elsewhere in this annual report . cautionary statement concerning forward-looking statements this annual report on form 10-k , including the following management 's discussion and analysis of financial condition and results of operations and other materials we file with the sec ( as well as information included in oral statements or other written statements made or to be made by us ) contain certain `` forward-looking statements '' within the meaning of the private securities litigation reform act of 1995. any statements contained herein that are not statements of historical fact , including statements regarding guidance , industry prospects or future results of operations or financial position made in this report are forward-looking . we often use words such as anticipates , believes , estimates , expects , intends , predicts , hopes , should , plans , will and similar expressions to identify forward-looking statements . these statements are based on management 's current expectations and accordingly are subject to uncertainty and changes in circumstances . actual results may vary materially from the expectations contained herein due to various important factors , including ( but not limited to ) : consumer preferences , spending and debt levels ; the general economic and credit environment ; interest rates ; seasonal variations in consumer purchasing activities ; the ability to achieve the most effective product category mixes to maximize sales and margin objectives ; competitive pressures on sales ; pricing and gross sales margins ; the level of cable and satellite distribution for our programming and the associated fees or estimated cost savings from contract renegotiations ; our ability to establish and maintain acceptable commercial terms with third-party vendors and other third parties , with whom we have contractual relationships , and to successfully manage key vendor relationships and develop key partnerships and proprietary and exclusive brands ; our ability to manage our operating expenses successfully and our working capital levels ; our ability to remain compliant with our credit facilities covenants ; customer acceptance of our branding strategy and our repositioning as a video commerce company ; the market demand for television station sales ; changes to our management and information systems infrastructure ; challenges to our data and information security ; changes in governmental or regulatory requirements , including without limitation , regulations of the federal communications commission and federal trade commission , and adverse outcomes from regulatory proceedings ; litigation or governmental proceedings affecting our operations ; significant public events that are difficult to predict , or other significant television-covering events causing an interruption of television coverage or that directly compete with the viewership of our programming ; our ability to obtain and retain key executives and employees ; our ability to attract new customers and retain existing customers ; changes in shipping costs ; our ability to offer new or innovative products and customer acceptance of the same ; changes in customer viewing habits of television programming ; and the risks identified under item 1a ( risk factors ) in this report on form 10-k. you are cautioned not to place undue reliance on forward-looking statements , which speak only as of the date of this filing . we are under no obligation ( and expressly disclaim any such obligation ) to update or alter our forward-looking statements whether as a result of new information , future events or otherwise . overview our company we are a multiplatform video commerce company that offers a mix of proprietary , exclusive and name brands directly to consumers in an engaging and informative shopping experience through tv , online and mobile devices . we operate a 24-hour television shopping network , evine , which is distributed primarily on cable and satellite systems , through which we offer proprietary , exclusive and name brand merchandise in the categories of jewelry & watches ; home & consumer electronics ; beauty ; and fashion & accessories . we also operate evine.com , a comprehensive digital commerce platform that sells products which appear on our television shopping network as well as an extended assortment of online-only merchandise . our programming and products are also marketed via mobile devices , including smartphones and tablets , and through the leading social media channels . new corporate name and branding on november 18 , 2014 , we announced that we had changed our corporate name to evine live inc. from valuevision media , inc. effective november 20 , 2014 , our nasdaq trading symbol also changed to evlv from vvtv . we transitioned from doing business as `` shophq '' and rebranded to `` evine live '' , `` evine '' and evine.com on february 14 , 2015 . 28 products and customers products sold on our media channel platforms include jewelry & watches , home & consumer electronics , beauty , and fashion & accessories . historically jewelry & watches has been our largest merchandise category . while changes in our product mix have occurred as a result of customer demand and other factors including our efforts to diversify our offerings within our major merchandise categories , jewelry & watches remained our largest merchandise category in fiscal 2016 . story_separator_special_tag as a result of our distribution facility expansion , consolidation and technology upgrade initiative , we incurred approximately $ 677,000 in incremental expenses during fiscal 2016 related primarily to increased labor and training costs associated with our warehouse management system migration . for fiscal 2015 , we incurred approximately $ 1.3 million in incremental expenses related primarily to increased labor , inventory and other warehousing transportation costs , training costs and increased equipment rental costs associated with : the move into the new expanded warehouse building , the move out of previously leased warehouse space and the preparation of our expanded facility for the new high-speed parcel shipping and item sortation system and upgraded warehouse management system . 31 activist shareholder response costs in october of 2013 , we received a demand from an activist shareholder to call a special meeting of shareholders for the purpose , among other things , of voting on a new slate of directors and amending certain of our bylaws . we retained a team of advisers , including a financial adviser , proxy solicitor , investor relations firm and legal counsel , to assist in responding to the demand and the solicitation of proxies . in conjunction with such activities , we recorded charges to income in fiscal 2014 totaling $ 3.5 million , which includes $ 750,000 as reimbursement for a portion of the activist shareholder 's expenses . results of operations the following table sets forth , for the periods indicated , certain statement of operations data expressed as a percentage of net sales . replace_table_token_8_th key operating metrics replace_table_token_9_th ( a ) the company 's most recently completed fiscal year , fiscal 2016 , ended on january 28 , 2017 , and consisted of 52 weeks . fiscal 2015 ended on january 30 , 2016 and consisted of 52 weeks . fiscal 2014 ended on january 31 , 2015 and consisted of 52 weeks . ( b ) digital net sales percentage is calculated based on net sales that are generated from our evine.com website and mobile platforms , which are primarily ordered directly online . 32 program distribution our 24-hour television shopping networks , evine and evine too , which are distributed primarily on cable and satellite systems , reached more than 87 million homes , or full time equivalent subscribers , during fiscal 2016 , fiscal 2015 and fiscal 2014 . our television home shopping programming is also simulcast 24 hours a day , 7 days a week on our online website , evine.com , broadcast over-the-air in certain markets and is also available on all mobile channels and on various video streaming applications , such as roku and apple tv . this multiplatform distribution approach , complemented by our strong mobile and online efforts , will ensure that evine is available wherever and whenever our customers choose to shop . in addition to our total homes reached , we continue to increase the number of channels on existing distribution platforms , alternative distribution methods and part-time carriage in strategic markets . we believe that our distribution strategy of pursuing additional channels in productive homes we are already in is a more balanced approach to growing our business than merely adding new television homes in untested areas . we are also investing in high definition ( `` hd '' ) equipment and have made low-cost infrastructure investments that have enabled us to launch an up-converted version of our digital signal in a hd format and that improved the appearance of our primary network feed . we believe that having an hd feed of our service allows us to attract new viewers and customers . cable and satellite distribution agreements we have entered into distribution agreements with cable operators , direct-to-home satellite providers and telecommunications companies to distribute our television programming over their systems . the terms of the affiliation agreements typically range from one to five years . during the fiscal year , certain agreements with cable , satellite or other distributors may expire . under certain circumstances , the cable operators or we may cancel the agreements prior to their expiration . additionally , we may elect not to renew distribution agreements whose terms result in sub-standard or negative contribution margins . if the operator drops our service or if either we or the operator fails to reach mutually agreeable business terms concerning the distribution of our service so that the agreements are terminated , our business may be materially adversely affected . failure to maintain our distribution agreements covering a material portion of our existing households on acceptable financial and other terms could materially and adversely affect our future growth , sales revenues and earnings unless we are able to arrange for alternative means of broadly distributing our television programming . as of january 28 , 2017 , the direct ownership of nbcu ( which is indirectly owned by comcast ) in the company consisted of 7,141,849 shares of common stock . subsequent to fiscal 2016 , we repurchased 4,400,000 shares of our common stock from nbcu on january 31 , 2017. following the purchase , the direct equity ownership of nbcu in the company consisted of 2,741,849 shares of common stock . we have a significant cable distribution agreement with comcast and believe that the terms of this agreement are comparable to those with other cable system operators . net shipped units the number of net shipped units during fiscal 2016 increase d 4 % from fiscal 2015 to 10.3 million from 9.9 million . the number of net shipped units during fiscal 2015 increase d 9 % from fiscal 2014 to 9.9 million from 9.1 million . the increase in units shipped during fiscal 2016 reflects the continued broadening of our merchandise assortment , a decline in our average selling price ( as discussed below ) and strong performance in our fashion & accessories and beauty product categories .
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results for fiscal 2016 , 2015 and 2014 consolidated net sales in fiscal 2016 were $ 666.2 million compared to $ 693.3 million in fiscal 2015 , a 4 % decrease . consolidated net sales in fiscal 2015 were $ 693.3 million compared to $ 674.6 million in fiscal 2014 , a 3 % increase . results of operations for fiscal 2016 include executive and management transition costs of $ 4.4 million and distribution facility consolidation and technology upgrade costs of $ 677,000 . we reported an operating loss of $ 2.0 million and a net loss of $ 8.7 million for fiscal 2016 . we reported an operating loss of $ 8.7 million and a net loss of $ 12.3 million for fiscal 2015 . results of operations for fiscal 2015 include executive and management transition costs of $ 3.5 million and distribution facility consolidation and technology upgrade costs of $ 1.3 million . we reported operating income of $ 1.0 million and a net loss of $ 1.4 million for fiscal 2014 . results of operations for fiscal 2014 include executive and management transition costs and activist shareholder response charges of approximately $ 5.5 million and $ 3.5 million , respectively . private placement securities purchase agreements on september 14 , 2016 , we entered into private placement securities purchase agreements with certain accredited investors to which we : ( a ) sold , in the aggregate , 5,952,381 shares of our common stock at a price of $ 1.68 per share ; ( b ) issued five-year warrants ( `` warrants '' ) to purchase 2,976,190 shares of our common stock at an exercise price of $ 2.90 per share , and ( c ) issued an option by which certain investors may purchase additional shares of our common stock and additional warrants to purchase shares of common stock ( `` options '' ) .
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unrealized gains and losses , net of taxes , are included in accumulated other comprehensive income ( loss ) , which is reflected as a separate component of stockholders ' equity in our consolidated balance sheets . gains and losses are recognized when realized in our consolidated statements of income . when we have determined that an other-than-temporary decline in fair value has occurred , the amount of the decline that is related to a credit loss is recognized in income . gains and losses are determined using the specific identification method . cash , cash equivalents and short-term investments consisted of the following as of december 2 , 2016 ( in thousands ) : replace_table_token_31_th 74 adobe systems incorporated notes to consolidated financial statements ( continued ) cash , cash equivalents and short-term investments consisted of the following as of november 27 , 2015 ( in thousands ) : replace_table_token_32_th see note 4 for further information regarding the fair value of our financial instruments . the following table summarizes the fair value and gross unrealized losses related to available-for-sale securities , aggregated by investment category , that have been in an unrealized loss position for less than twelve months , as of december 2 , 2016 and november 27 , 2015 ( in thousands ) : replace_table_token_33_th there w e re 1,052 securities and 914 securities in an unrealized loss position for less than twelve months at december 2 , story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and notes thereto . acquisitions during fiscal 2015 , we completed our acquisition of privately held fotolia , a leading marketplace for royalty-free photos , images , graphics and hd videos , for $ 807.5 million . during fiscal 2015 , we integrated fotolia into our digital media reportable segment . we also completed other immaterial business acquisitions during the fiscal years presented . pro forma information has not been presented for any of our fiscal 2016 , 2015 and 2014 acquisitions as the impact to our consolidated financial statements was not material . subsequent to december 2 , 2016 , we completed our acquisition of tubemogul , a publicly held video advertising platform company , for approximately $ 549 million in cash consideration , as well as the assumption of certain employee equity awards . the initial purchase accounting for this transaction has not yet been completed given the short period of time between the acquisition date and the issuance of these financial statements . tubemogul will be integrated into our digital marketing reportable segment for financial reporting purposes in the first quarter of fiscal 2017. see note 2 of our notes to consolidated financial statements for further information regarding these acquisitions . critical accounting policies and estimates in preparing our consolidated financial statements in accordance with gaap and pursuant to the rules and regulations of the sec , we make assumptions , judgments and estimates that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosures of contingent assets and liabilities . 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 . on a regular basis , we evaluate our assumptions , judgments and estimates . we also discuss our critical accounting policies and estimates with the audit committee of the board of directors . we believe that the assumptions , judgments and estimates involved in the accounting for revenue recognition , business combinations , goodwill impairment and income taxes have the greatest potential impact on our consolidated financial statements . these areas are key components of our results of operations and are based on complex rules requiring us to make judgments and estimates , so we consider these to be our critical accounting policies . historically , our assumptions , judgments and estimates relative to our critical accounting policies have not differed materially from actual results . revenue recognition our revenue is derived from the subscription , non-software related hosted services , perpetual and term-based licensing of software products , associated software maintenance and support plans , consulting services , training and technical support . most of our enterprise customer arrangements are complex , involving multiple solutions and various license rights , bundled with post-contract customer support and other meaningful rights that together provide a complete end-to-end solution to the customer . throughout the contract period , customers use our solutions to complete various phases of the creative and or marketing processes allowing them to concurrently work on multiple projects . in response to evolving customer and market expectations , we frequently expand and improve our technology to keep up with the pace of change , to provide enhancements to our tools to meet industry needs and to provide support at each stage of the customer 's life cycle . we recognize revenue when all four revenue recognition criteria have been met : persuasive evidence of an arrangement exists , we have delivered the product or performed the service , the fee is fixed or determinable and collection is probable . 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 . we enter into multiple element revenue arrangements in which a customer may purchase a combination of software , upgrades , maintenance and support , hosted services and consulting . for our software and software-related multiple element arrangements , we must : ( 1 ) determine whether and when each element has been delivered ; ( 2 ) determine whether undelivered products or services are essential to the functionality of the delivered products and services ; ( 3 ) determine the fair value of each undelivered element using vendor-specific objective evidence ( “ vsoe ” ) ; and ( 4 ) allocate the total price among the various elements . story_separator_special_tag our consulting revenue is recognized on a time and materials basis and is measured monthly based on input measures , such as on hours incurred to date compared to total estimated hours to complete , with consideration given to output measures , such as contract milestones , when applicable . 38 business combinations we allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed , assumed equity awards , as well as to in-process research and development based upon their estimated fair values at the acquisition date . the purchase price allocation process requires management to make significant estimates and assumptions , especially at the acquisition date with respect to intangible assets , deferred revenue obligations and equity assumed . although we believe the assumptions and estimates we have made are reasonable , they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain . examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to : future expected cash flows from software license sales , subscriptions , support agreements , consulting contracts and acquired developed technologies and patents ; expected costs to develop the in-process research and development into commercially viable products and estimated cash flows from the projects when completed ; the acquired company 's trade name and trademarks as well as assumptions about the period of time the acquired trade name and trademarks will continue to be used in the combined company 's product portfolio ; and discount rates . in connection with the purchase price allocations for our acquisitions , we estimate the fair value of the deferred revenue obligations assumed . the estimated fair value of the support obligations is determined utilizing a cost build-up approach . the cost build-up approach determines fair value by estimating the costs related to fulfilling the obligations plus a normal profit margin . the estimated costs to fulfill the obligations are based on the historical costs related to fulfilling the obligations . in connection with the purchase price allocations for our acquisitions , we estimate the fair value of the equity awards assumed . the estimated fair value is determined utilizing a modified binomial option pricing model which assumes employees exercise their stock options when the share price exceeds the strike price by a certain dollar threshold . if the acquired company has significant historical data on their employee 's exercise behavior , then this threshold is determined based upon the acquired company 's history . otherwise , our historical exercise experience is used to determine the exercise threshold . zero coupon yields implied by u.s. treasury issuances , implied volatility for our common stock and our historical forfeiture rate are other inputs to the binomial model . unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions , estimates or actual results . goodwill impairment we complete our goodwill impairment test on an annual basis , during the second quarter of our fiscal year , or more frequently , if changes in facts and circumstances indicate that an impairment in the value of goodwill recorded on our balance sheet may exist . as part of our annual goodwill impairment test , we first evaluate goodwill to determine if it is more likely than not that the occurrence of an event or change in circumstances has reduced the fair value of a reporting segment below its carrying value . this qualitative assessment requires that we consider events or circumstances that may include macroeconomic conditions , industry and market considerations , cost factors , overall financial performance , changes in management or key personnel , changes in strategy and changes in customers . if the qualitative assessment indicates that the two-step quantitative analysis should be performed , we exercise judgment at various steps , including the identification of reporting segments , assignment of goodwill to reporting segments , and determination of the fair value of each reporting segment . in order to estimate the fair value of goodwill , we typically estimate future revenue , consider market factors and estimate our future cash flows . based on these key assumptions , judgments and estimates , we determine whether we need to record an impairment charge to reduce the value of the asset carried on our balance sheet to its estimated fair value . assumptions , judgments and estimates about future values are complex and often subjective . they can be affected by a variety of factors , including external factors such as industry and economic trends , and internal factors such as changes in our business strategy or our internal forecasts . although we believe the ass umptions , judgme nts and estimates we have made in the past have been reasonable and appropriate , different assumptions , judgments and estimates could materially affect our reported financial results . 39 we completed our annual impairment test in the second quarter of fiscal 2016 and determined there was no impairment . the results of our annual impairment test indicate that the fair values of our reporting units are significantly in excess of their carrying values . 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 . management must make assumptions , judgments and estimates to determine our current provision for income taxes and also our deferred tax assets and liabilities and any valuation allowance to be recorded against a deferred tax asset .
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during fiscal 2016 , 2015 and 2014 , we entered into several structured stock repurchase agreements with large financial institutions , whereupon we provided them with prepayments totaling $ 1.08 billion , $ 625 million and $ 600 million , respectively . the prepayments of $ 1.08 billion made during fiscal 2016 were under the current $ 2 billion authority . of the prepayments of $ 625 million made during fiscal 2015 , $ 425 million were under the current $ 2 billion authority and $ 200 million were under the previous $ 2 billion authority . the prepayments of $ 600 million made during fiscal 2014 were under the previous $ 2 billion authority . we enter into these agreements in order to take advantage of repurchasing shares at a guaranteed discount to the volume weighted average price ( “ vwap ” ) of our common stock over a specified period of time . we only enter into such transactions when the discount that we receive is higher than the expected foregone return on our cash prepayments to the financial institutions . there were no explicit commissions or fees on these structured repurchases . under the terms of the agreements , there is no requirement for the financial institutions to return any portion of the prepayment to us . the financial institutions agree to deliver shares to us at monthly intervals during the contract term . the parameters used to calculate the number of shares deliverable are : the total notional amount of the contract , the number of trading days in the contract , the number of trading days in the interval and the average vwap of our stock during the interval less the agreed upon discount . during fiscal 2016 , we repurchased approximately 10.4 million shares at an average price of $ 97.16 through structured repurchase agreements entered into during fiscal 2016 and fiscal 2015 .
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52 part iv item 15. exhibits , financial statement schedules ( a ) the following documents are filed as part of this report : ( 1 ) financial statements ( 2 ) financial statements schedule all financial statement schedules are omitted because they are not applicable or the amounts are immaterial and not required , or the required information is presented in the financial statements and notes thereto in is item 15 of part iv below . ( 3 ) exhibits we hereby file as part of this report the exhibits listed in the attached exhibit index . exhibits which are incorporated herein by reference can be inspected and copied at the public reference facilities maintained by the sec , 100 f street , n.e . , room 1580 , washington , d.c. 20549. copies of such material can also be obtained from the public reference section of the sec , 100 f street , n.e . , washington , d.c. 20549 , at prescribed rates or on the sec website at www.sec.gov . item 16. form 10-k summary not applicable . 53 exhibit index replace_table_token_4_th * filed herewith . * * furnished herewith ( 1 ) incorporated by reference to exhibits to the company 's current report on form 8-k filed on august 22 , 2017 ( 2 ) incorporated by reference to exhibits to the company 's registration statement on form s-1filed on july 12 , 2017 ( 3 ) incorporated by reference to exhibits to amendment no . 2 to the company 's registration statement on form s-1filed on august 14 , 2017 ( 4 ) incorporated by reference to exhibits to amendment no . 1 to the company 's registration statement on form s-1filed on july 31 , 2017 ( 5 ) incorporated by reference to exhibits to the company 's current report on form 8-k filed on may 9 , 2018 ( 6 ) incorporated by reference to exhibits to the company 's current report on form 8-k filed on june 28 , 2018 54 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . july 24 , 2018 i-am capital acquisition company by : f. jacob cherian name : f. jacob cherian title : chief executive officer ( principal executive officer ) pursuant to the requirements of the securities exchange act of 1934 , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . name position date f. jacob cherian chief executive officer and director july 24 , 2018 f. jacob cherian ( principal executive officer ) suhel kanuga chief financial officer and director july 24 , 2018 suhel kanuga ( principal financial and accounting officer ) donald r. caldwell chairman july 24 , 2018 donald r. caldwell roman franklin director july 24 , 2018 roman franklin max hooper director july 24 , 2018 max hooper frank leavy director july 24 , 2018 frank leavy edward lenoard jaroski director july 24 , 2018 edward lenoard jaroski william h. herrmann director july 24 , 2018 william h. herrmann 55 i-am capital acquisition company index to story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this report . certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties . overview we are a blank check company incorporated on april 17 , 2017 in delaware and formed for the purpose of effecting a merger , share exchange , asset acquisition , share purchase , reorganization or similar business combination with one or more businesses . we intend to effectuate our business combination using cash from the proceeds of our ipo and the private placement , our securities , debt or a combination of cash , securities and debt . the issuance of additional shares of common stock or preferred stock : ● may significantly dilute the equity interest of our investors ; ● may subordinate the rights of holders of common stock if we issue preferred shares with rights senior to those afforded to our common stock ; ● could cause a change in control if a substantial number of our shares of common stock are issued , which may affect , among other things , our ability to use our net operating loss carry forwards , if any , and could result in the resignation or removal of our present officers and directors ; ● may have the effect of delaying or preventing a change of control of us by diluting the stock ownership or voting rights of a person seeking to obtain control of us ; and ● may adversely affect prevailing market prices for our securities . similarly , if we issue debt securities , it could result in : ● default and foreclosure on our assets if our operating revenues after our business combination are insufficient to pay our debt obligations ; ● acceleration of our obligations to repay the indebtedness even if we have made all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant ; ● our immediate payment of all principal and accrued interest , if any , if the debt security is payable on demand ; ● our inability to obtain additional financing if the debt security contains covenants restricting our ability to obtain additional financing while such security is outstanding ; ● our inability to pay dividends on our common stock ; ● using a substantial portion of our cash flow to pay principal and interest on our debt , which will story_separator_special_tag 52 part iv item 15. exhibits , financial statement schedules ( a ) the following documents are filed as part of this report : ( 1 ) financial statements ( 2 ) financial statements schedule all financial statement schedules are omitted because they are not applicable or the amounts are immaterial and not required , or the required information is presented in the financial statements and notes thereto in is item 15 of part iv below . ( 3 ) exhibits we hereby file as part of this report the exhibits listed in the attached exhibit index . exhibits which are incorporated herein by reference can be inspected and copied at the public reference facilities maintained by the sec , 100 f street , n.e . , room 1580 , washington , d.c. 20549. copies of such material can also be obtained from the public reference section of the sec , 100 f street , n.e . , washington , d.c. 20549 , at prescribed rates or on the sec website at www.sec.gov . item 16. form 10-k summary not applicable . 53 exhibit index replace_table_token_4_th * filed herewith . * * furnished herewith ( 1 ) incorporated by reference to exhibits to the company 's current report on form 8-k filed on august 22 , 2017 ( 2 ) incorporated by reference to exhibits to the company 's registration statement on form s-1filed on july 12 , 2017 ( 3 ) incorporated by reference to exhibits to amendment no . 2 to the company 's registration statement on form s-1filed on august 14 , 2017 ( 4 ) incorporated by reference to exhibits to amendment no . 1 to the company 's registration statement on form s-1filed on july 31 , 2017 ( 5 ) incorporated by reference to exhibits to the company 's current report on form 8-k filed on may 9 , 2018 ( 6 ) incorporated by reference to exhibits to the company 's current report on form 8-k filed on june 28 , 2018 54 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . july 24 , 2018 i-am capital acquisition company by : f. jacob cherian name : f. jacob cherian title : chief executive officer ( principal executive officer ) pursuant to the requirements of the securities exchange act of 1934 , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . name position date f. jacob cherian chief executive officer and director july 24 , 2018 f. jacob cherian ( principal executive officer ) suhel kanuga chief financial officer and director july 24 , 2018 suhel kanuga ( principal financial and accounting officer ) donald r. caldwell chairman july 24 , 2018 donald r. caldwell roman franklin director july 24 , 2018 roman franklin max hooper director july 24 , 2018 max hooper frank leavy director july 24 , 2018 frank leavy edward lenoard jaroski director july 24 , 2018 edward lenoard jaroski william h. herrmann director july 24 , 2018 william h. herrmann 55 i-am capital acquisition company index to story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this report . certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties . overview we are a blank check company incorporated on april 17 , 2017 in delaware and formed for the purpose of effecting a merger , share exchange , asset acquisition , share purchase , reorganization or similar business combination with one or more businesses . we intend to effectuate our business combination using cash from the proceeds of our ipo and the private placement , our securities , debt or a combination of cash , securities and debt . the issuance of additional shares of common stock or preferred stock : ● may significantly dilute the equity interest of our investors ; ● may subordinate the rights of holders of common stock if we issue preferred shares with rights senior to those afforded to our common stock ; ● could cause a change in control if a substantial number of our shares of common stock are issued , which may affect , among other things , our ability to use our net operating loss carry forwards , if any , and could result in the resignation or removal of our present officers and directors ; ● may have the effect of delaying or preventing a change of control of us by diluting the stock ownership or voting rights of a person seeking to obtain control of us ; and ● may adversely affect prevailing market prices for our securities . similarly , if we issue debt securities , it could result in : ● default and foreclosure on our assets if our operating revenues after our business combination are insufficient to pay our debt obligations ; ● acceleration of our obligations to repay the indebtedness even if we have made all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant ; ● our immediate payment of all principal and accrued interest , if any , if the debt security is payable on demand ; ● our inability to obtain additional financing if the debt security contains covenants restricting our ability to obtain additional financing while such security is outstanding ; ● our inability to pay dividends on our common stock ; ● using a substantial portion of our cash flow to pay principal and interest on our debt , which will
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results of operations we have neither engaged in any operations nor generated any revenues to date . our only activities from april 17 , 2017 ( date of inception ) through may 31 , 2018 were organizational activities , those necessary to prepare for our ipo , which was consummated on august 22 , 2017 , and identifying a target company for a business combination including the transaction . following our ipo , we have not generated any operating revenues and will not until after the completion of our initial business combination . we have generated $ 521,702 through may 31 , 2018 of non-operating income in the form of interest income . we expect to incur increased expenses as a result of being a public company ( for legal , financial reporting , accounting and auditing compliance ) , as well as for due diligence expenses . for the year ended may 31 , 2018 , we had net loss of $ 8,862 , which consists of operating costs of $ 530,564 offset by interest income of $ 521,702 on cash and marketable securities held in the trust account . liquidity and capital resources the completion of our ipo and simultaneous private placement , inclusive of the underwriters ' partial exercise of their over-allotment option , generated gross proceeds to us of $ 54,615,000. related transaction costs amounted to approximately $ 3,838,000 , consisting of $ 3,360,000 of underwriting fees , including $ 1,820,000 of deferred underwriting commissions payable ( which are held in the trust account ) and $ 478,000 of ipo costs . following our ipo and the partial exercise of the over-allotment option , a total of $ 55,740,000 was placed in the trust account and we had $ 552,190 of cash held outside of the trust account , after payment of all costs related to the ipo .
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overview we are a patient-centered , physician-centric integrated population health management company working to provide coordinated , outcomes-based medical care in a cost-effective manner . led by a management team with over a decade of experience , we have built a company and culture that is focused on physicians providing high-quality medical care , population health management and care coordination for patients , particularly senior patients and patients with multiple chronic conditions . we believe that we are well-positioned to take advantage of changes in the rapidly evolving u.s. healthcare industry , as there is a growing national movement towards more results-oriented healthcare centered on the triple aim of patient satisfaction , high-quality care and cost efficiency . we implement and operate innovative health care models to create a patient-centered , physician-centric experience . we have the following integrated , synergistic operations : · hospitalists , which includes our contracted physicians who focus on the delivery of comprehensive medical care to hospitalized patients ; · an mssp aco , which focuses on providing high-quality and cost-efficient care to medicare ffs patients ; · a ngaco , which started operations on january 1 , 2017 , and focuses on providing high-quality and cost-efficient care for medicare fee-for-service patients ; · an ipa , which contracts with physicians and provides care to medicare , medicaid , commercial and dual-eligible patients on a risk- and value-based fee basis ; · one clinic which we own , and which provides specialty care in the greater los angeles area ; · hospice care , palliative care , and home health services , which include our at-home and end-of-life services ; and · a cloud-based population health management it platform , which was acquired in january 2016 , and includes digital care plans , a case management module , connectivity with multiple healthcare tracking devices and also integrates clinical data . we operate in one reportable segment , the healthcare delivery segment . our revenue streams , which are described in greater detail below in “ our revenue streams and our business operations ” , are diversified among our various operations and contract types , and include : · traditional ffs reimbursement ; and · risk and value-based contracts with health plans , third party ipas , hospitals and the ngaco and mssp sponsored by cms , which are the primary revenue sources for our hospitalists , acos , ipas and hospice/palliative care operations . we serve medicare , medicaid , hmo and uninsured patients in california . we provide services to patients , the majority of whom are covered by private or public insurance , with a small portion of our revenue coming from non-insured patients . we provide care coordination services to each major constituent of the healthcare delivery system , including patients , families , primary care physicians , specialists , acute care hospitals , alternative sites of inpatient care , physician groups and health plans . our mission is to transform the delivery of healthcare services in the communities we serve by implementing innovative population health models and creating a patient-centered , physician-centric experience in a high performance environment of integrated care . 54 the initial business owned by us is amh , a hospitalist company , incorporated in california in june , 2001 and began operations at glendale memorial hospital . through a reverse merger , we became a publicly held company in june 2008. we were initially organized around the admission and care of patients at inpatient facilities such as hospitals . we have grown our inpatient strategy in a competitive market by providing high-quality care and innovative solutions for our hospital and managed care clients . in 2012 , we formed an aco , apollomed aco , and an ipa , mmg , and in 2013 we expanded our service offering to include integrated inpatient and outpatient . in 2014 , we added several complementary operations by acquiring an ipa , outpatient primary care and specialty clinics , as well as hospice/palliative care and home health entities . in 2016 , we formed apaaco , to participate in the ngaco model , for which we were approved by cms in january 2017. our physician network consists of hospitalists , primary care physicians and specialist physicians primarily through our owned and affiliated physician groups . we operate through the following subsidiaries : amm , pccm , vmm and apollomed aco . through our wholly-owned subsidiary , amm , we manage affiliated medical groups , which consist of amh , mmg , schc , and baha . through our wholly-owned subsidiary , pccm , we manage lalc , and through our wholly-owned subsidiary vmm , we manage hendel . we also have a controlling interest in aps , which owns two los angeles-based companies , best choice hospice care llc and holistic health home health care inc. amm , pccm and vmm each operate as a physician practice management company and are in the business of providing management services to physician practice corporations under long-term management service agreements . our aco participates in the mssp , the goal of which is to improve the quality of patient care and outcomes through more efficient and coordinated approach among providers . revenues earned by apollomed aco are uncertain , and , if such amounts are payable , they will be paid on an annual basis significantly after the time earned , and will be contingent on various factors , including achievement of the minimum savings rate as determined by mssp for the relevant period . highlights the following describes certain developments in fiscal 2017 to date that are important to understanding our overall results of operations and financial condition . operations and financings we achieved approximately 30 % growth in net revenues from fiscal 2016 , almost entirely from our hospitalist operations . we employed locum tenens to full-fill the contracts in the initial phase which increased our cost of sale substantially . notwithstanding that growth , our net loss increased by approximately 6 % during the same period . story_separator_special_tag at march 31 , 2017 , we had cash equivalents of approximately $ 8.7 million compared to cash and cash equivalents of approximately $ 9.3 million at march 31 , 2016. at march 31 , 2017 , we had net borrowings from notes and lines of credit totaling approximately $ 9.9 million compared to net borrowings at march 31 , 2016 of approximately $ 0.2 million and availability under lines of credit of approximately $ 0.2 million . these factors among others raise substantial doubt about our ability to continue as a going concern . our long-term ability to continue as a going concern is dependent upon our ability to increase revenue , reduce costs , achieve a satisfactory level of profitable operations , and obtain additional sources of suitable and adequate financing . the consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets , or the amounts and classification of liabilities that might be necessary in the event that we can not continue as a going concern . our ability to continue as a going concern is also dependent our ability to further develop our business . we may also have to reduce certain overhead costs through the reduction of salaries and other means , and settle liabilities through negotiation . there can be no assurance that management 's attempts at any or all of these endeavors will be successful . to date , we have funded our operations from a combination of internally generated cash flow and external sources , including the proceeds from the issuance of equity and or debt securities . we expect to continue to fund our working capital requirements , capital expenditures and payments of principal and interest on outstanding indebtedness , with cash on hand , cash flows from operations , available borrowings under our lines of credit and , if available , additional financings of equity and or debt . management does not believe that we have sufficient liquidity to meet our obligations for at least the next twelve months without some additional funds , such as funds available from raising capital . however , no assurance can be given that any such funds will be available at all or available on favorable terms . we are substantially dependent upon the consummation of the merger to meet our liquidity requirements . see “ the proposed merger and january 2017 loan ” below . for the year ended march 31 , 2017 , cash used in operating activities was approximately $ 8.1 million . this was the result of net loss of $ 8.7 million offset by add-backs of non-cash items of $ 0.4 million and the change in working capital of $ 0.1 million . non-cash expenses primarily include provision for doubtful accounts , net of recoveries , depreciation and amortization expense , impairment on intangible assets , gain on deconsolidation of vie , stock-based compensation expense , deferred taxes , amortization of deferred financing costs and the change in the fair value of the warrant liabilities . cash provided by changes in working capital was primarily due to the $ 3.7 million increase in accounts payable and accrued liabilities , offset by a decrease in medical liabilities of $ 0.9 million and increase of $ 2.8 million in accounts receivables . 58 on march 1 , 2016 , we sold substantially all the assets of acc to an unrelated third party . in connection with the sale , we received cash of $ 10,000 and the purchaser issued a non-interest bearing promissory note to us in the amount of $ 51,000 , of which $ 5,000 was repaid prior to year-end of fiscal year 2016. we recognized a loss on disposal in the amount of $ 476,745 related to this transaction , which consisted of the write-off of the remaining goodwill and intangible assets of acc in the amount of $ 461,500 and $ 27,427 , respectively , offset by the gain on the sale of net tangible assets in the amount of $ 12,182. in addition , during the year ended march 31 , 2016 , we determined that the remaining goodwill and intangible assets of akm in the amount of $ 83,943 and $ 123,342 , respectively , were not recoverable . accordingly , we recorded an impairment charge in the aggregate amount of $ 207,285 for the year ended march 31 , 2016. for the year ended march 31 , 2017 , cash used in investing activities was approximately $ 1.4 million . this was the result of $ 0.3 million used for the purchase of fixed assets , $ 0.2 million for the change in restricted cash and $ 0.9 million for the divesture of noncontrolling interest related to the deconsolidation of vie . for the year ended march 31 , 2017 , net cash provided by financing activities was $ 8.9 million which included proceeds of $ 5 million received from the nmm financing , $ 4.99 million received from issuance of promissory note , $ 0.4 million from a loan payable , and $ 0.1 million from our line of credit , and $ 0.2 million in proceeds from the exercise of warrants , offset by the aggregate of $ 0.6 million in principal payments , and $ 1.2 million distribution to a noncontrolling interest physician practice . deconsolidation of vie on january 1 , 2017 , pccm and vmm amended the msas entered into with lalc and hendel respectively . based on the company 's evaluation of current accounting guidance , it was determined that the company no longer holds an explicit or implicit variable interest in these entities .
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results of operations the following sets forth selected data from of our results of operations for the years presented : replace_table_token_4_th 56 year ended march 31 , 2017 compared to year ended march 31 , 2016 net revenues net revenues for the year ended march 31 , 2017 increased by approximately $ 13.4 million , from $ 44.0 million to $ 57.4 million , or 30 % , as compared to the same period of 2016. the increase in net revenues was primarily due to an increase of $ 12.2 million from amh and baha as a result of new hospitalist contracts , an increase of $ 4.3 million in mmg revenues due to the growth in capitated membership and increase in full risk surplus in 2017 from a deficit in 2016 that was driven by a decrease in hospital admits and utilization , and increase in memberships and an increase in $ 0.1 million in apollo care connect revenue . the increases were partially offset by the decrease of $ 2.1 million from bchc and hchha due to lower patient census , a decrease of $ 1.1 million from lalc and hendel due to deconsolidation during the fourth quarter of fiscal 2017 and lower patient visits .
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espey mfg . & electronics corp. david o'neil david o'neil interim president and interim chief executive officer david o'neil interim president david o'neil ( interim chief executive officer ) september 17 , 2014 katrina sparano assistant treasurer katrina sparano ( interim principal financial officer ) september 17 , 2014 howard pinsley chairman of the board howard pinsley september 17 , 2014 barry pinsley director barry pinsley september 17 , 2014 michael w. wool director michael w. wool september 17 , 2014 paul j. corr director paul j. corr september 17 , 2014 alvin o. sabo director alvin o. sabo september 17 , 2014 carl helmetag director carl helmetag september 17 , 2014 30 story_separator_special_tag business outlook management expects revenues in fiscal 2015 to be less than fiscal year 2014 revenues . expectations are for product mix and margins to remain favorable for fiscal year 2015. during fiscal 2014 new orders received by the company were approximately $ 21 million . the total backlog at june 30 , 3014 was approximately $ 35.7 million . it is presently anticipated that a minimum of $ 18 million of orders comprising the june 30 , 2014 backlog will be filled during the fiscal year ending june 30 , 2015. the minimum of $ 18 million does not include any shipments , which may be made against orders subsequently received during the fiscal year ending june 30 , 2015. see discussions below for further detail on the customer mix included in the backlog . in addition to the backlog , the company currently has outstanding opportunities representing in excess of $ 21 million in the aggregate for both repeat and new programs . the outstanding quotations encompass various new and previously manufactured power supplies , transformers , and subassemblies . however , there can be no assurance that the company will acquire any of the anticipated orders described above , many of which are subject to allocations of the united states defense spending and factors affecting the defense industry and military procurement generally . revenues , backlog and outstanding opportunities have declined and we believe may continue to trend down in the foreseeable future due to several ongoing factors discussed in detail in the sales backlog and marketing and competition sections contained in item 1 above . management continues to evaluate our sales strategy including the professional and technical resources necessary to keep pace with the changing market conditions and needs of our customers . the company has added to and re-aligned current sales and engineering resources , in order to focus on penetrating opportunities with new and existing customers . the company continues quoting new customers for programs of varying sizes . three significant customers represented 59 % and 63 % of the company 's total sales in fiscal 2014 and 2013 , respectively . these sales are in connection with multiyear programs in which the company is a significant subcontractor . the june 30 , 2014 backlog of $ 35.7 million includes orders from two customers that represent 50 % and 16 % of the total backlog . this high concentration level with two customers presents significant risk . a loss of one of these customers or programs related to these customers could significantly impact the company . historically , a small number of customers have accounted for a large percentage of the company 's total sales in any given fiscal year . management continues to pursue opportunities with current and new customers with an overall objective of lowering the concentration of sales , mitigating excessive reliance upon a single major product of a particular program and minimizing the impact of the loss of a single significant customer . management continues to evaluate its business development functions and potential revised courses of action in order to diversify its customer base . management , along with the board of directors , continues to evaluate the need and use of the company 's working capital . capital expenditures are expected to be approximately $ 200,000 for fiscal 2015. expectations are that the working capital will be required to fund orders , dividend payments , and general operations of the business . from time to time , management along with the mergers and acquisitions committee of the board of directors examine opportunities involving acquisitions or other strategic options , including buying certain products or product lines . the criteria for consideration are synergies with the company 's existing product base and accretion to earnings . story_separator_special_tag margin-bottom : 12pt '' > critical accounting policies and estimates our significant accounting policies are described in note 2 to the financial statements . we believe our most critical accounting policies include revenue recognition and cost estimation on our contracts . revenue recognition and estimates a significant portion of our business is comprised of development and production contracts . generally revenues on long-term fixed-price contracts are recorded on a percentage of completion basis using units of delivery as the measurement basis for progress toward completion . percentage of completion accounting requires judgment relative to expected sales , estimating costs and making assumptions related to technical issues and delivery schedules . contract costs include material , subcontract costs , labor and an allocation of overhead costs . the estimation of cost at completion of a contract is subject to numerous variables involving contract costs and estimates as to the length of time to complete the contract . given the significance of the estimation processes and judgments described above , it is possible that materially different amounts of expected sales and contract costs could be recorded if different assumptions were used , based on changes in circumstances , in the estimation process . when a change in expected sales value or estimated cost is determined , changes are reflected in current period earnings . story_separator_special_tag espey mfg . & electronics corp. david o'neil david o'neil interim president and interim chief executive officer david o'neil interim president david o'neil ( interim chief executive officer ) september 17 , 2014 katrina sparano assistant treasurer katrina sparano ( interim principal financial officer ) september 17 , 2014 howard pinsley chairman of the board howard pinsley september 17 , 2014 barry pinsley director barry pinsley september 17 , 2014 michael w. wool director michael w. wool september 17 , 2014 paul j. corr director paul j. corr september 17 , 2014 alvin o. sabo director alvin o. sabo september 17 , 2014 carl helmetag director carl helmetag september 17 , 2014 30 story_separator_special_tag business outlook management expects revenues in fiscal 2015 to be less than fiscal year 2014 revenues . expectations are for product mix and margins to remain favorable for fiscal year 2015. during fiscal 2014 new orders received by the company were approximately $ 21 million . the total backlog at june 30 , 3014 was approximately $ 35.7 million . it is presently anticipated that a minimum of $ 18 million of orders comprising the june 30 , 2014 backlog will be filled during the fiscal year ending june 30 , 2015. the minimum of $ 18 million does not include any shipments , which may be made against orders subsequently received during the fiscal year ending june 30 , 2015. see discussions below for further detail on the customer mix included in the backlog . in addition to the backlog , the company currently has outstanding opportunities representing in excess of $ 21 million in the aggregate for both repeat and new programs . the outstanding quotations encompass various new and previously manufactured power supplies , transformers , and subassemblies . however , there can be no assurance that the company will acquire any of the anticipated orders described above , many of which are subject to allocations of the united states defense spending and factors affecting the defense industry and military procurement generally . revenues , backlog and outstanding opportunities have declined and we believe may continue to trend down in the foreseeable future due to several ongoing factors discussed in detail in the sales backlog and marketing and competition sections contained in item 1 above . management continues to evaluate our sales strategy including the professional and technical resources necessary to keep pace with the changing market conditions and needs of our customers . the company has added to and re-aligned current sales and engineering resources , in order to focus on penetrating opportunities with new and existing customers . the company continues quoting new customers for programs of varying sizes . three significant customers represented 59 % and 63 % of the company 's total sales in fiscal 2014 and 2013 , respectively . these sales are in connection with multiyear programs in which the company is a significant subcontractor . the june 30 , 2014 backlog of $ 35.7 million includes orders from two customers that represent 50 % and 16 % of the total backlog . this high concentration level with two customers presents significant risk . a loss of one of these customers or programs related to these customers could significantly impact the company . historically , a small number of customers have accounted for a large percentage of the company 's total sales in any given fiscal year . management continues to pursue opportunities with current and new customers with an overall objective of lowering the concentration of sales , mitigating excessive reliance upon a single major product of a particular program and minimizing the impact of the loss of a single significant customer . management continues to evaluate its business development functions and potential revised courses of action in order to diversify its customer base . management , along with the board of directors , continues to evaluate the need and use of the company 's working capital . capital expenditures are expected to be approximately $ 200,000 for fiscal 2015. expectations are that the working capital will be required to fund orders , dividend payments , and general operations of the business . from time to time , management along with the mergers and acquisitions committee of the board of directors examine opportunities involving acquisitions or other strategic options , including buying certain products or product lines . the criteria for consideration are synergies with the company 's existing product base and accretion to earnings . story_separator_special_tag margin-bottom : 12pt '' > critical accounting policies and estimates our significant accounting policies are described in note 2 to the financial statements . we believe our most critical accounting policies include revenue recognition and cost estimation on our contracts . revenue recognition and estimates a significant portion of our business is comprised of development and production contracts . generally revenues on long-term fixed-price contracts are recorded on a percentage of completion basis using units of delivery as the measurement basis for progress toward completion . percentage of completion accounting requires judgment relative to expected sales , estimating costs and making assumptions related to technical issues and delivery schedules . contract costs include material , subcontract costs , labor and an allocation of overhead costs . the estimation of cost at completion of a contract is subject to numerous variables involving contract costs and estimates as to the length of time to complete the contract . given the significance of the estimation processes and judgments described above , it is possible that materially different amounts of expected sales and contract costs could be recorded if different assumptions were used , based on changes in circumstances , in the estimation process . when a change in expected sales value or estimated cost is determined , changes are reflected in current period earnings .
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results of operations net sales for fiscal years ended june 30 , 2014 and 2013 , were $ 27,136,919 and $ 34,298,210 , respectively , a 21 % decrease . this decrease can be attributed to the contract specific nature of the company 's business and the timing of deliveries on these contracts . more specifically , power supply and transformer sales decreased by $ 6.5 million and $ 3 million , respectively , offset by an increase in electro-mechanical and spare parts shipments of $ 2.5 million . for the fiscal years ended june 30 , 2014 and 2013 gross profits were $ 4,531,246 and $ 10,699,569 , respectively . gross profit as a percentage of sales decreased to 16.7 % for fiscal 2014 , down from 31.2 % in fiscal 2013. the primary factor in determining gross profit and net income is product mix . the gross profits on mature products and build to print contracts are higher as compared to products that are still in the engineering development stage or in the early stages of production . in any given accounting period the mix of product shipments between higher margin mature programs and less mature programs including loss contracts , has a significant impact on gross profit and net income . the decrease in gross profit in fiscal 2014 compared to fiscal 2013 was primarily driven by two factors . these factors were a sales decrease caused by a declining backlog , and losses incurred on two engineering design programs in which the company had been investing with the objective of developing future sales for follow-on production orders . as to both of these programs , we are either certain or believe that no sales will materialize during the next several years . 7 in one instance , we experienced engineering problems ( in part attributable to espey ) which caused the customer to look for alternative solutions .
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asu 2016-18 is required to be adopted for public entities for fiscal years beginning after december 15 , 2017. the adoption of this standard did not have a significant impact on kennedy wilson 's consolidated financial statements . in january 2017 , the fasb issued asu 2017-01 , business combinations ( topic 805 ) : clarifying the definition of a business . the asu clarifies the definition of a business . the three elements of a business ( inputs , processes , and outputs ) has not changed , however , the amendment provides a framework to assist entities in evaluating whether these elements are present . the amended framework did not have a materially impact the company 's story_separator_special_tag the following discussion and analysis should be read in conjunction with the financial statements and related notes and the other financial information appearing elsewhere in this report . this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . see the section titled `` forward-looking statements '' for more information . actual results could differ materially from those anticipated in the forward-looking statements as a result of many factors , including those discussed in the section titled “ risk factors ” and elsewhere in this report . unless specifically noted otherwise , as used throughout this management 's discussion and analysis section , “ we , ” “ our , ” `` us , '' `` the company '' or “ kennedy wilson ” refers to kennedy-wilson holdings , inc. and its wholly-owned subsidiaries . “ equity partners ” refers to the subsidiaries that we consolidate in our financial statements under u.s. gaap ( other than wholly-owned subsidiaries ) and third-party equity providers . please refer to “ non-gaap measures and certain definitions ” for definitions of certain terms used throughout this report . overview kennedy wilson is a global real estate investment company . we own , operate , and invest in real estate both on our own and through our investment management platform . we focus primarily on multifamily and office properties located in the western u.s. , uk , and ireland . to complement our investment business , the company also provides real estate services primarily to financial services clients . our value is primarily derived from our ownership in income producing real estate assets . we have an ownership stake in approximately 53 million square feet of property globally , including 28,613 multifamily rental units . at december 31 , 2018 , we and our equity partners held a real estate and real estate related investment portfolio with assets at a book value of approximately $ 11.3 billion . for the year ended december 31 , 2018 , these assets generated total revenues of approximately $ 1.0 billion . the company has an average ownership interest across all of its investments of approximately 63 % as of december 31 , 2018 . in addition to our income producing real estate , we engage in development , and redevelopment and value add initiatives through which we enhance cashflows or reposition asset to increase disposal value . we have 375 employees in 17 offices throughout the united states , the united kingdom , ireland , jersey , spain , and japan . our operations are defined by two core business segments , kw investments and imres , which work closely together to identify attractive investment markets and opportunities around the world . financial measures and descriptions our key financial measures and indicators are discussed below . please refer to the critical accounting policies in the notes to the consolidated financial statements for additional detail regarding the gaap recognition policies associated with the captions described below . revenue rental - rental income is comprised of rental revenue earned by our consolidated real estate investments . hotel - hotel income is comprised of hotel revenue earned by our consolidated hotels . sale of real estate - sales of real estate consists of gross sales proceeds received on the sale of consolidated real estate that is not defined as a business by u.s. gaap . investment management , property services and research fees - investment management , property services , and research fees are primarily comprised of base asset management fees , and acquisition fees generated by our investment management division , property management fees generated by our property services division , leasing fees and sales commissions generated by our brokerage and auction divisions , and consulting fees generated by meyers research until the company 's sale of meyers research in the fourth quarter of 2018. fees earned from consolidated investments are eliminated in consolidation with the amount relating to our equity partners being recognized through income attributable to noncontrolling interests . loans and other income - loans and other income is primarily composed of interest income earned on the company 's loan originations and investments in discounted loan purchases . expenses rental - rental expenses consists of the expenses of our consolidated real estate investments , including items such as property taxes , insurance , maintenance and repairs , utilities , supplies , salaries and management fees . 28 hotel - hotel expenses consists of expenses of our consolidated hotel investments , including items such as property taxes , insurance , maintenance and repairs , utilities , supplies , salaries and management fees . commission and marketing - commission and marketing expenses includes fees paid to third party sales and leasing agents as well as business development costs necessary to generate revenues . compensation and related - compensation and related expenses include : ( a ) employee compensation , comprising of salary , bonus , employer payroll taxes and benefits paid on behalf of employees and ( b ) share-based compensation associated with the grants of share-based awards . story_separator_special_tag prior to the acquisition , kennedy wilson owned 24 % of the share capital of kwe and all results presented below are based on this ownership amount up through the closing of the transaction . during march 2018 , kennedy wilson elected to treat kwe as a partnership for u.s. tax purposes retroactive to december 29 , 2017. due to unrealized foreign exchange losses not yet deductible for tax purposes and the consideration paid to acquire the non-controlling interests in kwe exceeding the book carrying value of the non-controlling interests in kwe , the company 's tax basis in kwe exceeded its book carrying value at december 29 , 2017 and december 31 , 2018. prior to the election to treat kwe as a partnership , kwe was taxed as a controlled foreign corporation . due to the conversion of kwe to a partnership for u.s. tax purposes , the company was required to record a deferred tax asset of $ 98.3 million related to its excess tax basis over book carrying value for its investment in kwe . as a significant portion of the excess tax basis would only reverse upon a strengthening of foreign currencies or upon a disposition of kwe , the company determined that a valuation allowance of $ 98.3 million was required for the tax basis that was in excess of the company 's carrying value for its investment in kwe . axa joint venture during the second quarter in 2018 , the company and axa investment managers - real assets ( `` axa '' ) entered into a joint venture agreement targeting multifamily assets in ireland . the axa joint venture commenced with axa investing in a 50 % ownership stake in 1,173 multifamily units across three assets in dublin , ireland previously held by the company and a different equity partner ( held in 50/50 joint ventures ) and was initially consolidated in the company 's financial statements . the company continues to hold a 50 % ownership interest in these assets through its ownership in this new joint venture with axa . as the company does not control the joint venture with axa , the assets are no longer consolidated and its investment with axa is accounted for under the equity method . going forward the investments will be fair value unconsolidated investments with operating activity included within income from unconsolidated investments . during the three months ended september 30 , 2018 , the company sold an additional 411 multifamily units across two assets in dublin , ireland and one in cork , ireland into the joint venture with axa that were both previously wholly owned by the company . the joint venture has also made investments in 274 units in dublin and acquired two development sites on which it expects to build an estimated 684 additional units . the table below summarizes the impact the transactions had on our financial statements during the year ended december 31 , 2018 : replace_table_token_8_th ( 1 ) includes $ 9.4 million of performance fees for the year ended december 31 , 2018 and $ 0.7 million and $ 1.5 million on acquisition and disposition fees for the year ended december 31 , 2018 . see results of operations section for more detail on adjusted fees . meyers research sale in december 2018 , we sold meyers research for $ 48.0 million and recognized a gain on sale of business of $ 40.4 million . we used part of the proceeds from such sale to reinvest $ 15.0 million for an 11 % ownership interest in a new partnership between meyers research and another premiere residential real estate construction service company . we no longer control meyers and will treat the new investment as an unconsolidated investment . 30 tax cuts and jobs act the tax cuts and jobs act ( the “ tcja ” ) , was signed into law on december 22 , 2017. the tcja amends a range of u.s. federal tax rules applicable to individuals , businesses and international taxation with most provisions having taken effect beginning january 1 , 2018. these changes include lowering the federal corporate income tax rate from a top marginal rate of 35 % to a flat rate of to 21 % and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries . due to the nature of our business operations , a majority of our foreign income is taxed currently in the u.s. for those foreign subsidiaries where there is no current u.s. tax inclusion , we have estimated that no repatriation tax is due as those foreign subsidiaries do not have aggregate positive unrepatriated foreign earnings . during the fourth quarter of 2017 , we adjusted our net u.s. deferred tax liability down to the new federal tax rate and recorded a $ 44.8 million tax benefit . as of december 31 , 2018 , we have completed our analysis and recorded an insignificant adjustment in the 2018 financial statement with respect to the federal rate change . the new legislation is unclear in many respects and could be subject to potential amendments and technical corrections , as well as interpretations and implementing regulations by the u.s. treasury department and internal revenue service ( “ irs ” ) , any of which could lessen or increase certain adverse impacts of the legislation . in addition , it is still unclear how many of the new u.s. federal income tax changes will affect state and local taxation , which often uses federal taxable income as a starting point for computing state and local tax liabilities . should the irs , treasury regulations or state taxing authorities issue further guidance or interpretation of relevant aspects of the new tax law , we may record additional adjustments .
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results of operations the following tables summarize the company 's revenue , expenses , other income ( expenses ) and net income ( loss ) and calculate ebitda and adjusted ebitda by segment for the years ended december 31 , 2018 , 2017 and 2016 and is intended to be helpful in understanding the year over year explanations following the tables : replace_table_token_9_th ( 1 ) see `` non-gaap measures and certain definitions '' for definitions and discussion of adjusted ebitda . ( 2 ) $ 15.9 million of depreciation , amortization , interest and taxes for the year ended december 31 , 2018 . 32 replace_table_token_10_th ( 1 ) see `` non-gaap measures and certain definitions '' for definitions and discussion of adjusted ebitda . ( 2 ) $ 136.3 million of depreciation , amortization , taxes and interest for the year ended december 31 , 2017 . this includes allocation to noncontrolling interest holders of kwe up through the acquisition date of october 20 , 2017 . 33 replace_table_token_11_th ( 1 ) see `` non-gaap measures and certain definitions '' for definitions and discussion of adjusted ebitda . ( 2 ) $ 169.3 million of depreciation , amortization , taxes and interest for the year ended december 31 , 2016 . kennedy wilson consolidated financial results : year ended december 31 , 2018 compared to the year ended december 31 , 2017 gaap net income to common shareholders was $ 150.0 million and $ 100.5 million for the year ended december 31 , 2018 and 2017 , respectively . adjusted ebitda was $ 712.7 million for the year ended december 31 , 2018 , a 56 % increase from $ 455.7 million for 2017 , due primarily to higher realized gains on the sale of real estate investments , the sale of meyers research in the current period and kwe being wholly owned for the full year .
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we anticipate that our expenses will increase substantially , particularly due to the numerous risks and uncertainties associated with developing product candidates , including the uncertainty of : the scope , rate of progress , and expenses of our ongoing research activities as well as any preclinical studies , clinical trials and other research and development activities ; 104 establishing an appropriate safety profile ; successful enrollment in and completion of clinical trials ; whether our product candidates show safety and efficacy in our clinical trials ; receipt of marketing approvals from applicable regulatory authorities ; establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers ; obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates ; commercializing product candidates , if and when approved , whether alone or in collaboration with others ; and continued acceptable safety profile of products following any regulatory approval . any changes in the outcome of any of these variables with respect to the development of our product candidates in preclinical and clinical development could mean a significant change in the costs and timing associated with the development of these product candidates . we may never succeed in achieving regulatory approval for any of our product candidates . we may obtain unexpected results from our clinical trials . we may elect to discontinue , delay , or modify clinical trials of some product candidates or focus on other product candidates . for example , if the u.s. food and drug administration , or the fda , the european medicines agency , or ema , or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect or if we experience significant delays in enrollment in any of our ongoing and planned clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development of that product candidate . general and administrative expenses general and administrative expense consists primarily of employee related costs , including salaries , bonuses , benefits , share-based compensation , and other related costs , as well as expenses for outside professional services , including legal , accounting and audit services and other consulting fees , rent expense , directors and officers insurance expenses , investor and public relations expenses and other general administrative expenses . we anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates . we also anticipate that we will incur significantly increased accounting , audit , legal , regulatory , compliance and directors and officers insurance costs as well as investor and public relations expenses associated with operating as a public company . other income ( expense ) , net other income ( expense ) , net consists primarily of changes in the fair value of convertible notes and series a preferred share tranche obligations , as well as realized and unrealized gains and losses on foreign exchange , interest income earned on cash in current bank accounts and other expenses such as interest and bank charges . changes in the fair value of the series a preferred share tranche obligation consisted of gains and losses on the re-measurement at fair value at each reporting date of the tranche obligation , arising from the obligation and right to make future issuances of series a preferred shares . as of september 2019 , in connection with the issuance and sale of series b preferred shares , the final series a preferred tranche obligation was extinguished and recognized as additional paid-in-capital . realized and unrealized gains and losses on foreign exchange consist of realized and unrealized gains and losses from holding cash and restricted cash in foreign currency and foreign currency denominated research and development tax credits receivable , other receivables , accounts payable , accrued expenses and other current liabilities as well as operating lease liabilities . 105 story_separator_special_tag additional capital to pursue in-licenses or acquisitions of other product candidates . because of the numerous risks and uncertainties associated with research , development , and commercialization of our product candidates , we are unable to estimate the exact amount of our working capital requirements . our future capital requirements will depend on many factors , including : the initiation , timing , costs , progress and results of our ongoing phase 1/2 clinical trial of rp-3500 and our planned phase 1 clinical trial of rp-6306 ; the progress of preclinical development and possible clinical trials of our current earlier-stage programs ; the scope , progress , results and costs of our research programs and preclinical development of any additional product candidates that we may pursue ; the development requirements of other product candidates that we may pursue ; our headcount growth and associated costs as we expand our research and development and establish a commercial infrastructure ; the timing and amount of milestone and royalty payments that we are required to make or eligible to receive under our current or future collaboration agreements ; the outcome , timing and cost of meeting regulatory requirements established by the fda , ema and other regulatory authorities ; the costs and timing of future commercialization activities , including product manufacturing , marketing , sales and distribution , for any of our product candidates for which we receive marketing approval ; the cost of expanding , maintaining and enforcing our intellectual property portfolio , including filing , prosecuting , defending and enforcing our patent claims and other intellectual property rights ; the cost of defending potential intellectual property disputes , including patent infringement actions brought by third parties against us or any of our product candidates ; the effect of competing technological and market developments ; the cost and timing of completion of commercial-scale manufacturing activities ; the extent to story_separator_special_tag we anticipate that our expenses will increase substantially , particularly due to the numerous risks and uncertainties associated with developing product candidates , including the uncertainty of : the scope , rate of progress , and expenses of our ongoing research activities as well as any preclinical studies , clinical trials and other research and development activities ; 104 establishing an appropriate safety profile ; successful enrollment in and completion of clinical trials ; whether our product candidates show safety and efficacy in our clinical trials ; receipt of marketing approvals from applicable regulatory authorities ; establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers ; obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates ; commercializing product candidates , if and when approved , whether alone or in collaboration with others ; and continued acceptable safety profile of products following any regulatory approval . any changes in the outcome of any of these variables with respect to the development of our product candidates in preclinical and clinical development could mean a significant change in the costs and timing associated with the development of these product candidates . we may never succeed in achieving regulatory approval for any of our product candidates . we may obtain unexpected results from our clinical trials . we may elect to discontinue , delay , or modify clinical trials of some product candidates or focus on other product candidates . for example , if the u.s. food and drug administration , or the fda , the european medicines agency , or ema , or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect or if we experience significant delays in enrollment in any of our ongoing and planned clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development of that product candidate . general and administrative expenses general and administrative expense consists primarily of employee related costs , including salaries , bonuses , benefits , share-based compensation , and other related costs , as well as expenses for outside professional services , including legal , accounting and audit services and other consulting fees , rent expense , directors and officers insurance expenses , investor and public relations expenses and other general administrative expenses . we anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates . we also anticipate that we will incur significantly increased accounting , audit , legal , regulatory , compliance and directors and officers insurance costs as well as investor and public relations expenses associated with operating as a public company . other income ( expense ) , net other income ( expense ) , net consists primarily of changes in the fair value of convertible notes and series a preferred share tranche obligations , as well as realized and unrealized gains and losses on foreign exchange , interest income earned on cash in current bank accounts and other expenses such as interest and bank charges . changes in the fair value of the series a preferred share tranche obligation consisted of gains and losses on the re-measurement at fair value at each reporting date of the tranche obligation , arising from the obligation and right to make future issuances of series a preferred shares . as of september 2019 , in connection with the issuance and sale of series b preferred shares , the final series a preferred tranche obligation was extinguished and recognized as additional paid-in-capital . realized and unrealized gains and losses on foreign exchange consist of realized and unrealized gains and losses from holding cash and restricted cash in foreign currency and foreign currency denominated research and development tax credits receivable , other receivables , accounts payable , accrued expenses and other current liabilities as well as operating lease liabilities . 105 story_separator_special_tag additional capital to pursue in-licenses or acquisitions of other product candidates . because of the numerous risks and uncertainties associated with research , development , and commercialization of our product candidates , we are unable to estimate the exact amount of our working capital requirements . our future capital requirements will depend on many factors , including : the initiation , timing , costs , progress and results of our ongoing phase 1/2 clinical trial of rp-3500 and our planned phase 1 clinical trial of rp-6306 ; the progress of preclinical development and possible clinical trials of our current earlier-stage programs ; the scope , progress , results and costs of our research programs and preclinical development of any additional product candidates that we may pursue ; the development requirements of other product candidates that we may pursue ; our headcount growth and associated costs as we expand our research and development and establish a commercial infrastructure ; the timing and amount of milestone and royalty payments that we are required to make or eligible to receive under our current or future collaboration agreements ; the outcome , timing and cost of meeting regulatory requirements established by the fda , ema and other regulatory authorities ; the costs and timing of future commercialization activities , including product manufacturing , marketing , sales and distribution , for any of our product candidates for which we receive marketing approval ; the cost of expanding , maintaining and enforcing our intellectual property portfolio , including filing , prosecuting , defending and enforcing our patent claims and other intellectual property rights ; the cost of defending potential intellectual property disputes , including patent infringement actions brought by third parties against us or any of our product candidates ; the effect of competing technological and market developments ; the cost and timing of completion of commercial-scale manufacturing activities ; the extent to
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results of operations comparison of the years ended december 31 , 2020 and 2019 the following table summarizes our results of operations for the years ended december 31 , 2020 and 2019 : replace_table_token_2_th revenue revenue was $ 0.1 million for the year ended december 31 , 2020 as a result of partial revenue recognition of the deferred revenue from our collaboration with bristol myers squibb , in proportion to the level of research and development services performed during the period . there were no revenues recognized for the year ended december 31 , 2019. research and development expenses , net of tax credits research and development expenses were $ 40.1 million for the year ended december 31 , 2020 , compared to $ 21.0 million for the year ended december 31 , 2019. the increase of $ 19.1 million was primarily due to a : $ 12.4 million increase in direct external costs , primarily for development activities as a result of our increased efforts towards advancing the development of rp-3500 and identifying a product candidate in our rp-6306 ccne1-sl inhibitor program ; $ 5.9 million increase in personnel-related expenses in support of our increased discovery and development activities ; $ 0.4 million increase in laboratory supplies and research materials as a result of our increased efforts towards identifying a product candidate ; and $ 0.4 million increase in other research and development costs , including facilities costs .
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for loans deemed to be impaired , a specific allocation is assigned based on story_separator_special_tag management 's discussion and analysis of earnings and related financial data is presented to assist in understanding the financial condition and results of operations of atlantic capital bancshares , inc. and its subsidiaries . this discussion and analysis should be read in conjunction with the audited consolidated financial statements and related notes included in this annual report on form 10-k. intercompany accounts and transactions have been eliminated . although certain amounts for prior years have been reclassified to conform to statement presentations for 2015 , the reclassifications have no material effect on shareholders ' equity or net income as previously reported . unless otherwise noted , for purposes of this section , “ atlantic capital ” refers to the consolidated financial position and consolidated results of operations for atlantic capital bancshares , inc. story_separator_special_tag losses . loans deemed to be uncollectible are charged against the allowance for loan losses . recoveries of previously charged-off amounts are credited to the allowance for loan losses . the allowance is the accumulation of various components that are calculated based on an independent estimation process . all components of the allowance for loan losses represent estimates based on data that management believes are most reflective of the underlying credit losses being estimated . this evaluation includes credit quality trends , peer analysis , recent loan loss experience , collateral type , loan volumes , seasoning of the loan portfolio , economic conditions , and the findings of internal credit quality assessments and results from external bank regulatory examinations . while management uses the best information available to establish the allowance for loan losses , future adjustments may become necessary if conditions differ substantially from the assumptions used in making the estimates . in addition , regulatory examiners may require adjustments to the allowance for loan losses based on their judgments about information available to them at the time of their examination . such adjustments to original estimates , as necessary , are made and reflected in the financial results in the period in which these factors and other relevant considerations indicate that loss levels may vary from previous estimates . management continuously monitors and actively manages the credit quality of the entire loan portfolio and recognizes provision expense to maintain the allowance at an appropriate level . specific allowances for impaired loans are determined by analyzing estimated cash flows discounted at a loan 's original rate or collateral values in situations where atlantic capital believes repayment is dependent on collateral liquidation . management considers the established all adequate to absorb losses that relate to loans outstanding at december 31 , 2015 , although future additions may be necessary based on changes in economic conditions , collateral values , erosion of the borrower 's access to liquidity and other factors . if the financial condition of borrowers were to deteriorate , resulting in an impairment of their ability to make payments , atlantic capital 's estimates would be updated and additions to the all may be required . fair value measurements . atlantic capital 's impaired loans and foreclosed assets may be measured and carried at fair value , the determination of which requires management to make assumptions , estimates and judgments . see note 18 “ fair value measurements ” in the consolidated financial statements for additional disclosures regarding the fair value of our assets and liabilities . 31 when a loan is considered individually impaired , a specific valuation allowance is allocated , if necessary , so that the loan is reported net , at the present value of estimated future cash flows using the loan 's existing rate or at the fair value of collateral if repayment is expected solely from the collateral . in addition , foreclosed assets are carried at the lower of cost , fair value , less cost to sell , or listed selling price less cost to sell , following foreclosure . fair value is defined by gaap as “ the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. ” gaap further defines an “ orderly transaction ” as “ a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets . it is not a forced transaction ( for example , a forced liquidation or distress sale ) . ” although management believes its processes for determining the value of impaired loans and foreclosed properties are appropriate and allow atlantic capital to arrive at a fair value , the processes require management judgment and assumptions and the value of such assets at the time they are revalued or divested may be significantly different from management 's determination of fair value . in addition , because of subjectivity in fair value determinations , there may be grounds for differences in opinions , which may result in disagreements between management and atlantic capital bank 's regulators , disagreements which could cause atlantic capital bank to change its judgments about fair value . the fair values for available-for-sale securities are generally based upon quoted market prices or observable market prices for similar instruments . atlantic capital utilizes a third-party pricing service to assist with determining the fair value of its securities portfolio . the pricing service uses observable inputs when available including benchmark yields , reported trades , broker-dealer quotes , issuer spreads , benchmark securities , bids and offers . these values take into account recent market activity as well as other market observable data such as interest rate , spread and prepayment information . when market observable data is not available , which generally occurs due to the lack of liquidity for certain securities , the valuation of the security is subjective and may involve substantial judgment by management . atlantic capital periodically reviews available-for-sale securities that are in an unrealized loss position to determine whether other-than-temporary impairment exists . story_separator_special_tag 33 table 1 - average balance sheets and net interest analysis ( dollars in thousands ) twelve months ended december 31 , 2015 2014 2013 average balance interest income/expense yield/rate average balance interest income/expense yield/rate average balance interest income/expense yield/rate assets deposits in other banks $ 63,785 $ 251 0.39 % $ 56,328 $ 214 0.38 % $ 76,192 $ 276 0.36 % other short-term investments 50,322 664 1.32 % 36,828 311 0.84 % 33,239 — 0.89 % investment securities : taxable investment securities 161,597 3,179 1.97 % 141,627 3,035 2.14 % 145,768 3 1.96 % non-taxable investment securities 4,199 122 2.91 % 2,100 74 3.54 % 1,555 — 3.47 % total investment securities 165,796 3,301 1.99 % 143,727 3,109 2.16 % 147,323 3 1.98 % total loans 1,192,103 44,561 3.74 % 918,959 32,762 3.57 % 793,505 28,971 3.65 % fhlb stock 4,338 189 4.36 % 3,917 146 3.74 % 3,082 77 2.49 % total interest-earning assets 1,476,344 48,966 3.32 % 1,159,759 36,542 3.15 % 1,053,341 32,537 3.09 % non-earning assets 105,343 67,471 65,186 total assets $ 1,581,687 $ 1,227,230 $ 1,118,527 liabilities interest bearing deposits : now , money market , and savings 745,777 2,839 0.38 % 605,014 2,376 0.39 % 645,689 2,675 0.41 % time deposits 58,133 150 0.26 % 16,322 69 0.42 % 18,214 90 0.50 % internet and brokered deposits 140,416 628 0.45 % 107,575 444 0.41 % 77,219 351 0.45 % total interest-bearing deposits 944,326 3,617 0.38 % 728,911 2,889 0.40 % 741,122 3,116 0.42 % total borrowings 84,196 447 0.53 % 100,326 560 0.56 % 46,144 499 1.08 % total long-term debt 12,805 858 6.70 % — — — % — — — % total interest-bearing liabilities 1,041,327 4,922 0.47 % 829,237 3,449 0.42 % 787,266 4 0.46 % demand deposits 352,437 254,861 194,347 other liabilities 17,248 7,445 7,061 shareholders ' equity 170,675 135,687 129,853 total liabilities and shareholders ' equity $ 1,581,687 $ 1,227,230 $ 1,118,527 net interest spread 2.85 % 2.73 % 2.63 % net interest income and net interest margin ( 1 ) $ 44,044 2.98 % $ 33,093 2.85 % $ 28,922 2.75 % ( 1 ) net interest income divided by total interest-earning assets using the appropriate day count convention based on the type of interest-earning asset . 34 the following table shows the relative effect on net interest income for changes in the average outstanding amounts ( volume ) of interest-earning assets and interest-bearing liabilities and the rates earned and paid on such assets and liabilities ( rate ) . variances resulting from a combination of changes in rate and volume are allocated in proportion to the absolute dollar amounts of the change in each category . replace_table_token_4_th provision for loan losses management considers a number of factors in determining the required level of the allowance for loan losses and the provision required to achieve what is believed to be appropriate reserve level , including historical loss experience , loan growth , credit risk rating trends , nonperforming loan levels , delinquencies , loan portfolio concentrations and economic and market trends . the provision for loan losses represents management 's determination of the amount necessary to be charged against the current period 's earnings to maintain the allowance for loan losses at a level that it considered adequate in relation to the estimated losses inherent in the loan portfolio . the provision for credit losses was $ 8.0 million in 2015 , compared with $ 488,000 in 2014 , and $ 246,000 in 2013. in accordance with the accounting guidance for business combinations , there was no allowance for loan losses brought forward on loans acquired from first security on october 31 , 2015. at december 31 , 2015 , atlantic capital included the performing non-impaired loans acquired from first security in its general allowance calculation in order to reflect the necessary allowance for incurred losses , which accounted for a majority of the increase in the provision expense . at december 31 , 2015 , nonperforming loans totaled $ 8.5 million compared to no nonperforming loans as of december 31 , 2014. the increase was attributable to the addition of first security 's nonperforming loans , which totaled $ 777,000 , as well as the addition of two legacy atlantic capital loan relationships totaling approximately $ 7.7 million . net loan charge-offs were 0.05 % , ( 0.01 ) % and 0.02 % , respectively , of average loans ( annualized ) for the twelve months ended december 31 , 2015 , 2014 , and 2013 , respectively . the allowance for loan losses to total loans at december 31 , 2015 was 1.06 % , compared to 1.10 % at december 31 , 2014 . 35 noninterest income noninterest income was $ 9.4 million in 2015 , compared with $ 5.3 million in 2014 , and $ 3.9 million in 2013. the following table presents the components of noninterest income . replace_table_token_5_th service charges of $ 2.6 million were up $ 1.4 million from 2014. the increase was primarily due to the addition of first security deposits as well as an increase in foreign exchange income of $ 276,000. mortgage income and trust income were up from 2014 due to these new lines of business acquired from first security . bank owned life insurance of $ 2.2 million was up $ 1.2 million from the twelve months ended december 31 , 2015 to 2014 , due to a $ 1.4 million non-recurring gain . in addition , sba lending activities increased $ 646,000 , or 28.5 % , compared to 2014 , due to a higher level of loan sales . during the 2015 and 2014 , guaranteed portions of 42 and 19 sba loans with principal balances of $ 52.3 million and $ 39.0 million , respectively , were sold in the secondary market . for 2014 , noninterest income totaled $ 5.3 million , compared to $ 3.9 million for 2013 , a $ 1.4 million , or 37.9 % , increase . the most significant components of the increase were a $ 2.2
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executive overview and earnings summary on october 31 , 2015 , atlantic capital completed the acquisition of first security and its wholly-owned bank subsidiary fsgbank . the acquired entity 's results are included in atlantic capital 's consolidated results beginning on october 31 , 2015 , the acquisition date . atlantic capital reported a net loss of $ 1.3 million for the year ended december 31 , 2015. this compared to net income of $ 7.5 million for the year ended december 31 , 2014. diluted loss per common share was $ .09 for 2015 , compared to diluted income per common share of $ .55 for 2014. the decrease in net income for the twelve months ended december 31 , 2015 , compared to the same period in 2014 , was primarily the result of a $ 7.8 million increase in the provision for loan losses for the acquired first security loan portfolio and a $ 9.2 million increase in expenses related to the merger with first security . salary expense also increased by $ 5.5 million for 2015 compared to the prior year . these expenses were offset by an $ 11.0 million increase in net interest income and a $ 4.1 million increase in noninterest income , primarily resulting from the merger with first security . net income for 2013 was $ 5.1 million , or $ .38 per diluted common share . the $ 2.4 million increase from 2013 to 2014 was primarily due to a $ 4.2 million increase in net interest income , as well as a $ 2.2 million increase in sba lending activities . this was offset by an increase of $ 1.7 million in noninterest expense .
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the second equity installment of $ 3.95 million was received by the company during 2008. in accordance with the terms of the stock purchase agreement anges was issued 1,109,550 shares of the company 's restricted common stock at $ 3.56 per share in exchange for the second installment . under the stock purchase agreement , the company has also granted anges limited rights to require the company to register the shares of common stock under the securities act of 1933 , as amended , upon the occurrence of certain events . anges has also agreed to certain transfer restrictions with respect to the shares of common stock sold under the stock purchase agreement and has further agreed to certain standstill provisions whereby anges will refrain from acquiring or taking certain other actions with respect to the company 's common stock , subject to certain exceptions . the company has received total cash installments of $ 11.8 million from anges under the agreement . revenue of $ 0.0 million , $ 2.0 million and $ 6.7 million has been recognized during the years ended december 31 , 2011 , 2010 and 2009 , respectively story_separator_special_tag overview we research and develop biopharmaceutical products based on our patented dna delivery technologies for the prevention and treatment of serious or life-threatening diseases . we believe the following areas of research offer the greatest potential for near-term commercialization for us and our partners : vaccines for use in high-risk populations for infectious disease targets for which there are significant needs ; vaccines for general pediatric , adolescent and adult populations for infectious disease applications ; cancer vaccines or immunotherapies which complement our existing programs and core expertise ; and gene-based delivery of therapeutic proteins , such as angiogenic growth factors , for treatment of cardiovascular diseases . we currently have three active independent clinical and preclinical development programs in the areas of infectious disease and cancer including : a fully enrolled ongoing phase 3 clinical trial using our allovectin ® immunotherapeutic in patients with metastatic melanoma which has been funded , up to certain limits , by anges mg , inc. , or anges , through cash payments and equity investments under a research and development agreement ; a completed preclinical program , with an allowed ind application , using our cymvectin prophylactic vaccine formulated with our proprietary vaxfectin ® adjuvant to prevent cmv infection before and during pregnancy ; and a preclinical program with therapeutic and prophylactic vaccines for herpes simplex virus type 2 formulated with our proprietary vaxfectin ® adjuvant . we have leveraged our patented technologies through licensing and collaboration arrangements , such as our licensing arrangements with astellas , merck , sanofi , anges , aqua health and merial , among other biopharmaceutical companies . in addition , we have licensed complementary technologies from leading research institutions and biopharmaceutical companies . we also have granted non-exclusive , academic licenses to our dna delivery technology patent estate to 11 leading research institutions including stanford , harvard , yale and mit . the non-exclusive academic licenses allow university researchers to use our technology free of charge for educational and internal , non-commercial research purposes . in exchange , we have the option to exclusively license from the universities potential commercial applications arising from their use of our technology on terms to be negotiated . 43 research , development and manufacturing programs to date , we have not received revenues from the sale of our independently developed pharmaceutical products and have received minimal amounts of revenue from the sale of commercially marketed products by our licensees . we earn revenue by performing services under research and development contracts , grants , manufacturing contracts , and from licensing access to our proprietary technologies . since our inception , we estimate that we have received approximately $ 198.2 million in revenue from these sources . revenues by source for each of the three years ended december 31 , 2011 , were as follows ( in millions ) : replace_table_token_4_th research , development , manufacturing and production costs by major program , as well as other expenses for each of the three years ended december 31 , 2011 , were as follows ( in millions ) : replace_table_token_5_th from inception through december 31 , 2011 , we estimate that we have spent approximately $ 442 million on research , development , manufacturing and production . our current independent development focus is on our cancer immunotherapeutic allovectin ® , a novel dna vaccine for cmv , a vaccine to treat hsv-2 , and other clinical and preclinical targets . we are conducting a phase 3 clinical trial using allovectin ® in patients with recurrent metastatic melanoma which has been funded , up to certain limits , by anges through cash payments and equity investments under a research and development agreement . we are also in the early stages of clinical development of vaccine candidates for cmv and hsv-2 , and these programs will require significant additional funds to advance through development to commercialization . from inception through december 31 , 2011 , we have spent approximately $ 150 million on our allovectin ® program and $ 64 million on our cmv programs . we have other product candidates in the research stage . it can take many years to develop product candidates from the initial decision to screen product candidates , perform preclinical and safety studies , and perform clinical trials leading up to possible approval of a product by the fda or comparable foreign agencies . 44 the outcome of the research is unknown until each stage of the testing is completed , up through and including the registration clinical trials . accordingly , we are unable to predict which potential product candidates we may proceed with , the time and cost to complete development , and ultimately whether we will have a product approved by the fda or comparable foreign agencies . story_separator_special_tag if facts and circumstances dictate that the license does not have standalone value , the transaction price , including any upfront license fee payments received , are allocated to the identified separate units of accounting and recognized as those items are delivered . the terms of our partnership agreements provide for milestone payments upon achievement of certain regulatory and commercial events . effective january 1 , 2011 , we adopted on a prospective basis the milestone method of accounting under asu 2010-17. under the milestone method , we recognize consideration that is contingent upon the achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone is substantive in its entirety . a milestone is considered substantive when it meets all of the following three criteria : 1 ) the consideration is commensurate with either the entity 's performance to achieve the milestone or 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 , 2 ) the consideration relates solely to past performance , and 3 ) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement . a milestone is defined as an event ( i ) that can only be achieved based in whole or in part on either the entity 's performance or on the occurrence of a specific outcome resulting from the entity 's performance , ( ii ) for which there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved and ( iii ) that would result in additional payments being due to us . contract services , grant and royalty revenue we recognize revenue from contract services and federal government research grants during the period in which the related expenditures are incurred and related payments for those services are received or collection is reasonably assured . royalties to be received based on sales of licensed products by our partners incorporating our licensed technology are recognized when received . 46 accruals for potential disallowed costs on government contracts we have contracts with u.s. government agencies under which we bill for direct and indirect costs incurred . these billed costs are subject to audit by government agencies . we have established accruals of approximately $ 49,000 and $ 0.2 million at december 31 , 2011 and 2010 , respectively , to provide for potential disallowed costs . in the event that the final costs allowed are different from what we have estimated , we may need to make a change in our estimated accrual , which could also affect our results of operations and cash flow . research and development expenses research and development expenses consist of expenses incurred in performing research and development activities including salaries and benefits , facilities and other overhead expenses , clinical trials , contract services and other outside expenses . research and development expenses are charged to operations as they are incurred . we assess our obligations to make milestone payments that may become due for licensed or acquired technology to determine whether the payments should be expensed or capitalized . we charge milestone payments to research and development expense when : the technology is in the early stage of development and has no alternative uses ; there is substantial uncertainty of the technology or product being successful ; there will be difficulty in completing the remaining development ; and there is substantial cost to complete the work . capitalization and valuation of long-lived and intangible assets intangible assets with finite useful lives consist of capitalized legal costs incurred in connection with patents , patent applications pending and technology license agreements . payments to acquire a license to use a proprietary technology are capitalized if the technology is expected to have alternative future use in multiple research and development projects . we amortize costs of approved patents , patent applications pending and license agreements over their estimated useful lives , or terms of the agreements , whichever are shorter . for patents pending , we amortize the costs over the shorter of a period of twenty years from the date of filing the application or , if licensed , the term of the license agreement . we re-assess the useful lives of patents when they are issued , or whenever events or changes in circumstances indicate the useful lives may have changed . for patents and patent applications pending that we abandon , we charge the remaining unamortized accumulated costs to research and development expense . intangible assets and long-lived assets are evaluated for impairment at least annually or whenever events or changes in circumstances indicate that their carrying value may not be recoverable . if the review indicates that intangible assets or long-lived assets are not recoverable , their carrying amount would be reduced to fair value . factors we consider important that could trigger an impairment review include the following : a significant change in the manner of our use of the acquired asset or the strategy for our overall business ; and or a significant negative industry or economic trend . in the event we determine that the carrying value of intangible assets or long-lived assets is not recoverable based upon the existence of one or more of the above indicators of impairment , we may be required to record impairment charges for these assets . as of december 31 , 2011 , our largest group of intangible assets with finite lives includes patents and patents pending for our dna delivery technology , consisting of intangible assets with a net carrying value of approximately $ 2.8 million .
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results of operations year ended december 31 , 2011 , compared to year ended december 31 , 2010 total revenues . total revenues increased $ 21.3 million , or 244.6 % , to $ 30.0 million in 2011 from $ 8.7 million in 2010. our license and royalty revenue increased by $ 23.3 million which was primarily the result of the recognition of $ 25.3 million of revenue related to our transvax license agreement with astellas , which was partially offset by a decrease of $ 2.0 million in license revenue recognized related to our allovectin ® program . our contract and grant revenue decreased by $ 2.0 million which was primarily the result of a $ 3.6 million decrease in revenue related to the manufacture of vaccines under contract as well as a $ 1.1 million decrease in grant revenue , which was partially offset by an increase of $ 2.7 million in contract service revenue recognized under our contracts with astellas . research and development expenses . research and development expenses decreased $ 1.7 million , or 8.7 % , to $ 18.0 million for 2011 from $ 19.7 million for 2010. this decrease was primarily due to lower costs related to our clinical trials for transvax and allovectin ® during the year ended december 31 , 2011 , which was partially offset by a sub-license payment we made to the city of hope related to the license of our transvax program in 2011. manufacturing and production expenses . manufacturing and production expenses decreased $ 1.2 million , or 10.2 % , to $ 10.3 million for 2011 from $ 11.4 million for 2010. this decrease was primarily the result of the capitalization of $ 1.2 million in manufacturing costs related to the production of transvax under our service and supply agreement with astellas . general and administrative expenses .
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first federal is a community-oriented financial institution serving clallam , jefferson , kitsap , and whatcom counties of washington , including a full-service banking office that was opened during the quarter ended december 31 , 2015 in bellingham , washington , which is located in whatcom county , through our ten full-service banking offices . we offer a wide range of products and services focused on the lending and depository needs of the communities we serve . while we have a large concentration of first lien one- to four-family mortgage loans , we have revised our operating strategy to diversify our loan portfolio , expand our deposit product offerings , and enhance our infrastructure . we have increased the origination of commercial real estate and multi-family real estate loans , and decreased reliance on originating and retaining longer-term , fixed-rate , residential mortgage loans . we may sell conforming single-family owner-occupied fixed-rate mortgage loans into the secondary market to increase noninterest income and improve our interest rate risk , or we may retain select loans in our portfolio to enhance interest income . we offer traditional consumer and business deposit products , including transaction accounts , savings and money market accounts and certificates of deposit for individuals , businesses and nonprofit organizations . deposits are our primary source of funds for our lending and investing activities . 64 as part of our planned expansion into new markets , we have secured a lease agreement for a second full-service branch located in bellingham , washington , and a home lending center ( `` hlc '' ) in seattle , washington , which has been approved by the federal deposit insurance corporation ( `` fdic '' ) and department of financial institutions of washington ( `` dfi '' ) . the new branch in bellingham , washington will offer similar deposit , lending , and investment products and services as other branch locations and will utilize technology in the form of interactive teller machines , and the hlc will be primarily focused on the origination of loans secured by one- to four-family residential properties , which may be sold into the secondary market or retained in our loan portfolio , subject to management 's assessment of interest rate risk and interest income levels . first federal is significantly affected by prevailing economic conditions as well as government policies and regulations concerning , among other things , monetary and fiscal affairs , housing and financial institutions . deposit flows are influenced by a number of factors , including interest rates paid on competing time deposits , available alternative investments , account maturities , and the overall level of personal income and savings . lending activities are influenced by the demand for funds , the number and quality of lenders , and regional economic cycles . our primary source of pre-tax income is net interest income . net interest income is the difference between interest income , which is the income that we earn on our loans and investments , and interest expense , which is the interest that we pay on our deposits and borrowings . changes in levels of interest rates affect our net interest income . a secondary source of income is noninterest income , which includes revenue we receive from providing products and services , including service charges on deposit accounts , mortgage banking income , earnings from bank-owned life insurance , and gains and losses from sales of securities . an offset to net interest income is the provision for loan losses , which represents the periodic charge to operations which is required to adequately provide for probable losses inherent in our loan portfolio . as a loan 's risk rating improves , property values increase , or recoveries of amounts previously charged off are received , a recapture of previously recognized provision for loan losses may be added to net interest income . the noninterest expenses we incur in operating our business consist of salaries and employee benefits and expenses , occupancy and equipment expenses , federal deposit insurance premiums and regulatory assessments , data processing expenses , expenses related to real estate and personal property owned and other miscellaneous expenses . salaries and employee benefits consist primarily of salaries and wages paid to our employees , payroll taxes , expenses for health insurance , retirement plans and other employee benefits , including employee compensation expenses stemming from recognition of expense related to the employee stock ownership plan ( `` esop '' ) and the adoption of new equity benefit plans . the actual amount of these new stock-related compensation and benefit expenses are based on the fair market value of the shares of common stock at specific points in the future , and it is difficult to determine exactly what those costs will be . our business and operating strategy throughout most of our over 90-year history , we have operated as a traditional savings and loan association , attracting deposits and investing those funds primarily in residential mortgage loans and investment securities . recognizing our need to adapt to changing market conditions , we revised our operating strategy to diversify our loan portfolio , expand our deposit product offerings , and enhance our infrastructure . certain highlights of our operations in recent years are as follows : expanding our branch footprint . over the past three years , we have opened two new full-service branches in silverdale and bellingham , washington . through these new branches , we have realized growth in deposits and expanded our ability to secure customer relationships outside of our historic market areas of clallam and jefferson counties . we anticipate opening a second full-service branch located in bellingham , washington , and hlc in seattle , washington in fiscal 2017. repositioning the loan portfolio . we have significantly increased the origination of commercial real estate , multi-family real estate , and construction and land loans . story_separator_special_tag we believe that our ability to continue to attract and retain banking professionals who have a significant knowledge of existing and new market areas , possess strong business banking sales and service skills , and maintain a focus on community relationships will enhance our success . we intend to hire additional lenders and business development officers who are established in their communities to enhance our market position and add profitable growth opportunities . critical accounting policies we have certain accounting policies that are important to the assessment of our financial condition , since they require management to make difficult , complex or subjective judgments , some of which may relate to matters that are inherently uncertain . estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances . facts and circumstances which could affect these judgments include , but are not limited to , changes in interest rates , changes in the performance of the economy and changes in the financial condition of borrowers . our accounting policies are discussed in detail in note 1 of the notes to consolidated financial statements included in `` item 8. financial statements and supplementary data . '' the following represent our critical accounting policies : allowance for loan losses . the allowance for loan losses is the amount estimated by management as necessary to cover losses inherent in the loan portfolio as of balance sheet date . the allowance is established through the provision for loan losses , which is charged to income . determining the amount of the allowance for loan losses necessarily involves a high degree of judgment . among the material estimates required to establish the allowance are : the likelihood of default ; the loss exposure at default ; the amount and timing of future cash flows on impaired loans ; the value of collateral ; and the determination of loss factors to be applied to the various elements of the portfolio . all of these estimates are susceptible to significant change . management reviews , and the board of directors approves , at least quarterly , the level of the allowance and the provision for loan losses based on past loss experience , current economic conditions and other factors related to the collectability of the loan portfolio . although we believe that we use the best information available to establish the allowance for loan losses , future adjustments to the allowance may be necessary if economic or other conditions differ substantially from the assumptions used in making the evaluation . in addition , the fdic and the dfi , as an integral part of their examination process , periodically review our allowance for loan losses and may require us to recognize adjustments to the allowance based on their judgment about information available at the time of their examination . a large loss could deplete the allowance and require increased provisions for loan losses to replenish the allowance , which would adversely affect earnings . see note 3 of the notes to consolidated financial statements contained in `` item 8. financial statements and supplementary data . '' mortgage servicing rights . we record mortgage servicing rights on loans originated and subsequently sold into the secondary market . we stratify our capitalized mortgage servicing rights based on the type , term and interest rates of the underlying loans . mortgage servicing rights are initially recognized at fair value . the value is determined through a discounted cash flow analysis , which uses interest rates , prepayment speeds and delinquency rate assumptions as inputs . all of these assumptions require a significant degree of management judgment . if our assumptions prove to be incorrect , the value of our mortgage servicing rights could be negatively affected . see notes 1 and 6 to the notes to consolidated financial statements included in `` item 8. financial statements and supplementary data . '' income taxes . management makes estimates and judgments to calculate certain tax liabilities and to determine the recoverability of certain deferred tax assets , which arise from temporary differences between the tax and financial statement recognition of revenues and expenses . we also estimate a valuation allowance for deferred tax assets if , based on the available evidence , it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods . these estimates and judgments are inherently subjective . in evaluating the recoverability of deferred tax assets , management considers all available positive and negative evidence , including past operating results , recent cumulative losses - both capital and operating - and the forecast of future taxable income , both capital gains and operating . in determining future taxable income , management makes assumptions for the amount of taxable income , the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies . these assumptions require judgments about future taxable income and are consistent with the plans and estimates to manage our business . any reduction in estimated future taxable income may require us to record a valuation allowance against deferred tax assets . an increase in the valuation allowance would result in additional income tax expense in the period and could have a significant impact on future earnings . 67 real estate owned and repossessed assets . real estate owned and repossessed assets include real estate and personal property acquired through foreclosure or repossession , and may include in-substance foreclosed properties . in-substance foreclosed properties are those properties for which the institution has taken physical possession , regardless of whether formal foreclosure proceedings have taken place . at the time of foreclosure , foreclosed real estate is recorded at the fair value less estimated costs to sell , which becomes the property 's new cost basis . any write-downs based on the asset 's fair value at date of acquisition are charged to the allowance for loan losses .
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general . the company had a net loss for the year ended june 30 , 2015 of $ 5.1 million , or $ 0.42 per share , compared to net income of $ 2.7 million for the year ended june 30 , 2014 , a decrease of $ 7.8 million , or 288.9 % . the net loss during the year ended june 30 , 2015 , was primarily due to the company contributing $ 400,000 in cash and $ 9.3 million in common stock to the foundation , resulting in a pre-tax noninterest expense charge of $ 9.7 million . net interest income . net interest income increased $ 1.1 million to $ 22.9 million for the year ended june 30 , 2015 , from $ 21.8 million for the year ended june 30 , 2014. the increase was primarily the result of an increase in interest income as cash received from the initial public stock offering and increased customer deposits was deployed into the investment portfolio . net interest margin decreased 14 basis points to 2.75 % for the year ended june 30 , 2015 , from 2.89 % for the fiscal year 2014 , primarily due to an increase in the average balance of investment and mortgage-backed securities and cash and cash equivalents yielding lower rates compared to the loan portfolio , coupled with a decrease in average loan yields during the year ended june 30 , 2015. of the $ 1.1 million increase in net interest income during the year ended june 30 , 2015 compared to fiscal year 2014 , $ 1.8 million was the result of an increase in volume partially offset by a $ 746,000 decline from change in rates .
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in determining whether to grant pre-approval of any non-audit services in the all other category , the audit committee will consider all relevant facts and circumstances , including the following four basic guidelines : whether the service creates a mutual or conflicting interest between the auditor and us ; whether the service places the auditor in the position of auditing his or her own work ; whether the service results in the auditor acting as management or an employee of our company ; and whether the service places the auditor in a position of being an advocate for our company . part iv item 15. exhibits and financial statements schedules . ( a ) 1. financial statements an index to consolidated financial statements appears on page f-1 . 2. schedules all financial statement schedules are omitted because they are not applicable , not required under the instructions or all the information required is set forth in the financial statements or notes thereto . 46 titan pharmaceuticals , inc. index to consolidated financial statements replace_table_token_11_th f-1 report of independent registered public accounting firm the board of directors and stockholders of titan pharmaceuticals , inc. we have audited the accompanying consolidated balance sheets of titan pharmaceuticals , inc. as of december 31 , 2012 and 2011 , the related consolidated statements of operations and comprehensive loss , stockholders ' deficit and cash flows for each of the three years in the period ended december 31 , 2012. these financial statements are the responsibility of the company 's management . our responsibility is to express an opinion on these financial story_separator_special_tag forward-looking statements statements in the following discussion and throughout this report that are not historical in nature are forward-looking statements 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 expect , anticipate , estimate , may , will , should , intend , believe , 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 risk factors. 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 note regarding forward-looking statements 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 consolidated 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 biopharmaceutical company developing proprietary therapeutics for the treatment of serious medical disorders . our product development programs focus primarily on important pharmaceutical markets with significant unmet medical needs and commercial potential . we are directly developing our product candidates and also utilize corporate , academic and government partnerships as appropriate . such collaborations have helped to fund product development and have enabled us to retain significant economic interest in our products . our principal asset is probuphine ® , the first slow release implant formulation of buprenorphine , designed to maintain a stable , around the clock blood level of the medicine in patients for six months following a single treatment . the clinical and manufacturing development of probuphine for the treatment of opioid dependence in adult patients is complete . the nda seeking approval for treatment of opioid dependence has been accepted by the fda for a priority review . priority review designation is given to therapies that offer potential major advances in treatment , including improved safety , or provide a treatment where no adequate therapy exists . based upon the pdufa , the fda has set a target date of april 30 , 2013 for fda action on the nda . an fda advisory committee review has been scheduled for march 21 , 2013. in december 2012 , we entered into a license agreement with braeburn that grants braeburn exclusive commercialization rights to probuphine ® in the united states and canada . we received a non-refundable up-front license fee of $ 15.75 million ( approximately $ 15.0 million , net of expenses ) and will receive a $ 50 million milestone payment upon the approval of the nda by the fda . additionally , we will be eligible to receive up to $ 130 million upon achievement of specified sales milestones and up to $ 35 million in regulatory milestones in the event of future nda submissions and approvals for additional indications , including chronic pain . we will receive tiered royalties on net sales of probuphine ranging from the mid-teens to the low twenties . in addition to the potential milestone payments , apple tree partners iv , braeburn 's parent company , has allocated in excess of $ 75 million to launch , commercialize and continue the development of probuphine . probuphine is the first product to utilize proneura , our novel , proprietary , continuous drug delivery technology . our proneura technology has the potential to be used in developing products for the treatment of other chronic conditions , such as parkinson 's disease , where maintaining stable , around the clock blood levels of a drug can benefit the patient and improve medical outcomes . story_separator_special_tag 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 consolidated 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 accrual we also record accruals for estimated ongoing clinical trial costs . clinical trial costs represent costs incurred by clinical research organizations , ( 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 24 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 the probuphine 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 condensed consolidated statements of operations and comprehensive loss . liquidity and capital resources replace_table_token_2_th we have funded our operations since inception primarily through sales of our debt and equity securities , as well as with proceeds from warrant and option exercises , corporate licensing and collaborative agreements , and government-sponsored research . at december 31 , 2012 , we had approximately $ 18.1 million of cash compared to approximately $ 5.4 million at december 31 , 2011. our operating activities provided approximately $ 1.8 million during the year ended december 31 , 2012. this consisted primarily of the net loss for the period of approximately $ 15.2 million , approximately $ 0.3 million related to the non-cash interest expense on our royalty liability and approximately $ 1.4 million related to net changes in operating assets and liabilities . this was offset in part by approximately $ 14.4 million related to deferred revenue in connection with the license agreement with braeburn , approximately $ 1.8 million related to net non-cash losses on changes in the fair value of warrants , non-cash charges of approximately $ 17,000 related to depreciation , and approximately $ 2.6 million related to stock-based compensation expenses . uses of cash in operating activities were primarily to fund product development programs and administrative expenses . the license agreement with sanofi-aventis require us to pay royalties on future product sales . in addition , in order to maintain license and other rights while products are under development , we must comply with customary licensee obligations , including the payment of patent-related costs , annual minimum license fees , meeting project-funding milestones and diligent efforts in product development . the aggregate commitments we have under these agreements , including minimum license payments , for the next 12 months is approximately $ 3,000. see item 1. businesslicense agreements. net cash used in investing activities of approximately $ 1.2 million during the year ended december 31 , 2012 primarily related to purchases of equipment . 25 net cash provided by financing activities of approximately $ 12.0 million during the year ended december 31 , 2012 consisted of approximately $ 7.5 million of net proceeds from the sale of common stock and warrants , net of issuance costs and $ 4.9 million of net proceeds from the exercise of warrants to purchase common stock . this was offset in part by payments of approximately $ 0.4 million related to payments on our long-term debt .
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results of operations year ended december 31 , 2012 compared to year ended december 31 , 2011 our net loss applicable to common stockholders for 2012 was approximately $ 15.2 million , or approximately $ 0.23 per share , compared to our net loss applicable to common stockholders of approximately $ 15.2 million , or approximately $ 0.26 per share , for 2011. our net loss for 2012 includes a non-cash loss of approximately $ 1.8 million resulting from increases in the fair value of warrants issued as part of the march 2011 deerfield transaction and the april 2012 financing transaction . we generated royalty revenues during 2012 of approximately $ 4.8 million compared to approximately $ 3.6 million during 2011. we generated grant revenues during 2012 of approximately $ 42,000 compared to approximately $ 0.5 million during 2011. we generated licensing revenues of approximately $ 2.3 million during 2012. the licensing revenue consisted of approximately $ 1.7 million related to the premium paid on our common 27 stock as part of the september 2012 stock purchase and option agreement with an affiliate of braeburn and approximately $ 0.6 million related to the amortization of the non-refundable up-front license fee of $ 15.75 million ( approximately $ 15.0 million , net of expenses ) related to our licensing agreement with braeburn . there were no revenues from licensing agreements in 2011. royalty revenues during 2012 and 2011 consisted of royalties on sales of fanapt . grant revenues during 2012 and 2011 consisted of proceeds from nih grants related to our probuphine and proneura related programs . research and development expenses for 2012 were approximately $ 10.6 million compared to approximately $ 11.2 million in 2011 , a decrease of approximately $ 0.6 million , or 5 % .
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where possible , we have tried to identify these forward-looking statements by using words such as may , should , potential , continue , expects , anticipates , intends , plans , believes , estimates , and similar expressions . our actual results could differ materially from those anticipated by the forward-looking statements due to important factors and risks including , but not limited to , those set forth under risk factors in part i , item 1a of this report . company overview we are a biopharmaceutical company developing approaches to activate and co-stimulate a patient 's immune system against cancer . our co-stimulatory antibody is designed to harness the body 's natural antigen specific immune activation and tolerance mechanisms to reprogram the immunity and provide a long-term , durable clinical effect . our t-cell activating platform ( tcap ) produces therapies designed to turn immunologically cold tumors hot , and be administered in combination with checkpoint inhibitors and other immuno-modulators to increase clinical effectiveness . unlike many other patient specific immunotherapy approaches , our drugs are off-the-shelf , which means that we can administer drug immediately without extracting patient material at a substantially lower cost of goods sold . our tcap product candidates from our impact ® and compact platforms are produced from allogeneic cell lines expressing tumor-specific proteins common among cancers . we are currently enrolling patients in our phase 2 clinical trial for advanced nsclc , in combination with bristol-myers squibb 's nivolumab ( opdivo ® ) . we also have numerous pre-clinical programs at various stages of development . through our impact ® platform technology our initial tcap , we have developed product candidates that consist of live , allogeneic off-the-shelf genetically-modified , irradiated human cancer cells . these cells secrete a broad spectrum of ctas , classified functionally as tumor specific neoantigens , together with the gp96 protein . our impact ® technology achieves this by reprogramming live tumor cells to secrete gp96 , to serve as a chaperone for tumor antigens to activate and expand t-cell immunity ; thereby , transforming the allogeneic cells into machines that activate a robust killer cd8+ t cell immune attack against a patient 's cancer . unlike autologous or personalized monotherapy approaches that either require the extraction of blood or tumor tissue from each patient or the creation of an individualized treatment , our product candidates are fully allogeneic , and do not require extraction of individual patient 's material or custom manufacturing . as a result , our product candidates can be mass-produced and have the ability to be readily available for immediate patient use . because each patient receives the same treatment , we believe that our immunotherapy approach offers logistical , manufacturing and other cost benefits , compared to patient-specific or precision medicine approaches . compact our second tcap , is a dual-acting immunotherapy designed to deliver t-cell activation and enhanced , t-cell specific co-stimulation in a single treatment . compact helps unlock the body 's natural defenses and builds upon impact ® by also providing alternative co-stimulation targeting enhanced t-cell activation and expansion . it has the potential to simplify combination immunotherapy development with enhanced safety for oncology patients , as it is designed to deliver the gp96 heat shock protein with each selected tumor cell line 's neoantigens ( ctas ) and a t-cell co-stimulatory fusion protein ( e.g . ox40l ) into a single intradermal treatment . compact serves as a booster to expand the number of antigen-specific t-cells compared to co-stimulator alone , while also enhancing the activation of cancer antigen-specific cd8+ memory t-cells for an extended time after treatment . compact has the potential to be a cost-effective approach compared to conventional immunotherapies . pelican , our subsidiary , is a biotechnology company focused on the development of monoclonal antibody and fusion protein-based therapies designed to activate the immune system . ptx-35 , which is currently in preclinical ind enabling activities , is pelican 's lead product candidate targeting the t-cell co-stimulator , tnfrsf25 . it is designed to harness the body 's natural antigen specific immune activation and tolerance mechanisms to reprogram the immunity and provide a long-term , durable clinical effect . when combined with immunotherapies , including the impact ® and compact platform technologies , ptx-35 has been shown to enhance antigen specific t-cell activation to eliminate tumor cells . ptx-15 , pelican 's second product candidate , is a human tl1a-lg fusion protein designed as a shorter half-life agonist of tnfrsf25 . in june 2016 , pelican was awarded a $ 15.2 million cprit grant to support further development of ptx-35 and fund a phase 1 clinical trial to examine potential benefits to patients with several types of cancers , such as lung , lymphoma , prostate , pancreatic and ovarian . 41 our wholly-owned subsidiary , zolovax , is in preclinical studies to develop therapeutic and preventative vaccines to treat infectious diseases based on our gp96 vaccine technology , with a current focus on the development of a zika vaccine in collaboration with the university of miami . other infectious diseases of interest include hiv , west nile virus , and dengue and yellow fever . we are devoting substantially all of our resources to developing hs-110 , including conducting clinical trials , providing general and administrative support for these operations and protecting our intellectual property . we currently do not have any products approved for sale and we have not generated any significant revenue since our inception and no revenue from product sales . we expect to continue to incur significant expenses and to incur increasing operating losses for at least the next several years . story_separator_special_tag to meet our capital needs , we are considering multiple alternatives , including , but not limited to , additional equity financings , which include sales of our common stock under the h.c. wainwright sales agreement if available , debt financings , partnerships , collaborations and other funding transactions . this is based on our current estimates , and we could use our available capital resources sooner than we currently expect . we are continually evaluating various cost-saving measures in light of our cash requirements in order to focus our resources on our product candidates . we may take additional action to reduce our immediate cash expenditures , including re-visiting our headcount , offering vendors equity in lieu of the cash due to them and otherwise limiting our other research expenses , in order to focus our resources on our product candidates . we will need to generate significant revenues to achieve profitability , and we may never do so . critical accounting policies and significant judgments and estimates we believe that several accounting policies are important to understanding our historical and future performance . we refer to these policies as `` critical '' because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate , and different estimateswhich also would have been reasonablecould have been used , which would have resulted in different financial results . our management 's discussion and analysis of financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with u.s. gaap . the preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expenses and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates based on historical experience and make various assumptions , which management believes to be reasonable under the circumstances , which form the basis for 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 . the notes to our audited consolidated financial statements contain a summary of our significant accounting policies . we consider the following accounting policies critical to the understanding of the results of our operations : · revenue ; · deferred revenue ; · in-process r & d · goodwill impairment ; · income tax ; · contingent consideration ; · stock-based compensation ; · research and development costs , including clinical and regulatory cost ; and · recent accounting pronouncements . revenue our revenue generally consists of research funding from our cprit grant and a research funding agreement with shattuck that terminated on january 31 , 2017. grant revenue is recognized when qualifying costs are incurred and there is reasonable assurance that the conditions of the award have been met for collection . proceeds received prior to the costs being incurred or the conditions of the award being met are recognized as deferred revenue until the services are performed and the conditions of the award are met . 43 deferred revenue deferred revenue is comprised of proceeds of $ 6.8 million received from cprit for which the costs have not been incurred or the conditions of the award have not been met and grant funds received from an economic development grant agreement with the city of san antonio ( economic development grant ) that we entered into on november 1 , 2017. under the economic development grant , we received $ 0.2 million in state enterprise fund grants for the purpose of defraying costs toward the purchase of laboratory equipment . as part of the agreement , we will provide the city of san antonio with a purchase money security interest in the equipment to secure the repayment of grant funds should we fail to perform under the terms and conditions of the agreement . our obligations under the agreement include meeting certain employment levels for a period of not less than seven years commencing on or before december 31 , 2017 and establishing pelican 's corporate headquarters in san antonio . the economic development grant funds will be recognized into revenue upon the achievement of the performance criteria and determination that the cash is no longer refundable to the state of texas . in-process r & d in-process research and development ( ipr & d ) assets represent the fair value assigned to technologies that were acquired , which at the time of acquisition have not reached technological feasibility and have no alternative future use . ipr & d assets are considered to be indefinite-lived until the completion or abandonment of the associated research and development projects . during the period that the ipr & d assets are considered indefinite-lived , they are tested for impairment on an annual basis , or more frequently if the company becomes aware of any events occurring or changes in circumstances that indicate that the fair value of the ipr & d assets are less than their carrying amounts . if and when development is complete , which generally occurs upon regulatory approval , and the company is able to commercialize products associated with the ipr & d assets , these assets are then deemed definite-lived and are amortized based on their estimated useful lives at that point in time . if development is terminated or abandoned , the company may have a full or partial impairment charge related to the ipr & d assets , calculated as the excess of carrying value of the ipr & d assets over fair value . the ipr & d assets were acquired on april 28 , 2017. goodwill and impairment goodwill is tested for impairment annually or more frequently if changes in circumstances or the occurrence of events suggest that impairment may exist . the company uses widely accepted valuation techniques to determine the fair value of its reporting units used in its annual goodwill impairment analysis .
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results of operations year ended december 31 , 2017 and 2016 revenues the cprit grant is subject to customary cprit funding conditions including a matching funds requirement where pelican will match $ 0.50 for every $ 1.00 from cprit . consequently , pelican is required to raise $ 7.6 million in matching funds over the three year project . as of december 31 , 2017 , we have provided approximately $ 1.2 million in matching funding and we have $ 6.4 million remaining to provide over the three-year project , with $ 2.9 million remaining for the second cprit fiscal year ( june 2017 through may 2018 ) of the award , and $ 3.5 million for the third cprit fiscal year ( june 2018 through may 2019 ) . as of december 31 , 2017 , cprit has provided $ 8.3 million of the total $ 15.2 million grant . the remaining $ 6.9 million will become available in the third cprit fiscal year ( june 2018 through may 2019 ) . upon commercialization of the product , the terms of the grant contract require pelican to pay tiered royalties in the low to mid-single digit percentages . such royalties reduce to less than one percent after a mid-single-digit multiple of the grant funds have been paid to cprit in royalties . we recognized grant revenue of approximately $ 1.5 million for the year ended december 31 , 2017 for qualified expenditures under the grant . we recognized no grant revenue related to cprit during the year ended december 31 , 2016. as of december 31 , 2017 , we had deferred revenue of $ 7.0 million for proceeds received but for which the costs had not been incurred or the conditions of the award had not been met .
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the recovering economy served to further support the benefits of our internal growth initiatives in 2011 and 2010. in 2009 , however , the effects of the economic slowdown , which we began to experience in the final quarter of 2008 , adversely impacted the benefit of these initiatives . 15 with regard to the december 31 , 2011 consolidated balance sheet , the company 's cash balance of $ 525 million was consistent with cash of $ 530 million at december 31 , 2010. the company 's strong cash position was supported by the increase in net income and ongoing working capital management in 2011. accounts receivable increased by approximately 7 % , relatively in-line with our sales increase in the fourth quarter of the year and inventory was up by less than 2 % , including acquisitions . accounts payable increased $ 66 million or 5 % from the prior year . the company has increased this line item over the last several years due primarily to the combination of increased purchases , improved payment terms with certain suppliers and other ongoing payables initiatives . total debt outstanding at december 31 , 2011 was unchanged from $ 500 million at december 31 , 2010. story_separator_special_tag revenue growth in 2010 was driven by our sales initiatives , which were strongly supported by manufacturing expansion during the year , as measured by the institute for supply management 's purchasing managers index . in addition , acquisitions in 2010 contributed approximately 9 % to electrical 's sales growth for the year . cost of goods sold cost of goods sold was $ 8.9 billion , $ 8.0 billion and $ 7.0 billion in 2011 , 2010 and 2009 , respectively . the 11 % increase in cost of goods sold from 2010 to 2011 is directly related to the sales increase for the same period . cost of goods sold represented 71.1 % of net sales in 2011 , 71.0 % of net sales in 2010 and 70.1 % of net sales in 2009. the increase in cost of goods sold as a percent of net sales for 2011 and 2010 relative to 2009 reflects the impact of certain pricing adjustments implemented in automotive as well as ongoing competitive pricing pressures in industrial and office . these factors more than offset our gross margin initiatives to enhance our pricing strategies , promote and sell higher margin products and minimize material acquisition costs , hence the lower gross margin levels over the last two years . in 2011 , all four of our business segments experienced vendor price increases for the second consecutive year , although , in 2010 , the automotive and office increases were relatively immaterial . in 2009 , our office and electrical business segments experienced vendor price increases , while industrial was flat and automotive pricing was down for the year . in any year where we experience price increases , we are able to work with our customers to pass most of these along to them . operating expenses selling , administrative and other expenses ( sg & a ) increased by $ 228 million or 10 % to $ 2.6 billion in 2011 , representing 20.8 % of net sales and down from 21.1 % of net sales in 2010. sg & a expenses as a percentage of net sales improved from the prior year due primarily to the benefit of greater expense leverage associated with the second consecutive 11 % sales increase . in addition , management 's ongoing cost control measures in areas such as personnel , freight , fleet and logistics have served to further improve the company 's cost structure . after reducing the size of its workforce by approximately 12 % during 2008 and 2009 , the company has only added back approximately 2 % of that over the two year period of 2011 and 2010 ( including acquisitions ) . our management teams remain focused on properly managing the company 's expenses and continuing to assess the appropriate cost structure in our businesses . depreciation and amortization expense in 2011 was $ 89 million , relatively in-line with 2010. the provision for doubtful accounts was $ 13 million in 2011 , up nearly $ 3 million or 25 % from $ 11 million in 2010. the increase in bad debt expense is primarily a function of the increase in sales for the year and not due to collections issues . we believe the company is adequately reserved for bad debts at december 31 , 2011. sg & a increased by $ 147 million or 7 % to $ 2.4 billion in 2010 , representing 21.1 % of net sales and down from 22.1 % of net sales in 2009. sg & a expenses as a percentage of net sales improved from the prior year due primarily to the benefit of greater expense leverage associated with the 11 % sales increase for the year . in addition , management 's ongoing cost control measures in areas such as personnel , freight , fleet and logistics have served to further improve the company 's cost structure . after reducing the size of its workforce by approximately 12 % during 2008 and 2009 , the company added back only 1 % of that in 2010 ( including acquisitions ) . in total , of the estimated $ 70 million cost savings in 2009 , the company estimates that it added back approximately $ 20 million in costs in 2010 , primarily associated with the increase in sales and earnings . story_separator_special_tag in 2011 compared to $ 3.00 in 2010 , up 19 % . net income in 2011 was 4.5 % of net sales compared to 4.2 % of net sales in 2010. net income was $ 476 million in 2010 , an increase of 19 % from $ 400 million in 2009. on a per share diluted basis , net income was $ 3.00 in 2010 compared to $ 2.50 in 2009 , up 20 % . net income in 2010 was 4.2 % of net sales compared to 4.0 % of net sales in 2009. financial condition our cash balance of $ 525 million at december 31 , 2011 was relatively consistent with our cash balance at december 31 , 2010 , supported by the increase in net income in 2011 and ongoing working capital management . the company 's accounts receivable balance at december 31 , 2011 increased by approximately 7 % from the prior year , which reflects the company 's 7 % sales increase for the fourth quarter of 2011. inventory at december 31 , 2011 was up by less than 2 % from december 31 , 2010 , which is well below the company 's increase in sales and primarily attributable to acquisitions . accounts payable increased $ 66 million or approximately 5 % from december 31 , 2010 due primarily to increased inventory purchases related to the company 's sales increase . goodwill and other intangible assets increased by $ 70 million or 34 % from december 31 , 2010 due to the company 's acquisitions during the year . the change in our december 31 , 2011 balances for deferred taxes , up $ 94 million or 59 % , as well as pension and other post-retirement benefits liabilities , up $ 235 million or approximately 91 % from december 31 , 2010 , is primarily due to a change in funded status of the company 's pension and other post-retirement plans in 2011 , net of $ 58 million in pension contributions during the year . liquidity and capital resources the company 's sources of capital consist primarily of cash flows from operations , supplemented as necessary by private issuances of debt and bank borrowings . we have $ 500 million of total debt outstanding at december 31 , 2011 , of which $ 250 million matures in november 2013 and $ 250 million matures in november 2016. in addition , the company has available a $ 350 million unsecured revolving line of credit . no amounts were outstanding under the line of credit at december 31 , 2011 and 2010. the capital and credit markets were volatile over the last few years , although these conditions did not materially impact our access to these markets . currently , we believe that our cash on hand and available short-term and long-term sources of capital are sufficient to fund the company 's operations , including working capital requirements , scheduled debt payments , interest payments , capital expenditures , benefit plan contributions , income tax obligations , dividends , share repurchases and contemplated acquisitions . the ratio of current assets to current liabilities was 2.5 to 1 at december 31 , 2011 , and this compares to 2.2 to 1 at december 31 , 2010. before consideration of current debt outstanding at december 21 , 2010 , the ratio of current assets to current liabilities was 2.6 to 1. our liquidity position remains solid . the company 's $ 500 million in total debt outstanding at december 31 , 2011 is unchanged from 2010 . 20 sources and uses of net cash a summary of the company 's consolidated statements of cash flows is as follows : replace_table_token_7_th net cash provided by operating activities : the company continues to generate cash and net cash provided by operating activities totaled $ 625 million in 2011. this reflects an 8 % decrease from 2010 , as , collectively , trade accounts receivable , merchandise inventories and trade accounts payable represented a $ 19 million use of cash in 2011 compared to a $ 185 million source of cash in 2010. this was partially offset by a $ 90 million increase in net income . net cash provided by operating activities of $ 679 million in 2010 represents a 20 % decrease from 2009 , as , collectively , trade accounts receivable , merchandise inventories and trade accounts payable as a source of cash was $ 129 million less in 2010 relative to 2009 and pension contributions in 2010 increased by $ 35 million from 2009. these items were partially offset by a $ 76 million increase in net income . net cash used in investing activities : net cash flow used in investing activities was $ 231 million in 2011 compared to $ 172 million in 2010 , an increase of 34 % . cash used for acquisitions of businesses and other investing activities in 2011 were $ 46 million greater than in 2010 , and capital expenditures increased by $ 18 million . net cash flow used in investing activities was $ 172 million in 2010 compared to $ 264 million in 2009 , a decrease of 35 % . cash used for acquisitions of businesses in 2010 was $ 44 million less than in 2009 , while capital expenditures increased by $ 16 million for the year .
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results of operations our results of operations are summarized below for the three years ended december 31 , 2011 , 2010 and 2009. replace_table_token_6_th net sales consolidated net sales for the year ended december 31 , 2011 totaled $ 12.5 billion , an 11 % increase from 2010 driven by sales growth in all four of our business segments for the second consecutive year . the industrial and electrical business segments experienced the greatest percentage increases for the year , as the manufacturing sector of the economy held steady and strong in 2011. these businesses also benefited from acquisitions in 2011. sales for the automotive business segment also continued their positive trend in 2011 , primarily due to the benefits of well executed internal initiatives and the overall solid fundamentals in the automotive aftermarket . cumulatively , prices in 2011 were up approximately 3 % in the automotive segment , up approximately 4 % in the industrial segment , up approximately 5 % in the electrical segment and up approximately 2 % in the office segment . consolidated net sales for the year ended december 31 , 2010 totaled $ 11.2 billion , an 11 % increase from 2009. all four of our business segments showed sales growth for the year . the industrial and electrical business segments had the greatest percentage increases for 2010 , as the manufacturing sector of the economy was much stronger in 2010 relative to 2009. these businesses also benefited from acquisitions in 2010. sales for the automotive business segment were much improved in 2010 as well , primarily due to the benefits of well executed internal initiatives and the overall improvement in the economy . cumulatively , prices in 2010 were up approximately 1 % in the automotive segment , up approximately 3 % in the industrial segment , up approximately 4 % in the electrical segment and approximately flat in the office segment .
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derivative financial instruments we use derivative financial instruments to manage our exposure to movements in foreign currencies and certain commodity prices . all derivative instruments are recorded at fair value in the consolidated balance sheets . we do not use derivative financial instruments for trading or speculative purposes . we manage credit risk related to the derivative financial instruments by requiring high credit standards for our counterparties and periodic settlements . refer to note 21 to the consolidated financial statements for further information on our derivative financial instruments . foreign currency translation the assets and liabilities of non-u.s. active operations , all of which are self-sustaining , are translated to story_separator_special_tag overview we are one of the world 's largest producers of beverages on behalf of retailers , brand owners and distributors and have one of the broadest home and office bottled water and office coffee services distribution networks in the united states with the ability to service approximately 90 percent of u.s. households , as well as national , regional and local offices . our objective of creating sustainable long-term growth in revenue and profitability is predicated on working closely with our customers to provide proven profitable products . as a fast follower of innovative products , our goal is to identify which new products are succeeding in the marketplace and develop similar high quality products at a better value . this objective is increasingly relevant in more difficult economic times . the beverage market is subject to some seasonal variations . our beverage and water delivery sales are generally higher during the warmer months , while sales of our coffee products are generally higher during the cooler months and also can be influenced by the timing of holidays and weather fluctuations . our purchases of raw materials and related accounts payable fluctuate based upon the demand for our products as well as the timing of the fruit growing seasons . the seasonality of our sales volume combined with the seasonal nature of fruit growing causes our working capital needs to fluctuate throughout the year , with inventory levels increasing in the first half of the year in order to meet high summer demand , and with fruit inventories peaking during the last quarter of the year when purchases are made after the growing season . in addition , our accounts receivable balances decline in the fall as customers pay their higher-than-average outstanding balances from the summer deliveries . we typically operate at low margins and therefore relatively small changes in cost structures can materially affect results . industry carbonated soft drink ( csd ) sales have declined during 2012 , 2013 and 2014 , and ingredient and packaging costs have remained volatile . 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 aluminum in the case of cans and ends , polyethylene terephthalate ( pet ) resin , high-density polyethylene ( hdpe ) and polycarbonate , corn in the case of high fructose corn syrup ( hfcs ) , sugar , fruit and fruit concentrates . 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 supply walmart and its affiliated companies , under annual non-exclusive supply agreements , with a variety of products in north america , the united kingdom , and mexico , including csds , 100 % shelf stable juice and juice-based products , clear , still and sparkling flavored waters , energy drinks , sports products , new age beverages , and ready-to-drink teas . in 2014 we supplied walmart with all of its private-label csds in the united states . in the event walmart were to utilize additional suppliers to fulfill a portion of its requirements for csds , our operating results could be materially adversely affected . sales to walmart in 2012 , 2013 and 2014 , accounted for 31.0 % , 30.1 % and 26.1 % , respectively , of total revenue . 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 , change 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 2014 , our capital expenditures were devoted primarily to maintaining existing beverage production facilities , making equipment upgrades and initiating our cost reduction plan . for the year ended january 3 , 2015 , we had 53 weeks of activity , compared to 52 weeks of activity for the years ended december 28 , 2013 and december 29 , 2012. we estimate the additional week contributed $ 29.1 million of additional revenue and $ 1.1 million of additional operating income for the year ended january 3 , 2015 . 34 acquisition and financing transactions in december 2014 , we completed the acquisition by merger of dss group , inc. ( the dss group ) , parent company to ds services of america , inc. and its subsidiaries ( collectively dss ) , a leading bottled water and coffee direct-to-consumer services provider in the united states ( the dss acquisition ) . story_separator_special_tag the aggregate purchase price for the calypso soft drinks acquisition was $ 12.1 million , which included approximately $ 7.0 million paid at closing , deferred payments of approximately $ 2.3 million paid on the first anniversary of the closing date , and approximately $ 3.0 million to be paid on the second anniversary of the closing date . the closing payment was funded from available cash . 35 summary financial results our net income in 2014 was $ 10.0 million or $ 0.10 per diluted common share , compared with net income of $ 17.0 million or $ 0.18 per diluted share in 2013. the following items of significance affected our 2014 financial results : our revenue increased $ 8.8 million , or 0.4 % , in 2014 compared to 2013 due primarily to the addition of the aimia and dss businesses in 2014 , the calypso business in 2013 , as well as the inclusion of a 53 rd week , partially offset by the competitive pricing environment and a product mix shift into contract manufacturing . excluding the impact of foreign exchange , revenue decreased $ 10.3 million , or 0.5 % , from the comparable prior year period ; our gross profit as a percentage of revenue remained flat at 13.2 % in 2014 compared to 2013 due primarily to the addition of the calypso , aimia and dss businesses , offset by a competitive pricing environment , additional freight and startup costs associated with the growth and launch of our contract manufacturing business in north america , and increased freight and transportation in our u.k. operations as we ended the year holding more inventory with third parties as we implement a new warehouse management system ; our selling , general and administrative ( sg & a ) expenses increased to $ 255.0 million from $ 183.4 million due primarily to acquisition and integration related expenses as well as increased sg & a expenses associated with the addition of the calypso , aimia and dss businesses , lower employee-related incentive costs and the reversal of certain long term incentive accruals in the prior year , and the inclusion of a 53 rd week . sg & a expenses were also impacted by the reclassification of $ 22.6 million in amortization related to customer list intangible assets from cost of goods sold to sg & a expenses ( this reclassification has been made for all periods presented , and it was $ 22.7 million and $ 22.8 million for 2013 and 2012 , respectively ) ; our loss on disposal of property , plant and equipment was related to the disposal of $ 1.7 million of equipment that was either replaced or no longer being used in our operating segments ; our other expense , net increased by $ 8.2 million , or 64.1 % , due primarily to costs associated with the redemption of $ 375.0 million aggregate principal amount of our 2018 notes , partially offset by a favorable legal settlement ; our interest expense decreased by $ 11.9 million , or 23.1 % , due primarily to the redemption of the remaining $ 15.0 million aggregate principal amount of our 2017 notes , the refinancing of $ 375.0 million aggregate principal amount of our 2018 notes with our 2022 notes and a prior year amendment to our abl facility to more favorable terms , partially offset by interest expense incurred on new debt issued and assumed with the dss acquisition ; our income tax benefit was $ 61.4 million in 2014 compared to income tax expense of $ 1.8 million in 2013 due primarily to the release of our u.s. federal valuation allowance and the expected future benefit of pre-tax losses ; our ebitda decreased to $ 105.4 million from $ 176.0 million ; our adjusted ebitda decreased to $ 180.2 million from $ 197.9 million ; and our adjusted net income and adjusted earnings per diluted share were $ 57.1 million and $ 0.60 , respectively , compared to $ 38.0 million and $ 0.40 in the prior year , respectively . the following items of significance affected our 2013 financial results : our revenue decreased 7.0 % in 2013 compared to 2012 due primarily to lower global volumes partially offset by an increase in net selling price per servings . excluding the impact of foreign exchange , revenue decreased 6.5 % from the comparable prior year period ; our gross profit as a percentage of revenue decreased to 13.2 % in 2013 from 13.9 % in 2012 due primarily to lower global volumes that resulted in unfavorable fixed cost absorption ; our sg & a expenses decreased to $ 183.4 million from $ 200.8 million due primarily to lower employee-related expenses , lower information technology costs and a reduction in professional fees and similar costs ; 36 our loss on disposal of property , plant and equipment was related to the disposal of $ 1.8 million of equipment that was either replaced or no longer being used in our operating segments ; our other expense , net in 2013 was $ 12.8 million due primarily to costs associated with the redemption of $ 200.0 million aggregate principal amount of our 2017 notes , compared to other income in 2012 of $ 2.0 million as a result of insurance recoveries in excess of the loss incurred on a facility in the united states in the amount of $ 1.9 million and recording a bargain purchase of $ 0.9 million in the united kingdom offset partially by foreign exchange losses of $ 0.8 million ; our interest expense decreased by $ 2.6 million , or 4.8 % , due primarily to the redemption of $ 200.0 million aggregate principal amount of our 2017 notes and to an amendment to our abl facility to more favorable terms ; our income tax expense decreased to $ 1.8 million in 2013 compared to an income tax expense of $ 4.6 million in 2012 due primarily to a reduction in pretax income ; our ebitda decreased to $ 176.0 million
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results of operations the following table summarizes the change in revenue by reporting segment for 2014 : replace_table_token_10_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 2013 : 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 . 44 the following table summarizes the change in revenue by reporting segment for 2012 : 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 . the following table summarizes our ebitda and adjusted ebitda for the three months and year ended january 3 , 2015 and december 28 , 2013 , respectively . replace_table_token_13_th 1. loss on disposal of property , plant & equipment excludes cash proceeds received . 45 the following table summarizes our adjusted net income and adjusted earnings per share for the three months and year ended january 3 , 2015 and december 28 , 2013 , respectively . replace_table_token_14_th 1. loss on disposal of property , plant & equipment , net of tax , excludes cash proceeds received . for the purposes of our calculation of diluted adjusted net income per common share attributable to cott corporation , we have continued to reflect the impact of accumulated dividends on the convertible preferred shares , as they represent an economic cost to the company .
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overview of the company acco brands is a designer , marketer and manufacturer of recognized consumer and end-user demanded brands used in businesses , schools , and homes . our widely known brands include at-a-glance ® , barrilito ® , derwent ® , esselte ® , five star ® , gbc ® , hilroy ® , kensington ® , leitz ® , marbig ® , mead ® , nobo ® , quartet ® , rapid ® , rexel ® , swingline ® , tilibra ® and wilson jones ® . more than 75 % of our net sales come from brands that occupy the number-one or number-two positions in the select product categories in which we compete . we distribute our products through a wide variety of retail and commercial channels to ensure that our products are readily and conveniently available for purchase by consumers and other end-users , wherever they prefer to shop . these channels include mass retailers , e-tailers , discount , drug/grocery and variety chains ; warehouse clubs ; hardware and specialty stores ; independent office product dealers ; office superstores ; wholesalers ; and contract stationers . our products are sold primarily in the u.s. , europe , australia , canada , brazil and mexico . for the year ended december 31 , 2018 , approximately 42 % of our sales were in the u.s. , down from 45 % in 2017 . this decrease was primarily the result of the esselte and goba acquisitions , which further extended our geographic reach . the company 's strategy is to grow its global portfolio of consumer brands , increase its presence in faster growing geographies and channels and diversify its customer base . the company continues to focus on leveraging its cost structure through synergies and productivity savings to drive long-term profit improvement and on strong free cash flow generation . we plan to supplement organic growth globally with strategic acquisitions in both existing and adjacent product categories . in furtherance of our strategy , we have transformed our business by acquiring companies with consumer and other end-user demanded brands , and continuing to diversify our distribution channels . in 2012 , we acquired the mead consumer and office products business ( `` mead c & op '' ) , which substantially increased our presence in north america and brazil in school and calendar products with well-known consumer brands . in 2016 , we purchased the remaining equity interest in pelikan artline from our joint venture partner , which enhanced our competitive position in school and business products in australia and new zealand and added new categories , including writing instruments and janitorial supplies . in early 2017 , we acquired esselte group holdings ab ( `` esselte '' ) , which more than doubled our presence in europe and added several iconic business brands , a significant base of independent dealer customers , and a new product category of do-it-yourself hardware tools . on july 2 , 2018 , we completed the acquisition ( the `` goba acquisition '' ) of goba internacional , s.a. de c.v. ( `` goba '' ) in mexico . together these acquisitions have meaningfully expanded our portfolio of well-known end-user demanded brands , enhanced our competitive position from both a product and channel perspective , and added scale to our business operations . today our company is a global enterprise focused on developing innovative branded consumer products for use in businesses , schools and homes . we believe our leading product category positions provide the scale to enable us to invest in marketing and product innovation to drive profitable growth . we expect to derive much of our growth , over the long term , in faster-growing emerging geographies such as latin america and parts of asia , the middle east and eastern europe , which exhibit growing demand for our product categories . in all of our markets , we see opportunities to grow sales through share gains , channel expansion and innovative products . acquisitions goba internacional , s.a. de c.v. acquisition on july 2 , 2018 , we completed the goba acquisition . goba is a leading provider of school and craft products in mexico under the barrilito ® brand , for a preliminary purchase price of approximately $ 38.0 million , net of cash acquired , and subject to working capital and other adjustments . the goba acquisition is expected to increase the breadth and depth of our distribution , especially with wholesalers and retailers throughout mexico and complement our existing office products portfolio with a strong offering of school and craft products . the results of goba are included in the acco brands international segment from july 2 , 2018 . 26 esselte group holdings ab acquisition on january 31 , 2017 , we completed the acquisition ( the `` esselte acquisition '' ) of esselte . accordingly , the results of esselte are included in the company 's consolidated financial statements from february 1 , 2017 forward and are reported in all three of the company 's segments , but primarily in the acco brands emea segment . the acquisition of esselte made acco brands a leading european manufacturer and marketer of branded consumer and office products , and improved acco brands ' scale . esselte products are primarily marketed under the leitz ® , rapid ® and esselte ® brands in the storage and organization , stapling , punching , binding and laminating equipment and do-it-yourself tools product categories . pelikan artline joint venture acquisition on may 2 , 2016 , we completed the acquisition of australia stationery industries , inc. ( the `` pa acquisition '' ) , which indirectly owned the 50 % of the pelikan artline joint venture and the issued capital stock of pelikan artline pty limited ( collectively , `` pelikan artline '' ) that was not already owned by the company . prior to the pa acquisition , the pelikan artline joint venture was accounted for using the equity method . story_separator_special_tag segment net sales and operating income for the years ended december 31 , 2018 and 2017 replace_table_token_9_th ( 1 ) segment operating income excludes corporate costs . see `` item 8. note 17. information on business segments `` for a reconciliation of total `` segment operating income `` to `` income before income tax . '' acco brands north america acco brands north america net sales of $ 940.7 million decreased $ 58.3 million , or 5.8 % , from $ 999.0 million in the prior-year period , including $ 0.9 million from the addition of esselte for the month of january . comparable net sales , excluding esselte and foreign currency translation , decreased 5.9 % . both declines were primarily due to lower net sales to u.s. wholesalers , which accounted for approximately 4.0 % of the sales reduction , with the remaining decline primarily driven by lower net sales due to lost share of calendar products . we anticipate there could be further net sales declines in our u.s. business in 2019 due to ongoing disruption in the traditional commercial reseller channel ( including office superstores and wholesalers ) . acco brands north america operating income of $ 116.6 million decreased $ 35.8 million , or 23.5 % , from $ 152.4 million in the prior-year period , and operating income margin decreased to 12.4 % from 15.3 % . operating income decreased primarily as a result of lower net sales , which contributed lower gross profit . operating income margin declined due to unfavorable customer and product mix and rising input costs , including tariffs . this was partially offset by cost savings , lower management incentive compensation expenses of $ 11.1 million , and an october sales price increase . acco brands emea acco brands emea net sales of $ 605.2 million increased $ 62.4 million , or 11.5 % , from $ 542.8 million in the prior-year period , due to the contribution of $ 42.7 million from the addition of esselte for the month of january and favorable foreign currency translation of $ 10.8 million , or 2.0 % . comparable net sales , excluding esselte and foreign currency translation , increased 1.6 % due to increased volume resulting from expanding distribution of legacy acco brands ' products to the acquired esselte customer base , as well as double-digit growth in shredders and computer products , which were partially offset by lower sales of commodity products . acco brands emea operating income of $ 59.4 million , including $ 5.4 million from the addition of esselte for the month of january , increased $ 27.4 million , or 85.6 % , from $ 32.0 million in the prior-year period , and operating margin increased to 9.8 % from 5.9 % . foreign currency translation increased operating income by $ 0.3 million , or 0.9 % , in the current-year period . underlying 31 operating income , excluding esselte and foreign currency translation , increased due to $ 9.5 million in lower restructuring charges and integration costs , and higher gross profit and gross profit margin from both favorable mix and synergy savings . acco brands international acco brands international net sales of $ 395.3 million decreased $ 11.7 million , or 2.9 % , from $ 407.0 million in the prior-year period as growth from acquisitions ( $ 19.7 million attributable to goba and $ 0.6 million from the addition of esselte for the month of january ) was offset by foreign currency translation , which reduced net sales by $ 22.0 million , or 5.4 % . comparable net sales , excluding acquisitions and foreign currency translation , decreased 2.5 % primarily driven by reduced customer purchases as certain customers lowered their inventory levels in australia and mexico , as well as lower net sales from lost share of commodity products in australia . these declines were only partially offset by net sales growth in brazil . acco brands international operating income of $ 49.2 million , including $ 2.3 million attributable to goba , decreased $ 1.7 million , or 3.3 % , from $ 50.9 million in the prior-year period . operating income margin was flat at 12.4 % . foreign currency translation reduced operating income by $ 4.3 million , or 8.4 % , in the current-year period . underlying operating income , excluding acquisitions and foreign currency translation , decreased due to lower net sales resulting in lower gross profit , partially offset by $ 4.7 million in lower restructuring charges and integration costs as well as cost savings . consolidated results of operations for the years ended december 31 , 2017 and 2016 replace_table_token_10_th ( 1 ) the company acquired esselte on january 31 , 2017 ; esselte 's results are included in 2017 results from february 1 , 2017 forward . ( 2 ) the company acquired pelikan artline on may 2 , 2016 ; pelikan artline 's results are included in 2016 results from that date forward . net sales net sales of $ 1,948.8 million , including $ 438.8 million attributable to the esselte and pa acquisitions , increased $ 391.7 million , or 25.2 % , from $ 1,557.1 million in the prior-year period . foreign currency translation increased sales by $ 12.4 million , or 0.8 % . comparable net sales , excluding the acquisitions and foreign currency translation , decreased primarily due to declines at certain office superstore customers and lost product placements . 32 cost of products sold cost of products sold of $ 1,291.5 million increased $ 249.3 million , or 23.9 % , from $ 1,042.2 million in the prior-year period . foreign currency translation reduced cost of products sold by $ 8.4 million , or 0.8 % . underlying cost of products sold , excluding foreign currency translation , increased due to the inclusion of the acquisitions , partially offset by lower comparable sales and cost savings and productivity improvements .
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overview of 2018 performance net sales for the year ended december 31 , 2018 decreased slightly , primarily due to lower sales to wholesalers and reduced sales of calendar products , both in the u.s. , which offset the benefits of the acquisitions and growth in emea . operating income increased 1 % due to lower restructuring and integration charges in the current year as well as lower management incentive compensation expenses , which offset the negative margin impact of the sales reduction , adverse mix , inflation and foreign exchange . the lower management incentive compensation expenses resulted from failure to meet sales and operating income targets and lower than expected cash flow performance for 2018 . 27 our financial results for the year ended december 31 , 2018 were impacted by the following key factors : sales and gross profit declined in our north america segment primarily due to declines with a large wholesaler customer and lost placement of calendar products . our gross profit margin was also reduced by the customer and product mix impact from these lost sales . the lower sales to the wholesaler were largely driven by consolidation , in particular , the acquisition of essendant by staples , which was under negotiation through much of 2018 and is now completed , and the acquisition of various u.s. independent dealers by both staples and office depot . the ongoing consolidation in the u.s. commercial office products channel is creating substantial uncertainty and disruption . this uncertainty has and will likely continue to adversely impact our customers ' buying patterns . we expect this trend to continue and this could result in a further reduction of sales to and profit from these channels . the profitability of our north america segment was also negatively impacted by inflationary increases in input costs , including the cost of paper , steel , aluminum , and transportation , as well as increased tariffs .
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fiscal 2008 ) refer to rio vista 's fiscal year ending december 31. overview historical assets and operations in august 2006 , rio vista completed the disposition of substantially all of its u.s. lpg assets to transmontaigne , including the brownsville , texas terminal facility and refined products tank farm , together with associated improvements , leases , easements , licenses and permits ; an lpg sales agreement ; and all of lpg inventory . in december 2007 , rio vista completed the disposition of its remaining lpg assets to transmontaigne , including the u.s. portion of the two pipelines from a brownsville , texas terminal owned by transmontaigne to the u.s. border , along with all associated rights-of-way and easements ; all of the outstanding equity interests in entities owning interests in the portion of the two pipelines that extend from the u.s. border to matamoros , mexico ; and all of the rights for indirect control of an entity that owns a terminal site in matamoros , mexico . as a result , effective january 1 , 2008 , rio vista no longer operates the assets associated with the lpg business it had historically conducted . current assets and operations in july 2007 , rio vista acquired regional and in november 2007 , rio vista acquired certain oil and natural gas producing properties and related assets in the state of oklahoma formerly owned by gm oil properties , inc. , penny petroleum corporation and go llc . as a result of these acquisitions in 2007 , rio vista is now focused on the acquisition , development and production of oil and natural gas properties and related midstream assets , and the operation and development of regional 's business consisting of transportation and terminaling . beginning march 1 , 2008 , rio vista operating llc ( operating ) became the operator of the oklahoma assets . the above acquisitions were funded by a combination of debt ( new and assumed ) , private placements of rio vista common units and proceeds from the sale of rio vista 's lpg related assets . during november 2007 , rio vista completed a private placement of common units raising gross proceeds of $ 4.0 million ( see note i to the consolidated financial statements ) . 46 story_separator_special_tag the required debt covenants associated with the tcw credit facility , which prohibits distributions by rio vista 's oklahoma subsidiaries unless certain conditions are met . rio vista is currently in discussions with tcw to restructure the tcw credit facility . see - debt obligations tcw credit facility below . 51 in addition , pursuant to the omnibus agreement , penn octane is entitled to reimbursement of costs incurred on behalf of rio vista , including an allocable share of overhead . as a result , rio vista may not have sufficient available cash to pay its separate general and administrative and other operating expenses , debt service and or minimum quarterly distributions to unitholders unless rio vista is able to restructure the tcw credit facility and the rzb note under terms which would provide an acceptable debt service and cash flow arrangement . in addition , rio vista may not distribute sufficient cash to meet the tax obligations of unitholders associated with the ownership of common units . rio vista may obtain additional sources of revenues through the completion of future transactions , including acquisitions and or dispositions of assets . the ability of rio vista to complete future acquisitions may require the use of a portion or substantially all of rio vista 's liquid assets , the issuance of additional debt and or the issuance of additional units . currently , substantially all of rio vista 's assets are pledged or committed to be pledged as collateral on existing debt in connection with the tcw credit facility and the rzb loan agreement ( see below ) . accordingly , rio vista may be unable to obtain additional financing collateralized by those assets . at december 31 , 2008 , rio vista had a working capital deficit of approximately $ 36 million . rio vista can not be certain that future cash flows from regional 's business or the oklahoma assets ' operations and future investments , if any , will be adequate to cover all of its future working capital requirements , including minimum distributions to unitholders . distributions of available cash all rio vista unitholders have the right to receive distributions from rio vista of available cash as defined in the partnership agreement in an amount equal to at least the minimum distribution of $ 0.25 per quarter per unit , plus any arrearages in the payment of the minimum quarterly distribution on the units from prior quarters subject to any reserves determined by the general partner . the general partner has a right to receive a distribution corresponding to its 2 % general partner interest and the incentive distribution rights described below . the distributions are to be paid within 45 days after the end of each calendar quarter . however , rio vista is prohibited from making any distributions to unitholders if it would cause an event of default , or an event of default exists , under any obligation of penn octane which rio vista has guaranteed . in addition to its 2 % general partner interest , the general partner is currently the holder of incentive distribution rights which entitle the holder to an increasing portion of cash distributions as described in the partnership agreement . as a result , cash distributions from rio vista are shared by the holders of the common units and the general partner based on a formula whereby the general partner receives disproportionately more distributions per percentage interest than the holders of the common units as annual cash distributions exceed certain milestones . story_separator_special_tag payments under the tcw credit facility were interest-only until december 29 , 2008. the tcw credit facility carries no prepayment penalty . rio vista eco llc ( an indirect , wholly-owned subsidiary of rio vista and the direct parent of rio vista penny and rio vista go ) , rio vista go , go and mv have each agreed to guarantee payment of the notes payable to the lenders under the tcw credit facility . under the terms of the note purchase agreement , at any time during the period from may 19 , 2008 through november 19 , 2009 , tcw has the right to demand payment of $ 2.2 million of debt ( demand loan ) . beginning may 19 , 2008 , tcw also has the right to convert the outstanding principal amount of the demand loan into common units of rio vista at a price equal to the lesser of $ 13.33 per unit or 90 % of the 20-day average trading price of such units preceding the election to convert . beginning november 19 , 2008 , tcw has the right to convert the balance of the debt under the tcw credit facility into common units of rio vista at a price equal to 90 % of the 20-day average trading price of such units preceding the election to convert . the conversion rights of tcw as described above were formalized through the issuance of a warrant by rio vista ( tcw warrant ) . rio vista has agreed to file with the sec a registration statement on form s-3 covering the common units issued pursuant to the tcw warrant within 90 days following the first exercise of the tcw warrant . rio vista penny and rio vista go , which hold the oklahoma assets , are prohibited from making upstream distributions to rio vista unless certain conditions are met which currently are not expected to be met in the future . in addition , the tcw credit facility requires semi-annual reserve reports by an independent engineer which is used in determining the allowable borrowing base . 54 on september 29 , 2009 , rio vista penny entered into a first amendment to the note purchase agreement ( first tcw amendment ) with tcw . under the terms of the first tcw amendment , tcw agreed to fund rio vista penny an additional $ 1.0 million under the tcw credit facility for certain apod costs as described in the first tcw amendment . in addition , under the terms of the first tcw amendment , the interest rate under the tcw credit facility increased from 10.5 % per annum to 12.5 % per annum beginning july 1 , 2008. under the terms of the first tcw amendment , tcw agreed to change the period for which a notice to demand repayment from rio vista penny of up to $ 2.2 million of indebtedness under the tcw credit facility from may 19 , 2008 to january 1 , 2009 and rio vista penny also agreed to extend the demand repayment option on the $ 2.2 million through the date of maturity of the tcw credit facility . in addition , under the terms of the first tcw amendment , tcw has agreed to waive other defaults identified in the first tcw amendment which either occurred and or were existing prior to the date of the first tcw amendment . in addition , on september 29 , 2008 , in connection with the tcw credit facility , rio vista penny , rio vista , operating and tcw entered into an amended and restated management services agreement ( amended msa ) . under the terms of the amended msa , operating was named as manager of the oklahoma properties , replacing northport production company , an oklahoma corporation , which was previously named as manager under the original management services agreement . rio vista penny and tcw have entered into several letter agreements whereby tcw agreed to extend the payment obligations under the tcw credit facility ( including the december 2008 principal payment and interest payment due ) and other requirements pursuant to the tcw credit facility until april 13 , 2009 ( tcw waiver ) . in connection with one of the extensions , tcw agreed to provide rio vista with 62 days advance written notice to exercise the tcw warrant , except for up to 400,000 common units of rio vista . rio vista 's management is in discussions with tcw to restructure the tcw credit facility . however , if rio vista 's management is unable to restructure the tcw credit facility or obtain additional extensions or waivers of its requirements of payment terms and covenants contained in the tcw credit facility , then rio vista penny will be in default under the terms of the tcw credit facility . tcw has the right to foreclose against rio vista penny under the terms of the tcw credit facility . tcw has no recourse against rio vista , except that tcw holds the tcw warrant , granting it the right , but not the obligation , to convert a portion or all of the value of the debt owing under the tcw credit facility , including accrued interest and penalties , into rio vista common units at the exercise price defined in the tcw warrant ( approximately 90 % of the market value of the common units on the 20 trading days preceding the conversion date ) . if tcw converts any amounts owing under the tcw credit facility into rio vista common units then the current rio vista common unit holders will be significantly diluted . as of december 31 , 2008 , the net book value oklahoma assets were approximately $ 36.1 million . as a result of a foreclosure , based on december 31 , 2008 balances , rio vista would record a loss related to the oklahoma assets which could approximate $ 7.8 million .
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results of operations because of the sale of the lpg sales business during august 2006 , which at that time was our sole business up through the date of the sale , the commencement and sale of our lpg transportation business during august 2006 and december 2007 , respectively , and our rapid growth through the acquisitions of regional and the oklahoma assets during 2007 , our historical results of operations and period-to-period comparisons of these results during the years ended 2006 , 2007 and 2008 are not that meaningful or indicative of future results . the results of operations from continuing operations during the years ended december 2007 and 2008 reflect the results associated with the i . ) the transportation and terminaling business associated with bulk and petroleum products associated with regional operations which was acquired during july 2007 and lpg , which was commenced during august 2006 and was sold on december 31 , 2007 ( including all costs associated with operation of the us-mexico pipelines and matamoros terminal facility ) , ii . ) the operation of the oklahoma assets , which was acquired during november 2007 and iii . ) all indirect income and expenses of rio vista . continuing operations year ended december 31 , 2008 compared with year ended december 31 , 2007 replace_table_token_18_th 47 replace_table_token_19_th replace_table_token_20_th 48 replace_table_token_21_th 49 replace_table_token_22_th ( a ) acquired during november 2007 ( b ) acquired during july 2007 ( c ) business commenced in august 2006 and sold december 31 , 2007 50 year ended december 31 , 2008 compared with year ended december 31 , 2007 revenues .
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if an indicator of impairment exists for any of its assets , an estimate of undiscounted future cash flows over the life of the primary asset for each restaurant is compared to that long-lived asset 's carrying value . if the carrying value is greater than the undiscounted cash flow , the company then determines the fair value of the asset and if an asset is determined to be impaired , the loss is measured by the excess of the carrying amount of the asset over its f-9 fiesta restaurant group , inc notes to consolidated financial statements— ( continued ) years ended december 29 , 2013 , december 30 , 2012 and january 1 , 2012 ( in thousands of dollars ) fair value . for closed restaurant locations , the company reviews story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations ( `` md & a '' ) is written to help the reader understand our company . the md & a is provided as a supplement to , and should be read in conjunction with , our consolidated financial statements and the accompanying financial statement notes . on may 7 , 201 2 , carrols restaurant group completed the spin-off of fiesta into an independent public company , through the distribution of all of the outstanding shares of fiesta restaurant group 's common stock to the stockholders of carrols restaurant group . as a result of the spin-off , we became an independent public company whose common stock is traded on the nasdaq global select market under the symbol “ frgi. ” we use a 52-53 week fiscal year ending on the sunday closest to december 31. the fiscal years ended december 29 , 2013 , december 30 , 2012 and january 1 , 2012 each contained 52 weeks . company overview we own , operate and franchise two fast-casual restaurant brands , pollo tropical® and taco cabana® , which have over 25 years and 35 years , respectively , of operating history and loyal customer bases . our pollo tropical restaurants offer a wide variety of freshly prepared caribbean inspired food , while our taco cabana restaurants offer a broad selection of hand-made , fresh and authentic mexican food . we believe that both brands are differentiated from other restaurant concepts and offer a unique dining experience . we are positioned within the value-oriented fast-casual restaurant segment , which combines the convenience and value of quick-service restaurants with the variety , food quality , décor and atmosphere more typical of casual dining restaurants . our open display kitchen format allows guests to view and experience our food being freshly-prepared and cooked to order . additionally , nearly all of our restaurants offer the convenience of drive-thru windows . as of december 29 , 2013 , our company-owned restaurants included 102 pollo tropical restaurants and 165 taco cabana restaurants . we franchise our pollo tropical restaurants primarily internationally and as of december 29 , 2013 , we had 35 franchised pollo tropical restaurants located in puerto rico , ecuador , honduras , trinidad & tobago , the bahamas , venezuela , costa rica , panama , the dominican republic and india and four non-traditional licensed locations on college campuses in florida . we have agreements for the continued development of franchised pollo tropical restaurants in the existing markets of venezuela , north india , trinidad & tobago , honduras , costa rica and panama , and we have agreements to develop new restaurants in the additional markets of aruba , curacao , bonaire and guatemala . as of december 29 , 2013 , we had four taco cabana franchised restaurants located in new mexico and three non-traditional taco cabana licensed locations in texas . recent and future events affecting our results of operations spin-off of fiesta restaurant group , inc. on may 7 , 2012 , carrols restaurant group completed the spin-off of fiesta in the form of a pro rata dividend of all of our issued and outstanding common stock to carrols restaurant group 's stockholders whereby each holder of carrols restaurant group common stock of record on april 26 , 2012 received one share of our common stock for every one share of carrols restaurant group common stock held . in connection with the spin-off , on april 24 , 2012 , carrols restaurant group and carrols entered into several agreements with us that govern the transition and carrols restaurant group 's post spin-off relationship with us , including a separation and distribution agreement , tax matters agreement , employee matters agreement and transition services agreement ( the `` tsa '' ) . during the years ended december 29 , 2013 and december 30 , 2012 , we recognized expenses of $ 3.0 million and $ 3.7 million , respectively , related to the tsa , which became effective on may 7 , 2012. in october 2013 , we terminated the tsa with respect to substantially all of the remaining services provided under the tsa with the exception of certain information technology services and other miscellaneous services . we terminated the remaining services under the tsa in december 2013. refinancing , repurchase and redemption of outstanding indebtedness on november 12 , 2013 , we commenced a tender offer and consent solicitation for all of our outstanding $ 200.0 million aggregate principal amount of notes . holders who validly tendered their notes received total consideration of $ 1,062.50 , payable in cash for each $ 1,000 principal amount of notes accepted for payment , which included a consent payment of $ 30.00 per $ 1,000 principal amount of notes tendered and accepted for payment . accrued and unpaid interest , up to , but not including , the applicable settlement date , was paid in cash on all validly tendered and accepted notes . the principal amount repurchased in the tender offer totaled $ 122.7 million . story_separator_special_tag 34 total revenues increased 8.2 % in 2013 to $ 551.3 million from $ 509.7 million in 2012 , driven primarily by an increase in the number of company-owned restaurants and an increase in comparable restaurant sales of 5.9 % for the pollo tropical restaurants and 0.5 % for the taco cabana restaurants . the growth in comparable restaurant sales resulted primarily from an increase in average check of 3.2 % at pollo tropical and 1.6 % at taco cabana and an increase in transactions at pollo tropical of 2.7 % , offset by a decrease in transactions at taco cabana of 1.1 % . during 2013 , we opened twelve new company-owned pollo tropical restaurants and six new company-owned taco cabana restaurants and permanently closed one company-owned pollo tropical restaurant and one company-owned taco cabana restaurant . story_separator_special_tag style= '' line-height:120 % ; font-size:8pt ; '' > the following table presents the primary drivers of the changes in the components of restaurant operating margins for pollo tropical and taco cabana . all percentages are stated as a percentage of applicable segment restaurant sales . replace_table_token_11_th 37 replace_table_token_12_th consolidated restaurant rent expense . restaurant rent expense includes base rent and contingent rent on our leases characterized as operating leases , reduced by amortization of gains on sale-leaseback transactions . restaurant rent expense , as a percentage of total restaurant sales , increased to 4.9 % in 2013 from 4.3 % in 2012 due primarily to the qualification for sale treatment of the sale-leaseback transactions discussed above which increased rent expense in 2013 by $ 2.8 million . restaurant rent expense , as a percentage of total restaurant sales , increased to 4.3 % in 2012 from 3.6 % in 2011 also due primarily to the qualification for sale treatment of the sale-leaseback transactions discussed above which increased rent expense in 2012 by $ 4.4 million . this was partially offset by the effect of higher restaurant sales volumes at both pollo tropical and taco cabana on fixed rental costs . consolidated general and administrative expenses . general and administrative expenses are comprised primarily of ( 1 ) salaries and expenses associated with the development and support of our company and brands and the management oversight of the operation of our restaurants ; ( 2 ) legal , auditing and other professional fees and stock-based compensation expense ; and ( 3 ) subsequent to the spin-off , costs incurred under the tsa for administrative support services . general and administrative expenses increased to $ 48.5 million in 2013 from $ 43.9 million in 2012 and , as a percentage of total revenues , increased to 8.8 % compared to 8.6 % in 2012. the increase is due primarily to fiesta management additions and related costs and other costs related to the transition from carrols restaurant group to a separate infrastructure . in addition , general and administrative expenses in 2013 includes $ 0.4 million of expenses associated with the underwritten secondary public equity offering completed in march 2013. general and administrative expenses increased to $ 43.9 million in 2012 from $ 37.5 million in 2011 and , as a percentage of total restaurant sales , increased to 8.6 % compared to 7.9 % in 2011 , due to the hiring of certain fiesta executive management and administrative staff as well as legal and other costs of $ 0.8 million incurred in connection with the spin-off . general and administrative expense also includes stock-based compensation expense and other costs of $ 1.1 million in the first quarter of 2012 38 related to the conversion of carrols restaurant group outstanding stock options into either shares of carrols restaurant group common stock or restricted stock in connection with the spin-off and the acceleration of vesting of restricted stock awards of our former chairman upon his departure from our board of directors . in addition , general and administrative costs during 2012 included $ 0.6 million associated with retirement agreements entered into during the third quarter . adjusted ebitda . adjusted ebitda , which is one of the measures of segment profit or loss used by our chief operating decision maker for purposes of allocating resources to our segments and assessing their performance , is defined as earnings attributable to the applicable segment before interest , loss on extinguishment of debt , income taxes , depreciation and amortization , impairment and other lease charges , stock-based compensation expense and other income and expense . adjusted ebitda may not be necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation . adjusted ebitda for each of our segments includes an allocation of general and administrative expenses associated with administrative support for executive management , information systems and certain accounting , legal and other administrative functions . adjusted ebitda is a non-gaap financial measure of performance . for a discussion of our use of adjusted ebitda and a reconciliation to net income , see the heading entitled `` management 's use of non-gaap financial measures '' . adjusted ebitda for our pollo tropical restaurants increased to $ 43.7 million in 2013 from $ 38.6 million in 2012 due primarily to the net impact of the increase in revenue , partially offset by an increase in rent expense , insurance costs and pre-opening costs and an increase in general and administrative expense . adjusted ebitda for our taco cabana restaurants increased to $ 26.1 million in 2013 from $ 25.6 million in 2012 also primarily due to the net impact of the increase in revenues , partially offset by the increase in rent expense and the increase in general and administrative expense . adjusted ebitda for pollo tropical and taco cabana was negatively impacted by an increase in rent expense of $ 1.1 million and $ 1.8 million , respectively , in 2013 compared to 2012 due to the qualification for sale treatment of sale-leaseback transactions , as discussed above .
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results of operations the following table sets forth , for the years ended december 29 , 2013 , december 30 , 2012 and january 1 , 2012 , selected consolidated operating results as a percentage of consolidated restaurant sales : replace_table_token_8_th the following table summarizes the changes in the number and mix of pollo tropical and taco cabana company-owned and franchised restaurants in each fiscal year : replace_table_token_9_th consolidated revenues . revenues include restaurant sales , which consist of food and beverage sales , net of discounts , at our company-owned restaurants , and franchise royalty revenues and fees , which represent ongoing royalty payments that are determined based on a percentage of franchisee sales , franchise fees associated with new restaurant openings , and development fees associated with the opening of new franchised restaurants in a given market . restaurant sales are influenced by new restaurant openings and closures of restaurants , and changes in comparable restaurant sales . total revenues increased 8.2 % to $ 551.3 million in 2013 from $ 509.7 million in 2012 , while the 2012 revenues represent an increase of 7.3 % from $ 475.0 million in 2011. restaurant sales also increased 8.2 % to $ 549.0 million in 2013 from $ 507.4 35 million in 2012 , which represents an increase of 7.2 % from $ 473.2 million in 2011. the following table presents the primary drivers of the increase in restaurant sales for both pollo tropical and taco cabana : replace_table_token_10_th comparable restaurant sales for pollo tropical increased 5.9 % in 2013 and 8.1 % in 2012. comparable restaurant sales for taco cabana increased 0.5 % in 2013 and 4.7 % in 2012. restaurants are included in comparable restaurant sales after they have been open for 18 months . increases in comparable restaurant sales result primarily from an increase in guest traffic and an increase in average check . the increase in average check is primarily driven by menu price increases .
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we believe these were major factors in the reduction of our charge-off ratio during fiscal 2010. general and administrative expenses during fiscal 2010 increased by $ 16.8 million , or 8.4 % , over the previous fiscal year . this increase was due primarily to costs associated with the new offices opened or acquired during the fiscal year . general and administrative expenses , when divided by average open offices , increased slightly when comparing the two fiscal years and , overall , general and administrative expenses as a percent of total revenues decreased from 51.1 % in fiscal 2009 to 49.2 % during fiscal 2010. this decrease resulted from the reduction of branch openings during fiscal 2010 and management 's ongoing monitoring and control of expenses . interest expense decreased by $ 1.0 million , or 6.7 % , during fiscal 2010 , as compared to the previous fiscal year as a result of a decrease in average debt outstanding of 4.5 % and a slight decrease in average interest rates . average interest rates decreased from 6.7 % in fiscal 2009 to 6.5 % in fiscal 2010. income tax expense increased $ 10.7 million , or 30.5 % , primarily from an increase in pre-tax income . the effective rate remained consistent at 38.3 % in both fiscal 2010 and fiscal 2009. critical accounting policies the company 's accounting and reporting policies are in accordance with u.s. generally accepted accounting principles and conform to general practices within the finance company industry . the significant accounting policies used in the preparation of the consolidated financial statements are discussed in note 1 to the consolidated financial statements . certain critical accounting policies involve significant judgment by the company 's management , including the use of estimates and assumptions which affect the reported amounts of assets , liabilities , revenues , and expenses . as a result , changes in these estimates and assumptions could significantly affect the company 's financial position and results of operations . the company considers its policies regarding the allowance for loan losses , share-based compensation , and income taxes to be its most critical accounting policies due to the significant degree of management judgment involved . 22 allowance for loan losses the company has developed policies and procedures for assessing the adequacy of the allowance for loan losses that take into consideration various assumptions and estimates with respect to the loan portfolio . the company 's assumptions and estimates may be affected in the future by changes in economic conditions , among other factors . for additional discussion concerning the allowance for loan losses , see “ credit quality ” below . share-based compensation the company measures compensation cost for share-based awards at fair value and recognizes compensation over the service period for awards expected to vest . the fair value of restricted stock is based on the number of shares granted and the quoted price of our common stock , and the fair value of stock options is determined using the black-scholes valuation model . the black-scholes model requires the input of highly subjective assumptions , including expected volatility , risk-free interest rate and expected life , changes to which can materially affect the fair value estimate . in addition , the estimation of share-based awards that will ultimately vest requires judgment , and to the extent actual results or updated estimates differ from our current estimates , such amounts will be recorded as a cumulative adjustment in the period that the estimates are revised . the company considers many factors when estimating expected forfeitures , including types of awards , employee class , and historical experience . actual results , and future changes in estimates , may differ substantially from our current estimates . income taxes management uses certain assumptions and estimates in determining income taxes payable or refundable , deferred income tax liabilities and assets for events recognized differently in its financial statements and income tax returns , and income tax expense . determining these amounts requires analysis of certain transactions and interpretation of tax laws and regulations . management exercises considerable judgment in evaluating the amount and timing of recognition of the resulting income tax liabilities and assets . these judgments and estimates are re-evaluated on a periodic basis as regulatory and business factors change . no assurance can be given that either the tax returns submitted by management or the income tax reported on the consolidated financial statements will not be adjusted by either adverse rulings by the u.s. tax court , changes in the tax code , or assessments made by the internal revenue service ( “ irs ” ) or state taxing authorities . the company is subject to potential adverse adjustments , including but not limited to : an increase in the statutory federal or state income tax rates , the permanent non-deductibility of amounts currently considered deductible either now or in future periods , and the dependency on the generation of future taxable income in order to ultimately realize deferred income tax assets . the company adopted fasb asc 740-10 , on april 1 , 2007. under fasb asc 740 , the company includes the current and deferred tax impact of its tax positions in the financial statements when it is more likely than not ( likelihood of greater than 50 % ) that such positions will be sustained by taxing authorities , with full knowledge of relevant information , based on the technical merits of the tax position . story_separator_special_tag therefore , a large percentage of loans that are charged off during any fiscal year are not on the company 's books at the beginning of the fiscal year . the company believes that it is not appropriate to provide for losses on loans that have not been originated , that twelve months of net charge-offs are not needed in the allowance , and that the method employed is in accordance with generally accepted accounting principles . 25 the following is a summary of the changes in the allowance for loan losses for the years ended march 31 , 2011 , 2010 , and 2009 : replace_table_token_11_th ( 1 ) average loans receivable have been determined by averaging month-end gross loans receivable less unearned interest and deferred fees over the indicated period . quarterly information and seasonality the company 's loan volume and corresponding loans receivable follow seasonal trends . the company 's highest loan demand typically occurs from october through december , its third fiscal quarter . loan demand has generally been the lowest and loan repayment highest from january to march , its fourth fiscal quarter . loan volume and average balances typically remain relatively level during the remainder of the year . this seasonal trend affects quarterly operating performance through corresponding fluctuations in interest and fee income and insurance commissions earned and the provision for loan losses recorded , as well as fluctuations in the company 's cash needs . consequently , operating results for the company 's third fiscal quarter generally are significantly lower than in other quarters and operating results for its fourth fiscal quarter are significantly higher than in other quarters . 26 the following table sets forth , on a quarterly basis , certain items included in the company 's unaudited consolidated financial statements and shows the number of offices open during fiscal years 2011 and 2010. replace_table_token_12_th recently issued accounting pronouncements see “ item 8. financial statements and supplementary data . note 1. summary of significant accounting policies , ” of the consolidated financial statements for the impact of new accounting pronouncements . liquidity and capital resources the company has financed and continues to finance its operations , acquisitions and office expansion through a combination of cash flows from operations and borrowings from its institutional lenders . the company has generally applied its cash flows from operations to fund its increasing loan volume , fund acquisitions , repay long-term indebtedness , and repurchase its common stock . as the company 's gross loans receivable increased from $ 416.3 million at march 31 , 2006 to $ 875.0 million at march 31 , 2011 , net cash provided by operating activities for fiscal years 2011 , 2010 and 2009 was $ 199.8 million , $ 183.6 million and $ 153.9 million , respectively . the company 's primary ongoing cash requirements relate to the funding of new offices and acquisitions , the overall growth of loans outstanding , the repayment or repurchase of long-term indebtedness and the repurchase of its common stock . as of march 31 , 2011 , approximately 7.8 million shares have been repurchased since 2000 for an aggregate purchase price of approximately $ 204.5 million . during fiscal 2011 the company repurchased 1.3 million shares for $ 53.3 million . in august 2010 , the board of directors authorized the company to repurchase up to $ 20 million of common stock . in addition , as previously announced , subsequent to the end of fiscal 2011 , on may 23 , 2011 and april 26 , 2011 , the board of directors authorized the company to repurchase up to $ 50 million of additional common stock . through june 3 , 2011 ( including pending repurchase orders subject to settlement ) , the company repurchased shares of its common stock for approximately $ 34.2 million . see note 20 – subsequent events to the consolidated financial statements . the company believes stock repurchases to be a viable component of the company 's long-term financial strategy and an excellent use of excess cash when the opportunity arises . in addition , the company plans to open approximately 63 branches in the united states , 10 branches in mexico , and evaluate acquisition opportunities in fiscal 2012. expenditures by the company to open and furnish new offices generally averaged approximately $ 25,000 per office during fiscal 2011. new offices have also required from $ 100,000 to $ 400,000 to fund outstanding loans receivable originated during their first 12 months of operation . the company acquired six offices and fourteen loan portfolios from competitors in eight states in eleven separate transactions during fiscal 2011. gross loans receivable purchased in these transactions were approximately $ 3.9 million in the aggregate at the dates of purchase . the company believes that attractive opportunities to acquire new offices or receivables from its competitors or to acquire offices in communities not currently served by the company will continue to become available as conditions in local economies and the financial circumstances of owners change . 27 the company has a $ 225.0 million base credit facility with a syndicate of banks . the credit facility will expire on august 31 , 2012. funds borrowed under the revolving credit facility bear interest , at the company 's option , at either the agent bank 's prime rate per annum or the libor rate plus 3.0 % per annum with a minimum 4.0 % interest rate . during fiscal 2011 , the effective interest rate on borrowings under the revolving credit facility , including the impact of interest swap , was 4.4 % . the company pays a commitment fee equal to 0.375 % per annum of the daily unused portion of the revolving credit facility . amounts outstanding under the revolving credit facility may not exceed specified percentages of eligible loans receivable . on march 31 , 2011 , $ 82.3 million was outstanding under this facility ,
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general the company 's financial performance continues to be dependent in large part upon the growth in its outstanding loans receivable , the maintenance of loan quality and acceptable levels of operating expenses . since march 31 , 2006 , gross loans receivable have increased at a 16.0 % annual compounded rate from $ 416.3 million to $ 875.0 million at march 31 , 2011. the increase reflects both the higher volume of loans generated through the company 's existing offices and the contribution of loans generated from new offices opened or acquired over the period . during this same five-year period , the company has grown from 620 offices to 1,067 offices as of march 31 , 2011. during fiscal 2012 , the company plans to open approximately 63 new offices in the united states and 10 new offices in mexico and also to evaluate acquisition as opportunities arise . the company 's paradata financial systems subsidiary provides data processing systems to 103 separate finance companies , including the company , and currently supports approximately 1,652 individual branch offices in 44 states and mexico . paradata 's revenue is highly dependent upon its ability to attract new customers , which often requires substantial lead time , and as a result its revenue may fluctuate from year to year . its net revenues from system sales and support amounted to $ 1.9 million , $ 1.8 million and $ 2.0 million in fiscal 2011 , 2010 and 2009 , respectively . paradata 's net revenue to the company will continue to fluctuate on a year to year basis . paradata continues to provide state-of-the-art data processing support for the company 's in-house integrated computer system at a substantially reduced cost to the company . 19 the company offers an income tax return preparation and electronic filing program in all but a few of its offices .
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the accounts payable balance includes amounts due to novici of approximately story_separator_special_tag the following discussion of our financial condition and results of operations should be read together with our financial statements and the notes thereto and other information included elsewhere in this annual report on form 10-k. forward-looking information and factors that may affect future results the following discussion contains forward-looking statements within the “ safe harbor ” provisions of the private securities litigation reform act of 1995. all statements contained in the following discussion , other than statements that are purely historical , are forward-looking statements . forward-looking statements can be identified by the use of forward-looking terminology such as “ believes , ” “ expects , ” “ may , ” “ will , ” “ should , ” “ potential , ” “ anticipates , ” “ plans , ” or “ intends ” or the negative thereof , or other variations thereof , or comparable terminology , or by discussions of strategy . forward-looking statements are based upon management 's present expectations , objectives , anticipations , plans , hopes , beliefs , intentions or strategies regarding the future and are subject to known and unknown risks and uncertainties that could cause actual results , events or developments to be materially different from those indicated in such forward-looking statements , including the risks and uncertainties set forth in item 1a - risk factors . these risks and uncertainties should be considered carefully and readers are cautioned not to place undue reliance on such forward-looking statements . as such , no assurance can be given that the future results covered by the forward-looking statements will be achieved . 29 overview we are a biotechnology company focused on using our proprietary technologies and production facilities to provide product development and manufacturing services to clients , collaborators and third-party customers as well as developing and commercializing our own product candidates . our assets and capabilities include proprietary and transformative methods for the development , improvement , and production of biologics using hydroponically grown , transiently-transfected green plants for recombinant protein production . our technologies have been successfully used with a diverse range of biopharmaceutical product candidates including products against fibrotic diseases , vaccines , enzyme replacements , monoclonal antibodies , and recombinant versions of marketed products that are currently derived from human blood plasma . ibio technologies have been used to advance development of certain products that have been commercially infeasible to develop with conventional technologies such as chinese hamster ovary cell systems and microbial fermentation methods . we have also used our technologies to create and produce experimental , proprietary derivatives of pre-existing products with improved properties . we believe that our technologies and our development and manufacturing capabilities offer clients and collaborators multiple advantages over the use of legacy methods , including increased efficiency in early-stage product screening , more predictable and shorter time frames during preclinical product development and testing , and significant time and cost savings in making the transitions between clinical trial phases and eventual product launch . in addition , our technologies are applicable to both improving process efficiency and also to improving product quality and performance characteristics . we expect demand for our technologies and services to increase steadily and to provide significant revenue opportunities with clients addressing the expanding global market for biopharmaceutical products because the competitive success of new products often depends on improved efficacy and safety or on reduced development time and cost-effective manufacturing processes . we believe our technologies and capabilities deliver these benefits to our collaborators and clients . we expect to provide services and participate in collaborative development programs with a diverse group of clients and collaborators to enable us to achieve positive cash flow from operations sufficient for use in developing our own product candidates and enabling us to participate in the success of selected products developed jointly with collaborators . our current product pipeline is comprised of proprietary candidates for the treatment of a range of fibrotic diseases including systemic scleroderma and idiopathic pulmonary fibrosis . ibio-cfb03 , based on exclusively in-licensed university patents and newer patent applications filed by ibio , is our lead therapeutic candidate being advanced for ind development . on an ongoing basis , we evaluate product candidate opportunities originating in both academic institutions and corporate research programs , to which ibio technologies can add value , as potential opportunities for ibio . we developed and implemented a new business model as a result of the ongoing litigation against our original research and development contractor . our new business model comprises three key elements : 1. cdmo facility activities - the creation of a contract development and manufacturing organization to produce revenue through the provision of services based on our technologies and capabilities ; 2. product candidate pipeline - the advancement of select product candidates developed by ibio or through partnering with collaborators , and 3. facility design and build-out / technology transfer - the design and development for others of facilities based on our new technologies and experience along with the provision of commercial technology transfer . 30 we accomplished the first part of our new business plan through the acquisition of control of the large manufacturing facility that is now controlled and operated by our subsidiary , ibio cdmo llc ( “ ibio cdmo ” or “ cdmo ” ) ( formerly known as ibio cmo , llc . ) under capital lease . the facility includes human resources , laboratory and pilot-scale operations , and large-scale automated hydroponic systems capable of growing over four million plants as `` in process inventory '' and delivering over 300 kilograms of therapeutic protein active pharmaceutical ingredient per year . the facility capacity can also be doubled by adding additional plant growth equipment in a space already available for that purpose . we have integrated into our ibio cdmo operations the rights ibio has obtained to certain patented and unpatented technologies developed for it by novici biotech llc , in addition to novel manufacturing methods and processes developed by ibio cdmo . story_separator_special_tag ibio 's contract with fiocruz provides for commercial technology transfer services as the product candidates enter human clinical trials . over time , ibio expects to work closely with ibio cdmo to provide such technology transfer services for a variety of both commercial and government clients . story_separator_special_tag discussion below ) pursuant to the common stock purchase agreement entered into on july 24 , 2017 , and through proceeds realized in connection with license and collaboration arrangements and the operation of our subsidiary , ibio cdmo . we can not be certain that such funding will be available on favorable terms or available at all . to the extent that the company raises additional funds by issuing equity securities , its stockholders may experience significant dilution . if the company is unable to raise funds when required or on favorable terms , this assumption may no longer be operative , and the company may have to : a ) significantly delay , scale back , or discontinue the product application and or commercialization of its proprietary technologies ; b ) seek collaborators for its technology and product candidates on terms that are less favorable than might otherwise be available ; c ) relinquish or otherwise dispose of rights to technologies , product candidates , or products that it would otherwise seek to develop or commercialize ; or d ) possibly cease operations . 33 on july 24 , 2017 , we entered into the lincoln park purchase agreement pursuant to which lincoln park has agreed to purchase from us up to an aggregate of $ 16,000,000 of our common stock ( subject to certain limitations ) from time to time over the 36-month term of the agreement . as a result , on july 24 , 2017 , 1,200,000 shares of our common stock were issued to lincoln park as consideration for lincoln park 's commitment to purchase shares of our common stock under the agreement , and 2,500,000 shares of common stock were sold to lincoln park in an initial purchase for an aggregate gross purchase price of $ 1,000,000. despite any further proceeds we may receive pursuant to the lincoln park purchase agreement , we may still need additional capital to fully implement our business , operating and development plans for periods beyond september 15 , 2018. the extent to which we utilize the purchase agreement with lincoln park as a source of funding will depend on a number of factors , including the prevailing market price of our common stock , the volume of trading in our common stock and the extent to which we are able to secure funds from other sources . the number of shares that we may sell to lincoln park under the purchase agreement on any given day and during the term of the agreement is limited . additionally , we and lincoln park may not effect any sales of shares of our common stock under the purchase agreement during the continuance of an event of default under the purchase agreement . even if we are able to access the full $ 16.0 million under the purchase agreement , we may still need additional capital to fully implement our business , operating and development plans . on november 20 , 2014 , we filed with the securities and exchange commission a registration statement on form s-3 under the securities act , which was declared effective by the securities and exchange commission on december 2 , 2014. this registration statement allows us , from time to time , to offer and sell shares of common stock , shares of preferred stock , debt securities , units comprised of shares of common stock , preferred stock , debt securities and warrants in any combination , and warrants to purchase common stock , preferred stock , debt securities and or units , up to a maximum aggregate amount of $ 100 million of such securities . we currently have no firm agreements with any third parties for the sale of our securities pursuant to this registration statement . we can not be certain that funding will be available on favorable terms or available at all . to the extent that we raise additional funds by issuing equity securities , our stockholders may experience significant dilution . if we are unable to raise funds when required or on favorable terms , we may have to : a ) significantly delay , scale back , or discontinue the product application and or commercialization of our proprietary technologies ; b ) seek collaborators for our technology and product candidates on terms that are less favorable than might otherwise be available ; c ) relinquish or otherwise dispose of rights to technologies , product candidates , or products that we would otherwise seek to develop or commercialize ; or d ) possibly cease operations . on january 13 , 2016 , the company entered into a contract manufacturing joint venture with the eastern affiliate whereby the eastern affiliate contributed $ 15 million in cash for a 30 % interest in the company 's subsidiary ibio cdmo . the company retained a 70 % interest in ibio cdmo . on february 23 , 2017 , the company entered into an exchange agreement with the eastern affiliate pursuant to which the company acquired substantially all of the interest in ibio cdmo held by the eastern affiliate in exchange for one share of the company 's ibio cmo preferred tracking stock . after giving effect to the transaction , the company owns 99.99 % of ibio cdmo . on january 13 , 2016 , the company also entered into share purchase agreements with eastern pursuant to which eastern agreed to purchase 10 million shares of the company 's common stock at $ 0.622 per share .
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results of operations revenue gross revenue for 2017 and 2016 was $ 394,000 and $ 948,000 , respectively , a decrease of $ 554,000. revenue has been attributable to technology services provided to fiocruz in connection with the development by fiocruz of a yellow fever vaccine using our ibiolaunch technology . to fulfill our obligations , we engaged fraunhofer as a subcontractor to perform the services required . during 2013 , the company , fiocruz and fraunhofer were awaiting approval by the brazilian government of a contract amendment reflecting the agreed modifications to the work plan . during this waiting period , no revenues were recognized by the company in connection with services provided to fiocruz through the subcontract arrangement with fraunhofer . in june 2014 , the company , fiocruz and fraunhofer amended their collaboration and license agreement reflecting the agreed modifications to the work plan and work was resumed by fraunhofer for the company to continue development of a yellow fever vaccine using the company 's ibiolaunch technology . in fiscal 2017 , revenue was lower due to changes and an overall decrease in technology services performed pursuant to the agreement with fiocruz . research and development expenses research and development expenses for 2017 and 2016 were $ 4,117,000 and $ 3,156,000 , respectively , an increase of $ 961,000. the increase was primarily related to the addition of ibio cdmo operations net of the decrease in contracted research expenses . 32 general and administrative expenses general and administrative expenses for 2017 and 2016 were approximately $ 10,552,000 and $ 7,685,000 , respectively , an increase of $ 2,866,000. general and administrative expenses principally include officer and non-r & d employee salaries and benefits , depreciation and amortization , professional fees , facility repairs and maintenance , rent , utilities , consulting services , and other costs associated with being a publicly traded company .
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prior to a strategy change in 2019 , we participated with a working interest on some of our mineral and leasehold acreage and as a result , we still have legacy interests in leasehold acreage and non-operated interests in natural gas and oil properties . effective october 8 , 2020 , our corporate name was changed to phx minerals inc. to more accurately reflect our business strategy . our results of operations are dependent primarily upon the company 's : existing reserve quantities ; costs associated with acquiring , exploring for and developing new reserves ; production quantities and related production costs ; and natural gas , oil and ngl sales prices . although a significant amount of our revenues is currently derived from the production and sale of natural gas , oil and ngl on our working interests , a growing portion of our revenues is derived from royalties granted from the production and sale of natural gas , oil and ngl . strategic focus on mineral ownership during fiscal 2019 , we made the strategic decision to focus on perpetual natural gas and oil mineral ownership and growth through mineral acquisitions and the development of our significant mineral acreage inventory in our core areas of focus . in accordance with this decision , we ceased taking any working interest positions on our mineral and leasehold acreage going forward . in fiscal 2020 , we did not participate with a working interest in the drilling of any new wells . we believe that our strategy to focus on mineral ownership is the best path to giving the company 's stockholders the greatest risk-weighted returns on their investments . market conditions and commodity prices commodity prices are affected by many factors outside of our control , including changes in market supply and demand , which are impacted by weather conditions , pipeline capacity constraints , inventory storage levels , basis differentials and other factors . as a result , we can not accurately predict future commodity prices and , therefore , we can not determine with any degree of certainty what effect increases or decreases in these prices will have on our production volumes or revenues . our working interest and royalty revenues may vary significantly from period to period as a result of changes in commodity prices , production mix and volumes of production sold by our operators . production and operational update our natural gas , oil and ngl production for the fiscal year ended september 30 , 2020 , decreased 16 % , 18 % and 22 % , respectively , from that of 2019. the 2020 fiscal year 's lower natural gas , oil and ngl prices ( as discussed below ) and the overall production changes noted above resulted in a 41 % decrease in revenues from the sale of natural gas , oil and ngl in 2020. the company 's proved natural gas , oil and ngl reserves decreased to 57.7 bcfe in 2020 , compared to 106.4 bcfe in 2019 , a decrease of approximately 48.7 bcfe , or 46 % . the decrease was primarily due to revisions and slightly offset by additions , extensions and purchases . the revisions were primarily related to lower gas and oil prices and consisted of natural gas and oil wells reaching their economic limits earlier than was projected in 2019 , and the removal of proved undeveloped reserves not permitted , in progress , or drilled and uncompleted as a result of a change in strategy , and the impact of covid-19 and reduced pricing leading to decreased operator activity in 2020. this was coupled with negative performance revisions on developed reserves principally due to lower performance of high-interest woodford natural gas wells in the stack and arkoma stack in oklahoma and , to a lesser extent , lower performance of the eagle ford shale oil properties in southern texas . 30 as of september 30 , 2020 , the company owned an average 0.3 % net revenue interest in 125 wells , all royalty interest , that were being drill ed or a waiting completion . story_separator_special_tag recognized an impairment related to the eagle ford at september 30 , 2019 , of $ 76,560,376 , primarily due to the removal of working interest puds from the company 's reserve report . the further impairment of the eagle ford assets at march 31 , 2020 , was due to the decline in commodity prices over fiscal 2020 at that time . the remaining $ 588,721 and $ 263,961 of impairment was recorded on other assets in 2020 and 2019 , respectively . interest expense replace_table_token_20_th the decrease was due to lower interest rates , on average , and a lower outstanding debt balance during 2020. general and administrative costs ( g & a ) for the year ended september 30 , percent 2020 2019 incr . or ( decr . ) general and administrative $ 8,024,901 $ 8,565,243 ( 6 % ) the decrease was primarily the result of lower personnel expenses and lower board expenses . the decrease in personnel expenses was primarily due to the severance of approximately $ 670,000 upon the resignation of our former ceo toward the end of fiscal 2019 , reductions in work force and lower performance-related compensation . lower board expenses are due to fewer board members in 2020 as compared to 2019. personnel and board expenses were partially offset by increased technical consulting and legal expenses . the increase in technical consulting was due to increased cost for our then interim ( now current ) ceo , geologic and engineering fees . the increase in legal expenses was primarily due to additional work provided pertaining to the company 's proxy statement , equity offering and general business advisement . story_separator_special_tag on november 12 , 2020 , the company closed on the purchase of 134 net mineral acres in san augustine county , texas for a purchase price of $ 750,000. on december 4 , 2020 , the company signed a purchase and sale agreement to purchase an additional 87 net mineral acres in san augustine county , texas for a purchase price of $ 1 million , subject to customary closing adjustments . the company expects this acquisition to close in the first fiscal quarter of 2021 the company received lease bonus payments during fiscal 2020 totaling approximately $ 0.7 million . looking forward , the cash flow from bonus payments associated with the leasing of drilling rights on the company 's mineral acreage is difficult to project as the current economic downturn has decreased demand for new leasing by operators . however , management plans to continue to actively pursue leasing opportunities . with continued natural gas and oil price volatility , management continues to evaluate opportunities for product price protection through additional hedging of the company 's future natural gas and oil production . see note 12 to the financial statements included in item 8 – “ financial statements and supplementary data ” for a complete list of the company 's outstanding derivative contracts . 36 the use of the company 's cash provided by operating activities and resultant change to cash is summarized in the table below : replace_table_token_23_th outstanding borrowings on our credit facility at september 30 , 2020 , were $ 28,750,000 , of which $ 1,750,000 is classified as current debt . as of december 1 , 2020 , outstanding borrowings were $ 27,250,000. looking forward , the company expects to fund overhead costs and dividend payments from cash provided by operating activities , cash on hand and borrowings utilizing our credit facility . the company intends to use any excess cash to strengthen the company 's balance sheets . the company had availability of $ 2,250,000 at september 30 , 2020 , under its credit facility and was in compliance with its debt covenants ( current ratio , debt to trailing 12-month ebitda , as defined by the credit facility , and restricted payments limited by leverage ratio ) . the debt covenants limit the maximum ratio of the company 's debt to ebitda to no more than 4:1. the borrowing base under the credit facility was redetermined on june 24 , 2020 , and reduced from $ 45 million to $ 32 million . this amendment included a quarterly commitment reduction , whereby the borrowing base is reduced by $ 1 million each april 15 , july 15 , october 15 and january 15 , commencing on july 15 , 2020. the decrease in the borrowing base was primarily due to the continued decline in natural gas and oil futures prices . despite the reduction in the borrowing base , we do not expect it will impact the liquidity needed to maintain our normal operating strategies . the borrowing base under the credit facility after quarterly commitment reductions was reaffirmed on december 4 , 2020 at $ 30 million . this amendment reduced the quarterly commitment reductions from $ 1,000,000 to $ 600,000 , reduced the consolidated cash balance in the anti-cash hoarding provision from $ 2,000,000 to $ 1,000,000 , and changed the debt to ebitda ratio from 4.0:1.00 to 3.50:1.00. based on the company 's expected capital expenditure levels , anticipated cash provided by operating activities for 2021 , combined with availability under its credit facility and shelf registration , the company has sufficient liquidity to fund its ongoing operations . contractual obligations and commitments the company has a credit facility with a group of banks headed by bank of oklahoma ( bok ) consisting of a revolving loan of $ 200,000,000 , which is subject to a semi-annual borrowing base determination . the borrowing base at september 30 , 2020 , was $ 31,000,000 and is secured by all of the company 's producing gas and oil properties . the revolving loan matures on november 30 , 2022. borrowings under the revolving loan are due at maturity . the revolving loan bears interest at the bok prime rate plus a range of 1.00 % to 1.75 % , or 30-day libor plus a range of 2.50 % to 3.25 % . the election of bok prime or libor is at the company 's discretion . the interest rate spread from libor or the prime rate increases as the ratio of the loan balance to the borrowing base increases . at september 30 , 2020 , the effective rate was 4.25 % . determinations of the borrowing base are made semi-annually ( usually june and december ) or whenever the banks , in their discretion , believe that there has been a material change in the value of the natural gas and oil properties . on june 24 , 2020 , the company entered into the seventh amendment to its credit facility . the amendment reduced the borrowing base from $ 45,000,000 to $ 32,000,000 and included a quarterly commitment reduction , whereby the borrowing base is reduced by $ 1,000,000 each april 15 , july 15 , october 15 and january 15 , commencing on july 15 , 2020. the credit facility contains customary covenants which , among other things , require periodic financial and reserve reporting and place certain limits on the company 's incurrence of 37 indebtedness , liens , payment of dividends and acquisitions of stock . in addition , the company is required to maintain certain financial ratios , a current ratio ( as defined in the credit facility ) of no less than 1.0 to 1.0 and a funded debt to ebitda ( as defined in the credit facility ) of no more than 4.0 to 1.0 based on the trailing twelve months .
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results of operations the following table reflects certain operating data for the periods presented : replace_table_token_12_th production by quarter for 2020 and 2019 was as follows ( mcfe ) : replace_table_token_13_th replace_table_token_14_th fiscal year 2020 compared to fiscal year 2019 overview revenues decreased in 2020 primarily due to lower natural gas , oil and ngl sales , lower gains on asset sales and lower gains on derivative contracts . the company recorded a net loss of $ 23,952,037 , or $ 1.41 per share , in 2020 , compared to net loss of $ 40,744,938 , or $ 2.43 per share , in 2019. expenses decreased in 2020 , primarily the result of decreases in provision for impairment ( non-cash ) , dd & a , loe and transportation , gathering and marketing expenses . 31 natural gas , oil and ngl sales for the year ended september 30 , percent 2020 2019 incr . or ( decr . ) natural gas , oil and ngl sales $ 23,370,003 $ 39,410,036 ( 41 % ) the decrease was due to decreased natural gas , oil and ngl prices of 31 % , 25 % and 33 % , respectively , combined with lower natural gas , oil and ngl volumes of 16 % , 18 % and 22 % , respectively . the decrease in oil production was a result of postponement of workovers due to prevailing economic conditions as well as naturally declining production in high interest wells in the eagle ford , and asset sales in 2019 and 2020 in the permian basin in texas and new mexico .
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advertising costs are classified as selling and marketing expenses . we do not incur any direct response advertising costs . advertising expenses were $ 1.8 million , $ 1.7 million and $ 2.3 million for the years ended december story_separator_special_tag the following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes and the discussion under “ application of critical accounting policies ” ( also under item 7 ) , which describes key estimates and assumptions we make in the preparation of our consolidated financial statements ; the cautionary language that appears under the title `` forward looking statements '' immediately following the ; “ item 1. business , ” which describes our operations ; and “ item 1a . risk factors , ” which describes key risks associated with our operations and markets in which we operate . a reference to a “ note ” in this section refers to the accompanying notes to consolidated financial statements . story_separator_special_tag application or equipment ( typically for one year ) . we recognize equipment revenue when it is shipped or delivered to the customer depending on the delivery method of free on board ( `` fob '' ) shipping or fob destination , respectively . license , professional services and maintenance revenue is recognized ratably over the longer of the period of professional services delivery to the customer or the contractual term of the maintenance agreement . if the period of delivery to the customer is not known , license and professional services revenue will be recognized when software and professional services are fully delivered to the customer and the maintenance revenue will be recognized ratably over the remaining contractual term of the agreement . operations - consolidated our operating expenses are presented in functional categories . certain of our functional categories are especially important to overall expense control and management . these operating expenses are categorized as follows : cost of revenue . these are expenses primarily for hardware , third-party software , outside service expenses and payroll and related expenses for our professional services , logistics , customer support and maintenance staff . research and development . these expenses relate primarily to the development of new software products and the ongoing maintenance and enhancement of existing products . this classification consists primarily of employee payroll and related expenses , outside services related to the design , development , testing and enhancement of our solutions and to a lesser extent hardware equipment . service , rental and maintenance . these are expenses associated with the operation of our paging networks . expenses consist largely of site rent expenses for transmitter locations , telecommunication expenses to deliver messages over our paging networks , and payroll and related expenses for our engineering and pager repair functions . selling and marketing . the sales and marketing staff are involved in selling our communication solutions primarily in the united states . these expenses support our efforts to maintain gross placements of units in service , which mitigated the impact of disconnects on our wireless revenue base , and to identify business opportunities for additional or future software sales . we have a centralized marketing function , which is focused on supporting our products and vertical sales efforts by strengthening our brand , generating sales leads and facilitating the sales process . these marketing functions are accomplished through targeted email campaigns , webinars , regional and national user conferences , monthly newsletters and participation at industry trade shows . expenses consist largely of payroll and related expenses , commissions and other costs such as travel and advertising costs . general and administrative . these are expenses associated with information technology and administrative functions . this classification consists primarily of payroll and related expenses , outside service expenses , taxes , licenses and permit expenses , and facility rent expenses . we review the percentages of these operating expenses to revenue on a regular basis . even though the operating expenses are classified as described above , expense control and management are also performed by expense category . approximately 65.6 % , 62.5 % and 60.6 % of the operating expenses referred to above were incurred in payroll and related expenses , site and facility rent expenses and telecommunication expenses for each the years ended december 31 , 2016 , 2015 and 2014 . our largest expense , payroll and related expenses , includes wages , commissions , incentives , employee benefits and related taxes . on a monthly basis , we review the number of employees in major functional categories and the design and physical locations of functional groups to continuously improve efficiency , to simplify organizational structures , and to minimize the number of physical locations for the company . we had 587 full-time equivalent employees ( “ ftes ” ) at december 31 , 2016 , a decrease of 2.2 % from 600 ftes at december 31 , 2015 . we very recently announced plans to hire up to 60 new employees over the next 18 to 24 months , with the majority of new hires to occur during 2017. nearly all of the new hires will be working in software development and supporting areas for our planned integrated communications platform , spok care connect . we operate local , regional , and nationwide one-way and two-way paging networks . these networks each require locations on which to place transmitters , receivers , and antennae . site rent expenses for transmitter locations are highly dependent on the number of transmitters , which in turn is dependent on the number of networks . in addition , these expenses generally do not vary directly with the number of subscribers or units in service , which is detrimental to our operating margins as revenue declines . in order to reduce these expenses , we have an active program to consolidate the number of paging networks , and thus transmitter locations , which we refer to as network rationalization . story_separator_special_tag revenue — software the table below details total revenue for software operations for the periods stated : replace_table_token_13_th the decrease in software operations revenue during 2016 when compared to 2015 primarily reflects a decrease in the number and size of projects completed during 2016 as compared to the same period in 2015. starting in late 2015 , we began a reorganization of the sales staff and related sales territories , which realigned territories and replaced lower performing sales employees with new staff . the decrease in operational bookings during 2015 and 2016 also factored into the decrease in operational revenue for the same period . the decrease in operations revenue during 2015 when compared to 2014 primarily reflects lower sales of software to new customers which was reflected in the decrease in license revenue . the continued increase in maintenance revenue for each of the periods stated reflects our continuing success in renewals of our maintenance support for existing software solutions and in maintenance support for sales of new solutions . the maintenance renewal rates for the year ended december 31 , 2016 , 2015 and 2014 were in excess of 99 % . we achieve very high maintenance renewal rates compared to many companies that have software offerings , and we may experience a downward trend in maintenance renewal as communications technology and services continue to advance , and customers have more choices and opportunities to shift to newer solutions for their communication and work flow needs . our software revenue is dependent on the conversion of our software bookings into revenues . on a regular basis , we enter into contractual arrangements with our customers to provide software licenses , professional services , and equipment sales . in addition , we enter into contractual arrangements for maintenance with our customers on new solutions or renewals of existing solutions . these contractual arrangements are reported as bookings and represent future revenue . 28 the following table summarizes total bookings for the periods stated : replace_table_token_14_th the decrease in bookings during 2016 when compared to 2015 primarily reflects a decrease in the number of new operations orders and new maintenance orders from fewer new installations , partially offset by the continued success of maintenance and subscription renewals . starting in late 2015 , the company undertook a reorganization of the sales staff and related sales territories . as part of that reorganization , the company has replaced lower performing sales employees with new staff . the company is unable to predict the impact of this reorganization on the level and timing of future software operations bookings . the company is also migrating its sales focus from individual software solutions to its integrated solution portfolio . the change in sales focus has impacted bookings as the focus on the integrated solution portfolio requires a longer sales cycle to achieve completion . the maintenance bookings continue to reflect a strong renewal rate in excess of 99 % . operations and new orders in 2014 reflect $ 6.7 million of one-time bookings for a u.s. government entity which is the primary reason for the decrease in bookings during 2015 when compared to 2014. excluding the one-time booking , operations and new maintenance orders remained relatively flat while maintenance and subscription renewals continued to reflect a strong renewal rate in excess of 99 % . the following table summarizes backlog for the periods stated : replace_table_token_15_th ( 1 ) other reflects cancellations and adjustments to backlog . we reported a software backlog of $ 38.3 million at december 31 , 2016 which represented all orders received from customers not yet recognized as revenue . we continually review our backlog and adjust the balance to reflect the expected amount and timing of customer implementations . refer to the discussion on revenue and bookings for explanations of the changes in backlog for the periods ending december 31 , 2016 , 2015 and 2014 . 29 operating expenses replace_table_token_16_th cost of revenue . cost of revenue consisted primarily of the following items : replace_table_token_17_th as illustrated in the table above , cost of revenue expense decreased $ 3.2 million for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 and increased $ 1.3 million for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 primarily due to the following significant components and variances : payroll and related — payroll and related expenses were incurred largely for maintenance , support and service personnel . while there was a decrease of 10 ftes for the year ended december 31 , 2016 compared to the same period in 2015 , payroll and related expenses increased by $ 1.0 million due primarily to the timing of hiring and departures and an increase in the average cost per employee . the increase of $ 1.4 million in payroll and related expenses for the year ended december 31 , 2015 compare to the same period in 2014 was due primarily to an increase of 12 ftes and by an increase in the average cost per employee . cost of sales — cost of sales consisted primarily of third party software , use of third party resources for software implementation related work , inventory and maintenance of third party products . for the year ended december 31 , 2016 compared to the same period in 2015 cost of sales decreased by $ 3.2 million due primarily to a decrease in the sale of third party software , less use of third party resources for software implementation related work , a reduction in billable travel costs and a one-time charge of $ 0.8 million related to adjustments made to our inventory balances in 2015. the increase of $ 0.4 million in cost of sales for the year ended december 31 , 2015 compared to the same period in 2014 was due primarily to charges related to missing or obsolete inventory in the second quarter of 2015 , which was partially off-set by lower third-party professional services related to the implementation of
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overview and highlights we are a comprehensive provider of critical communication solutions for enterprises . we offer a suite of unified critical communication solutions that include call center operations , clinical alerting and notifications , one-way and advanced two-way wireless messaging services , mobile communications and public safety response . our customers rely on spok for workflow improvement , secure texting , paging services , contact center optimization and public safety response . our product offerings are capable of addressing a customer 's mission critical communications needs . we develop , sell and support enterprise-wide systems for healthcare and other organizations needing to automate , centralize and standardize their approach to critical communications . our solutions can be found in prominent hospitals ; large government agencies ; leading public safety institutions , colleges and universities ; large hotels , resorts and casinos ; and well-known manufacturers . our primary market has been the healthcare industry , particularly hospitals . we have identified hospitals with 200 or more beds as the primary targets for our software and wireless solutions . 23 revenue generated by wireless messaging services ( including voice mail , personalized greeting , message storage and retrieval ) and equipment loss and or maintenance protection to both one-way and two-way messaging subscribers is presented as wireless revenue in our statements of income . revenue generated by the sale of our software solutions , which includes software license , professional services ( installation , consulting and training ) , equipment procured by us from third parties ( to be used in conjunction with our software ) and post-contract support ( on-going maintenance ) , is presented as software revenue in our statements of income . our software is licensed to end users under an industry standard software license agreement . the following tables present wireless and software revenue by key market segments for the periods stated and illustrate the relative significance of these market segments to our operations .
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during the year ended december 31 , 2018 , we had net income of $ 265.7 million , or $ 10.86 per diluted share , compared to net income of $ 245.2 million , or $ 9.75 per diluted share , during 2017 . we experienced growth of revenue and gross profit in all major business lines in 2018 compared to 2017 , primarily driven by increases in volume related to acquisitions , complimented by organic growth in used vehicles , finance and insurance and service , body and parts sales . on a same store basis , new vehicle revenues and gross profits experienced headwinds with plateauing national new vehicle sales and declining manufacturer incentives . for the year ended december 31 , 2018 , new vehicle sales accounted for approximately 56 % of our revenue and approximately 22 % of our gross profit . used vehicle retail sales accounted for approximately 26 % of our revenue and approximately 18 % of our gross profit . our parts and service and finance and insurance operations accounted for approximately 14 % of our revenue and contributed approximately 59 % of our gross profit . we had total available liquidity of $ 211.2 million as of december 31 , 2018 , which consisted of $ 31.6 million of cash and cash equivalents and $ 179.6 million of availability on our credit facilities , with an estimated additional $ 247.7 million available if we financed our unencumbered owned real estate . for further discussion of our liquidity , please refer to `` liquidity and capital resources '' below . 23 story_separator_special_tag $ 2,127 in 2017 to $ 1,971 in 2018 and unit sales decreased 2.1 % during the same period . used vehicle revenues increased in 2017 compared to 2016 on a same store basis due primarily to an increase in unit volume of 4.4 % , partially offset by a decline in average selling prices of 0.4 % . our core and value auto categories experienced increased revenues of 6.7 % and 10.1 % , respectively , in 2017 compared to 2016. these increases were offset by a decline in same store cpo revenues of 2.8 % over the same period . same store used vehicle gross profit increased 1.4 % in 2017 compared to 2016 , again led by strong performance in our core vehicle category , offset by a decline in our cpo category and relatively flat performance in our value auto category . our used vehicle operations provide an opportunity to generate sales to customers unable or unwilling to purchase a new vehicle , sell brands other than the store 's new vehicle franchise ( s ) , access additional used vehicle inventory through trade-ins and increase sales from finance and insurance products and parts and service . finance and insurance we believe that arranging timely vehicle financing is an important part of providing personal transportation solutions , and we attempt to arrange financing for every vehicle we sell . we also offer related products such as extended warranties , insurance contracts and vehicle and theft protection . 26 the increases in finance and insurance revenue in 2018 compared to 2017 and in 2017 compared to 2016 were primarily due to increased volume related to acquisitions , combined with expanded product offerings and increasing penetration rates . third party extended warranty and insurance contracts yield higher profit margins than vehicle sales and contribute significantly to our profitability . during 2018 , finance and insurance sales accounted for 3.8 % of total revenues and 25.6 % of total gross profits . on a same store basis , finance and insurance sales accounted for 4.0 % of total revenues and 25.9 % of total gross profits in 2018. same store finance and insurance revenues increased 4.6 % during 2018 compared to 2017 and 5.8 % during 2017 compared to 2016 . these increases were driven by increases in finance and insurance revenues per retail unit , combined with increases in used vehicle unit volume , offset by decreases in new vehicle unit volume . on a same store basis , our finance and insurance revenues per retail unit increased $ 69 per unit to $ 1,373 in 2018 compared to 2017 and $ 50 per unit to $ 1,334 in 2017 compared to 2016 . the increase in 2018 compared to 2017 was primarily due to increases in financing and service contract penetration rates of 180 basis points each in 2018 compared to 2017 , from 71.6 % to 73.4 % and from 44.5 % to 46.3 % , respectively . we seek to increase our penetration of vehicle financing on the number of vehicles that we sell and to offer a comprehensive suite of products . we target an average f & i per retail unit of $ 1,450. we believe improved performance from sales training , continued optimization of product offerings and pricing , and revised compensation plans will be critical factors in achieving this target . service , body and parts we provide service , body and parts for the new vehicle brands sold by our stores , as well as service and repairs for most other makes and models . our parts and service operations are an integral part of our customer retention and the largest contributor to our overall profitability . earnings from service , body and parts have historically been more resilient during economic downturns , when owners have tended to repair their existing vehicles rather than buy new vehicles . our service , body and parts revenue grew in all areas in 2018 compared to 2017 and in 2017 compared to 2016 primarily due to acquisitions , combined with more late-model units in operation from 2010 to 2016 and a plateauing new vehicle market . we believe the increased number of units in operation will continue to benefit our service , body and parts revenue in the coming years as more late-model vehicles age , necessitating repairs and maintenance . story_separator_special_tag our luxury segment revenue increased in 2017 compared to 2016 primarily due to our acquisition of four stores and improvements in finance and insurance and service body and parts revenues . new vehicle unit sales declined on a same store basis mainly related to our bmw and mercedes franchises . our luxury segment income increased in 2017 compared to 2016 primarily due to gross profits growth of 17.6 % that outpaced an increase in sg & a of 16.0 % . corporate and other revenue attributable to corporate and other includes the results of operations of our stand-alone collision centers , offset by certain unallocated reserve and elimination adjustments . replace_table_token_14_th nm - not meaningful the increase in corporate and other revenues in 2018 compared to 2017 was primarily related to the addition of two stand-alone body shops , changes in certain reserves that are not specifically identified with our domestic , import or luxury segment revenue , such as our reserve for revenue reversals associated with unwound vehicle sales , and elimination of revenues associated with internal corporate vehicle purchases and leases with our stores . corporate and other revenues were affected in 2017 by an increase in internal corporate vehicle purchases and leases with our stores resulting in negative revenues compared to 2016 . these internal corporate expense allocations are also used to increase comparability of our dealerships and reflect the capital burden a stand-alone dealership would experience . examples of these internal allocations include internal rent expense , internal 30 floor plan financing charges , and internal fees charged to offset employees within our corporate headquarters who perform certain dealership functions . the increase in corporate and other segment income in 2018 compared to 2017 is primarily due to gains on the divestiture of stores of $ 15.1 million and the addition of 17 stores , offset by changes to certain insurance and auto loan related reserves . in addition , 2018 included $ 4.3 million of acquisition expense compared to $ 6.0 million during 2017 . the increase in corporate and other segment income in 2017 compared to 2016 was primarily related to increased internal corporate expense allocations and increased store count . see note 18 of notes to consolidated financial statements included in part ii , item 8 of this form 10-k for additional information . asset impairment charges asset impairments recorded as a component of operations consist of the following ( in millions ) : replace_table_token_15_th during 2018 , we recorded an asset impairment of $ 1.3 million associated with certain real properties . the long-lived assets were tested for recoverability and were determined to have a carrying value exceeding their fair value . additionally , we recorded an asset impairment in 2016 associated with our equity-method investment in a limited liability company that participated in the nmtc program . we evaluated this equity-method investment at the end of each reporting period and identified indications of loss resulting from other than temporary declines in value . we exited this equity-method investment in december 2016. see notes 1 , 4 , 12 and 17 of notes to consolidated financial statements included in part ii , item 8 of this annual report . selling , general and administrative expense ( “ sg & a ” ) sg & a includes salaries and related personnel expenses , advertising ( net of manufacturer cooperative advertising credits ) , rent , facility costs , and other general corporate expenses . replace_table_token_16_th 31 replace_table_token_17_th sg & a increased 19.4 % , or $ 203.9 million in 2018 compared to 2017 . overall increases in sg & a were primarily due to growth through acquisitions , acquisition expenses and increased allowance losses associated with auto loan receivables , offset by decreases in losses related to storm insurance reserve charges and acquisition expenses and an increase in gains on the disposal of stores . other expenses in 2018 included acquisition expenses of $ 4.3 million , compared to $ 6.0 million in 2017 ; $ 3.2 million of storm related insurance charges , compared to $ 5.6 million in 2017 ; and auto loan allowance losses of $ 4.2 million compared to $ 1.2 million in 2017 . gains on the sale of stores were $ 15.1 million and $ 5.1 million in 2018 and 2017 , respectively . on a same store basis and excluding non-core charges , sg & a as a percent of gross profit was 70.6 % in 2018 compared to 68.4 % in 2017 . increases included auto loan allowance losses , data processing , rent , legal and professional fees and miscellaneous expense . increases in data processing and professional fees include initiatives focusing on innovation and cyber security measures . sg & a increased $ 149.8 million in 2017 compared to 2016 , primarily due to growth through acquisitions , as well as the various reserve charges mentioned above . sg & a in 2016 included a $ 3.9 million legal reserve adjustment , offset by a $ 1.1 million gain from the disposal of one of our stores . sg & a adjusted for non-core charges was as follows ( in millions ) : replace_table_token_18_th replace_table_token_19_th see “ non-gaap reconciliations ” for more details . 32 depreciation and amortization depreciation and amortization is comprised of depreciation expense related to buildings , significant remodels or improvements , furniture , tools , equipment and signage and amortization related to tradenames . replace_table_token_20_th acquisition activity contributed to the increases in depreciation and amortization in 2018 compared to 2017 and in 2017 compared to 2016 . during 2018 , we purchased approximately $ 108 million in depreciable property as part of our acquisitions of day auto group and prestige auto group . during 2017 , we purchased approximately $ 105 million in depreciable property as a part of our acquisitions of baierl auto group and downtown la auto group . capital expenditures totaled $ 158.0 million and $ 105.4 million , respectively , in 2018 and 2017 . these investments increase the amount of depreciable assets .
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results of operations for the year ended december 31 , 2018 , we reported net income of $ 265.7 million , or $ 10.86 per diluted share . for the years ended december 31 , 2017 and 2016 , we reported net income of $ 245.2 million , or $ 9.75 per diluted share , and $ 197.1 million , or $ 7.72 per diluted share , respectively . replace_table_token_6_th 24 same store operating data we believe that same store comparisons are an important indicator of our financial performance . same store measures demonstrate our ability to grow revenues in our existing locations . therefore , we have integrated same store measures into the discussion below . same store measures reflect results for stores that were operating in each comparison period , and only include the months when operations occurred in both periods . for example , a store acquired in november 2017 would be included in same store operating data beginning in december 2018 , after its first complete comparable month of operations . the fourth quarter operating results for the same store comparisons would include results for that store in only the period of december for both comparable periods . replace_table_token_7_th 25 new vehicles the decrease in same store new vehicle revenues for 2018 compared to 2017 was driven by a decrease in unit volume of 4.4 % , partially offset by an increase in average selling prices of 2.7 % . as the national new vehicle market plateaus , our stores focus on improving gross profit per new vehicle sold . on a same store basis , gross profit per new vehicle remained flat during 2018 compared to 2017 . our recently acquired stores are also focused on improving gross profit per new vehicle as total company gross profit per unit increased 2.6 % during 2018 compared to 2017 .
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clearbridge does not provide any services to the company other than those it has been engaged to provide in connection with the initial offering . process for determining executive compensation after completion of the initial public offering in connection with the initial offering , we formed a compensation committee , which is responsible for making all determinations with respect to our executive compensation programs and the compensation of our neos . while our ceo is a member of the compensation committee and story_separator_special_tag introduction the following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this annual report to enhance the understanding of our financial condition , changes in financial condition , and results of operations . the following discussion and analysis contains forward-looking statements about our business , operations , and financial performance based on current plans and estimates that involve risks , uncertainties , and assumptions . actual results could differ materially from those discussed in the forward-looking statements . factors that could cause such differences are discussed in the sections of this annual report titled “ item 1a . risk factors ” and “ cautionary statements regarding forward-looking statements. ” overview we are the leading provider of monitored security , interactive home and business automation , and related monitoring services in the united states and canada . we offer our residential , commercial , and multi-site customers a comprehensive set of burglary , video , access control , fire and smoke alarm , and medical alert solutions . our core professionally monitored security offering is complemented by a broad set of innovative products and services , including interactive home and business automation solutions that are designed to control access , react to movement , and sense carbon monoxide , flooding , and changes in temperature or other environmental conditions , as well as address personal emergencies , such as injuries , medical emergencies , or incapacitation . these products and services include interactive technologies to enhance our monitored solutions and to allow our customers to remotely manage their residential and commercial environments by adding increased automation through video , access control , and other smart-building functionality . through our interactive offerings , customers can use their smart phones , tablets , and laptops to arm and disarm their security systems , adjust lighting or thermostat levels , view real-time video of their premises , and program customizable schedules for the management of a range of smart home products . in addition , we offer professional monitoring of third-party devices by enabling other companies to integrate solutions into our monitoring and billing platform . this allows us to provide monitoring solutions to customers who do not currently have an adt security system or interactive automation platform installed on premise . as of december 31 , 2017 , we serve approximately 7.2 million customers , excluding contracts monitored but not owned . we are one of the largest full-service companies with a national footprint providing both residential and commercial monitored security . we deliver an integrated customer experience by maintaining the industry 's largest sales , installation , and service field force , as well as a 24/7 professional monitoring network , all supported by approximately 18,000 employees . basis of presentation on july 1 , 2015 , we acquired protection one ( the “ protection one acquisition ” ) . additionally , on july 1 , 2015 , we acquired asg ( the “ asg acquisition ” and together with the protection one acquisition , the “ formation transactions ” ) . on may 2 , 2016 , we acquired the adt corporation ( the “ adt acquisition ” ) . prior to the adt acquisition , the adt corporation was a publicly traded corporation listed on the new york stock exchange . protection one is the predecessor of adt inc. for accounting purposes . the period presented prior to the protection one acquisition is comprised solely of predecessor activity and is hereinafter referred to as the “ predecessor. ” the period presented after the successor 's ( as defined herein ) inception on may 15 , 2015 ( “ inception ” ) is comprised of our activity , which is , prior to the adt acquisition on may 2 , 2016 , the collective activity of protection one and asg , and after the adt acquisition on may 2 , 2016 , the collective activity of the adt corporation , protection one , and asg , and is hereinafter referred to as the “ successor. ” all financial information presented in this section has been prepared in u.s. dollars in accordance with generally accepted accounting principles in the united states of america ( “ gaap ” ) . we report financial and operating information in one segment . our operating segment is also our reportable segment . we have presented results of operations , including the related discussion and analysis , for the following periods : year ended december 31 , 2017 compared to year ended december 31 , 2016 ; and year ended december 31 , 2016 compared to the period from inception through december 31 , 2015 ( successor ) and the period from january 1 , 2015 through june 30 , 2015 ( predecessor ) ( collectively , the “ successor and predecessor 2015 periods ” ) . 38 factors affecting operating results our subscriber-based business requires significant upfront investment to generate new customers , which in turn provides predictable contractual recurring revenue generated from our monitoring fees and additional services . we focus on the following key drivers of our business with the intent of optimizing returns on new customer acquisition expenditures and cash flow generation : best-in-class customer service ; increased customer retention ; disciplined , high-quality customer additions ; efficient customer acquisition ; and reduced costs incurred to provide ongoing services to customers . our ability to add new subscribers depends on the overall demand for our products and solutions , which is driven by a number of external factors . story_separator_special_tag gross customer revenue attrition is calculated on a trailing twelve-month basis , the numerator of which is the annualized recurring revenue lost during the period due to attrition , net of dealer charge-backs and reinstated customers , and the denominator of which is total annualized recurring revenue based on an average of recurring revenue under contract at the beginning of each month during the period . recurring revenue is generated by contractual monthly recurring fees for monitoring and other recurring services provided to our customers . adjusted ebitda . adjusted ebitda is a non-gaap measure that we believe is useful to investors to measure the operational strength and performance of our business . our definition of adjusted ebitda , a reconciliation of adjusted ebitda to net income ( loss ) ( the most comparable gaap measure ) , and additional information , including a description of the limitations relating to the use of adjusted ebitda , are provided under “ —non-gaap measures. ” free cash flow . free cash flow is a non-gaap measure that our management employs to measure cash that is available to repay debt , make other investments , and pay dividends . our definition of free cash flow , a reconciliation of free cash flow to net cash provided by operating activities ( the most comparable gaap measure ) , and additional information , including a description of the limitations relating to the use of free cash flow , are provided under “ —non-gaap measures. ” 40 results of operations the following table sets forth our consolidated results of operations , summary cash flow data , and key performance indicators for the periods presented . replace_table_token_2_th _ n/a- not applicable , or not meaningful in certain cases where combined presentation would be calculated on a different basis ( 1 ) refer to the “ —key performance indicators ” section for the definitions of these key performance indicators . ( 2 ) gross customer revenue attrition ( percent ) is presented on a pro forma basis for the adt corporation business and asg , as applicable . ( 3 ) adjusted ebitda and free cash flow are non-gaap measures . refer to the “ —non-gaap measures ” section for the definitions of these terms and reconciliations to the most comparable gaap measures . year ended december 31 , 2017 compared to year ended december 31 , 2016 total revenue monitoring and related services revenue increase d by $ 1,281 million for the year ended december 31 , 2017 as compared to 2016 . this increase was largely attributable to incremental revenue in 2017 of approximately $ 1,168 million associated with the adt corporation business , which we acquired on may 2 , 2016 , and the amortization of deferred revenue as a result of the application of purchase accounting in connection with the adt acquisition that reduced revenue by $ 63 million during the year ended december 31 , 2016 . the remainder of the increase in monitoring and related services revenue was primarily driven by an increase in contractual monthly recurring fees for monitoring and other recurring services , which was favorably impacted by an improvement in average pricing , partially offset by lower customer volume . the improvement in average pricing was driven by the addition of new 41 customers at higher rates , largely due to an increase in interactive service customers as compared to total customer additions , as well as price escalations on our existing customer base . these factors also were the primary driver for an increase in rmr , which increased to $ 335 million as of december 31 , 2017 from $ 328 million as of december 31 , 2016 . the lower customer volume resulted from negative net customer additions , which reflects improvements in gross customer revenue attrition of 1.1 percentage points . both the negative net customer additions as well as the improvements in gross customer revenue attrition resulted from our enhanced focus on high quality customer additions through our disciplined customer selection process . installation and other revenue increase d by $ 85 million for the year ended december 31 , 2017 as compared to 2016 . this increase primarily resulted from $ 49 million related to revenue from security equipment sold outright to customers in 2017 , which includes approximately $ 10 million of incremental revenue associated with the operations of the adt corporation in 2017. additionally , the increase in installation and other revenue resulted from $ 36 million of revenue related to the amortization of deferred installation revenue , which includes approximately $ 11 million of incremental deferred installation revenue associated with the operations of the adt corporation in 2017. cost of revenue cost of revenue increase d by $ 202 million for the year ended december 31 , 2017 as compared to 2016 . the increase in cost of revenue was primarily attributable to ( i ) an increase in field and maintenance service expenses of $ 89 million primarily associated with the operations of the adt corporation , including expenses incurred for service calls for customers who have maintenance contracts , and ( ii ) an increase in customer care expenses of $ 75 million . the increase in customer care expenses was primarily attributable to costs associated with the operations of the adt corporation , as well as investments associated with enhanced customer revenue attrition improvement initiatives , which was partially offset by reduced software license expenses related to a newly-adopted cloud computing standard . the remainder of the increase in cost of revenue was due to increased installation costs of approximately $ 38 million associated with a higher volume of sales where security related equipment is sold outright to customers . selling , general and administrative expenses selling , general and administrative expenses increase d by $ 350 million for the year ended december 31 , 2017 as compared to 2016 . the increase in selling , general and administrative expenses was primarily attributable to incremental expenses associated with the adt corporation business of approximately $ 324 million .
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unaudited supplemental pro forma results of operations replace_table_token_7_th _ ( 1 ) refer to note 1 to notes to the unaudited supplemental pro forma financial information presented in the supplemental management 's discussion and analysis of financial condition and results of operations . ( 2 ) refer to note 2 to notes to the unaudited supplemental pro forma financial information presented in the supplemental management 's discussion and analysis of financial condition and results of operations . ( 3 ) refer to the “ item 7. management 's discussion and analysis of financial conditions and results of operations—key performance indicators ” section for the definitions of these key performance indicators . ( 4 ) adjusted ebitda and supplemental pro forma adjusted ebitda are non-gaap measures . refer to the “ item 7. management 's discussion and analysis of financial condition and results of operations—non-gaap measures ” section for the definitions thereof and below for reconciliations to net income ( loss ) , the most comparable gaap measure . year ended december 31 , 2017 compared to unaudited supplemental pro forma year ended december 31 , 2016 total revenue total revenue increased $ 149 million for the year ended december 31 , 2017 as compared to the supplemental pro forma year ended december 31 , 2016 . this increase was a result of an increase in monitoring and related services of $ 75 million and an increase in installation and other revenue of $ 74 million . the increase in monitoring and related services was primarily driven by a change in contractual monthly recurring fees for monitoring and other recurring services , which were favorably impacted by an improvement in average pricing , partially offset by lower customer volume .
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property and equipment - included in property and equipment is course content of $ 14.0 million story_separator_special_tag you should read the following discussion in conjunction with “ selected financial data , ” our consolidated financial statements and the notes thereto , the “ cautionary notice regarding forward-looking statements , ” item 1a entitled “ risk factors , ” and the other information appearing elsewhere , or incorporated by reference , in this annual report on form 10-k. background and overview strategic education , inc. ( “ sei , ” “ we ” , “ us ” or “ our ” ) is an education services company that seeks to provide the most direct path between learning and employment through campus-based and online post-secondary education offerings and through programs to develop job-ready skills for high-demand markets . we operate primarily through our wholly-owned subsidiaries strayer university and capella university , both accredited post-secondary institutions of higher education . our operations also include certain non-degree programs , mainly focused on software and application development . acquisition of capella education company on august 1 , 2018 , we completed our merger with capella education company ( “ cec ” ) pursuant to a merger agreement dated october 29 , 2017. the merger solidifies our position as a national leader in education innovation , and provides scale that will enable greater investment in improving student academic and career outcomes while maintaining our focus on affordability . the merger is also expected to create significant cost synergies for us . pursuant to the merger , we issued 0.875 shares of our common stock for each issued and outstanding share of cec common stock . outstanding equity awards held by cec employees and certain nonemployee directors of cec were assumed by us and converted into comparable sei awards at the exchange ratio . outstanding equity awards held by cec nonemployee directors who did not serve as directors of sei after completion of the merger , and awards held by former employees of cec who left before completion of the merger were settled upon completion of the merger as specified in the merger agreement . our financial results for any periods ended prior to august 1 , 2018 do not include the financial results of cec , and are therefore not directly comparable . in 2017 , cec 's revenues were $ 440.4 million , and its income from continuing operations was $ 23.4 million . during the years ended december 31 , 2019 and 2018 , we incurred $ 21.9 million and $ 45.7 million , respectively , in expenses related to the merger , primarily attributable to financial advisory fees , consulting costs , legal fees , personnel , and other integration costs . as of december 31 , 2019 , sei had the following reportable segments : strayer university segment strayer university is an institution of higher learning that offers undergraduate and graduate degree programs in business administration , accounting , information technology , education , health services administration , public administration , and criminal justice at 77 physical campuses , predominantly located in the eastern united states , and online . strayer university is accredited by the middle states commission on higher education ( hereinafter referred to as “ middle states ” or “ middle states commission ” ) , one of the seven regional collegiate accrediting agencies recognized by the department . by offering its programs both online and in physical classrooms , strayer university provides its working adult students flexibility and convenience . the jack welch management institute ( “ jwmi ” ) offers an executive mba online and is a top 25 princeton review ranked online mba program . in 2019 , strayer university 's average total enrollment increased 11.0 % to 52,963 students compared to 47,733 students in 2018 . new student enrollment for the period increased 6.6 % . capella university segment capella university is an online post-secondary education company that offers a variety of doctoral , master 's and bachelor 's degree programs , primarily for working adults , in the following primary disciplines : public service leadership , nursing and health sciences , social and behavioral sciences , business and technology , education , and undergraduate studies . capella university focuses on master 's and doctoral degrees , with 68 % of its learners enrolled in a master 's or doctoral degree program . capella university 's academic offerings are built with competency-based curricula and are delivered in an online format that is convenient and flexible . capella university designs its offerings to help working adult learners develop specific competencies they can apply in 52 their workplace . capella university is accredited by the higher learning commission , one of the seven regional collegiate accrediting agencies recognized by the department . in 2019 , capella university 's average total enrollment increased 2.1 % to 38,834 students compared to 38,050 students in 2018 . new student enrollment for the period increased 8.9 % . non-degree programs segment devmountain is a software development program offering affordable , high-quality , leading-edge software coding education at multiple campus locations and online . hackbright academy is a software engineering school for women . its primary offering is an intensive 12-week accelerated software development program , together with placement services and coaching . sophia learning is an innovative company which leverages technology and high quality academic content to provide self-paced online courses eligible for transfer credit into over 2,000 colleges and universities . we believe we have the right operating strategies in place to provide the most direct path between learning and employment for our students . we focus on innovation continually to differentiate ourselves in our markets and drive growth by supporting student success , producing affordable degrees , optimizing our comprehensive marketing strategy , serving a broader set of our students ' professional needs , and establishing new growth platforms . technology and the talent of our faculty and employees enable these strategies . story_separator_special_tag since the universities ' academic terms coincide with our financial reporting periods for most programs , nearly all refunds are processed and recorded in the same quarter as the corresponding revenue . for certain programs where courses may overlap a quarter-end date , the company estimates a refund rate and does not recognize the related revenue until the uncertainty related to the refund is resolved . the portion of tuition revenue refundable to students may vary based on the student 's state of residence . for students who withdraw from all their courses during the quarter of instruction , we reassess collectibility of tuition and fees for revenue recognition purposes . in addition , we cease revenue recognition when a student fully withdraws from all of his or her courses in the academic term . tuition charges billed in accordance with our billing schedule may be greater than the pro rata revenue amount , but the additional amounts are not recognized as revenue unless they are collected in cash and the term is complete . for students who receive funding under title iv and withdraw , funds are subject to return provisions as defined by the department of education . the university is responsible for returning title iv funds to the department and then may seek payment from the withdrawn student of prorated tuition or other amounts charged to him or her . loss of financial aid eligibility during an academic term is rare and would normally coincide with the student 's withdrawal from the institution . as discussed above , we cease revenue recognition upon a student 's withdrawal from all of his or her classes in an academic term until cash is received and the term is complete . new students at strayer university registering in credit-bearing courses in any undergraduate program for the summer 2013 term ( fiscal third quarter ) and subsequent terms qualify for the graduation fund , whereby qualifying students earn tuition credits that are redeemable in the final year of a student 's course of study if he or she successfully remains in the program . students must meet all of the university 's admission requirements and not be eligible for any previously offered scholarship program . our employees and their dependents are not eligible for the program . to maintain eligibility , students must be enrolled in a bachelor 's degree program . students who have more than one consecutive term of non-attendance lose any graduation fund credits earned to date , but may earn and accumulate new credits if the student is reinstated or readmitted by the university in the future . in their final academic year , qualifying students will receive one free course for every three courses that were successfully completed in prior years . the performance obligation associated with free courses that may be redeemed in the future is valued based on a systematic and rational allocation of the cost of honoring the benefit earned to each of the underlying revenue transactions that result in progress by the student toward earning the benefit . the estimated value of awards under the graduation fund that will be recognized in the future is based on historical experience of students ' persistence in completing their course of study and earning a degree and the tuition rate in effect at the time it was associated with the transaction . estimated redemption rates of eligible students vary based on their term of enrollment . as of december 31 , 2019 , we had deferred $ 49.6 million for estimated redemptions earned under the graduation fund , as compared to $ 43.3 million at december 31 , 2018 . each quarter , we assess our methodologies and assumptions underlying our estimates for persistence and estimated redemptions based on actual experience . to date , any adjustments to our estimates have not been material . however , if actual persistence or redemption rates change , adjustments to the reserve may be necessary and could be material . tuition receivable — we record estimates for our allowance for doubtful accounts for tuition receivable from students primarily based on our historical collection rates by age of receivable , net of recoveries , and consideration of other relevant factors . our experience is that payment of outstanding balances is influenced by whether the student returns to the institution , 54 as we require students to make payment arrangements for their outstanding balances prior to enrollment . therefore , we monitor outstanding tuition receivable balances through subsequent terms , increasing the reserve on such balances over time as the likelihood of returning to the institution diminishes and our historical experience indicates collection is less likely . we periodically assess our methodologies for estimating bad debts in consideration of actual experience . if the financial condition of our students were to deteriorate , resulting in evidence of impairment of their ability to make required payments for tuition payable to us , additional allowances or write-offs may be required . during 2018 and 2019 , our bad debt expense was 5.9 % and 4.9 % of revenue , respectively . a change in our allowance for doubtful accounts of 1 % of gross tuition receivable as of december 31 , 2019 would have changed our income from operations by approximately $ 0.8 million . goodwill and intangible assets — goodwill represents the excess of the purchase price of an acquired business over the amount assigned to the assets acquired and liabilities assumed . indefinite-lived intangible assets , which include trade names , are recorded at fair market value on their acquisition date . at the time of acquisition , goodwill and indefinite-lived intangible assets are allocated to reporting units . management identifies its reporting units by assessing whether the components of its operating segments constitute businesses for which discrete financial information is available and management regularly reviews the operating results of those components . through our acquisition of cec in 2018 , we had significant additions to goodwill and tradename intangible assets .
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results of operations as discussed above , we completed our merger with cec on august 1 , 2018. our results of operations include the results of cec from the merger date . periods prior to august 1 , 2018 do not include the financial results of cec . accordingly , the financial results of each period presented are not directly comparable . this discussion will highlight changes largely in the strayer university segment , as those results are included in full in each period . in 2019 , we generated $ 997.1 million in revenue compared to $ 634.2 million in 2018 . our income from operations was $ 110.5 million in 2019 compared to a loss from operations of $ 22.7 million in 2018 , due primarily to the inclusion of a full year of cec 's results in our consolidated results of operations as well as higher revenues due to enrollment growth and lower merger and integration costs and impairment charges . our net income in 2019 was $ 81.1 million compared to a net loss of $ 15.7 million in 2018 . diluted earnings per share was $ 3.67 in 2019 compared to a loss per share of $ 1.03 in 2018 . 55 in the accompanying analysis of financial information for 2019 and 2018 , we use certain financial measures including adjusted revenue , adjusted total costs and expenses , adjusted operating income , adjusted net income , and adjusted diluted earnings per share that are not required by or prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) .
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certain information required by this story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes . this management 's discussion and analysis of financial condition and results of operations may contain some statements and information which are not historical facts but are forward-looking statements . for a discussion of these forward-looking statements , and of important factors that could cause results to differ materially from the forward-looking statements contained in this report , see item 1 of part i , “ business—cautionary note regarding forward-looking statements , ” and item 1a of part i , “ risk factors. ” overview we provide software solutions and related engineering services to companies that develop smart , connected systems . a smart , connected system is a dedicated purpose computing device that typically has a display , runs an operating system ( e.g. , microsoft ® windows ® embedded compact ) and is usually connected to a network or data cloud via a wired or wireless connection . examples of smart , connected systems include set-top boxes , home gateways , point-of-sale terminals , kiosks , voting machines , gaming platforms , tablets , handheld data collection devices , personal media players , smart phones , smart vending machines , in-vehicle telematics and entertainment devices . we primarily focus on smart , connected systems that utilize microsoft windows embedded and windows mobile operating systems as well as devices running other popular operating systems such as android , linux and qnx . we have been providing software solutions for smart , connected systems since our inception . our customers include world class oems , odms and enterprises , as well as svs and peripheral vendors which purchase our software solutions for purposes of facilitating processor and peripheral sales . in the case of enterprises , our customers include those which develop , market and distribute smart , connected systems on their own behalf as well as those that purchase systems from oems or odms and require additional software , integration and or testing . the software solutions we provide are utilized and deployed throughout various phases of our customers ' device life cycle , including design , development , customization , quality assurance and deployment . building on the traditional focus of our business noted above , increasingly we intend to focus on developing and offering our own products such as datav to address the emerging iot market . similarly , we intend to focus on increasing the amount of our own intellectual property and know-how including in our mobilev product , a complete hardware and software reference solution for oems building durable and rugged handhelds and industrial tablets . critical accounting judgments revenue recognition we recognize revenue from software and engineering service sales when the following four revenue recognition criteria are met : persuasive evidence of an arrangement exists ; delivery has occurred or services have been rendered ; the selling price is fixed or determinable ; and collectability is reasonably assured . contracts and customer purchase orders are generally used to determine the existence of an arrangement . shipping documents and time records are generally used to verify delivery . we assess whether the selling price is fixed or determinable based on the contract and or customer purchase order and payment terms associated with the transaction and whether the sales price is subject to refund or adjustment . we assess collectability based primarily on the creditworthiness of the customer as determined by credit checks and analysis , as well as the customer 's payment history . periodically , we will begin work on engineering service engagements prior to having a signed contract and , in some cases , the contract is signed in a quarter after which service delivery costs are incurred . we do not defer costs associated with such engagements before we have received a signed contract . we recognize software revenue upon shipment provided that no significant obligations remain on our part , substantive acceptance conditions , if any , have been met and the other revenue recognition criteria have been met . service revenue from time and materials contracts , and training service agreements , is recognized as services are performed . fixed-price service agreements , and certain time and materials service agreements with capped fee structures , are accounted for using the percentage-of-completion method assuming reasonable estimates of completion can be made . we use the percentage-of-completion method of accounting because we believe it is the most accurate method to recognize revenue based on the nature and scope of these engineering service contracts ; we believe it is a better measure of periodic income results than other methods and better matches revenue recognized with the costs incurred . percentage of completion is measured based primarily on input measures such as hours incurred to date compared to total estimated hours to complete , with consideration given to output measures , such as contract milestones , when applicable . significant judgment is required when estimating total hours and progress to completion on these arrangements which determines the amount of revenue we recognize as well as whether a loss is recognized if one is expected to be incurred for the remainder of the project . revisions to hour and cost estimates are incorporated in the period in which the facts that give rise to the revision become known . in certain situations when it is impractical for us to reliably estimate either specific amounts or ranges of contract revenues and costs , and where we anticipate that we will not incur a loss , a zero profit model is used for revenue recognition . equal amounts of revenue and cost are recognized during the contract period , and profit is recognized when the project is completed and accepted . this 20 method was used in 2013 and 2014 for two engineering service contracts in japan . story_separator_special_tag if this assessment indicates that the intangible asset is not recoverable , based on the estimated undiscounted future cash flows of the technology over the remaining useful life , we reduce the net carrying value of the related intangible asset to fair value . any such impairment charge could be significant and could have a material adverse effect on our reported financial results . we evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicate that the carrying value may not be recoverable . our annual testing date is december 31. we test goodwill for impairment by 21 performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than the carrying amount . if it is more likely than not that the fair value of the reporting unit is greater than the carrying amount , further testing of impairment is not performed . if it is more likely than not that the fair value of the reporting unit is less than the carrying amount , we perform a quantitative two-step impairment test . stock-based compensation our stock-based compensation expense for stock options is estimated at the grant date based on the stock award 's fair value as calculated by the black-scholes-merton ( “ bsm ” ) option-pricing model and is recognized as expense over the requisite service period . the bsm model requires various highly judgmental assumptions including expected volatility and option life . if any of the assumptions used in the bsm model change significantly , stock-based compensation expense may differ materially in the future from that recorded in the current period . restricted stock units ( “ rsus ” ) and restricted stock awards ( “ rsas ” ) are measured based on the fair market values of the underlying stock on the dates of grant as determined based on the number of shares granted and the quoted price of our common stock on the date of grant . in addition , we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest . we estimate the forfeiture rate based on historical experience and expected future activity . to the extent our actual forfeiture rate is different from our estimates , stock-based compensation expense is adjusted accordingly . incentive compensation we make certain estimates , judgments and assumptions regarding the likelihood of attainment , and the level thereof , of bonuses payable under our annual incentive compensation programs . we accrue bonuses and recognize the resulting expense when the bonus is judged to be reasonably likely to be earned as of year-end and is estimable . the amount accrued , and expense recognized , is the estimated portion of the bonus earned on a year-to-date basis less any amounts previously accrued . these estimates , judgments and assumptions are made quarterly based on available information and take into consideration our year-to-date actual results and expected results for the remainder of the year . because we consider estimated future results in assessing the likelihood of attainment , significant judgment is required . if actual results differ materially from our estimates , the amount of bonus expense recorded in a particular quarter could be significantly over or under estimated . taxes as part of the process of preparing our consolidated financial statements , we are required to estimate income taxes in each of the countries and other jurisdictions in which we operate . this process involves estimating our current tax expense together with assessing temporary differences resulting from the differing treatment of items for tax and accounting purposes . these differences result in deferred tax assets and liabilities . net operating losses and tax credits , to the extent not already utilized to offset taxable income or income taxes , also give rise to deferred tax assets . we must then assess the likelihood that any deferred tax assets will be realized from future taxable income , and , to the extent we believe that recovery is not likely , we must establish a valuation allowance . significant judgment is required in determining our provision for income taxes , deferred tax assets and liabilities and any valuation allowance recorded against our deferred tax assets . we estimate the valuation allowance related to our deferred tax assets on a quarterly basis . our sales may be subject to other taxes , particularly withholding taxes , due to our sales to customers in countries other than the united states . the tax regulations governing withholding taxes are complex , causing us to have to make assumptions about the appropriate tax treatment . further , we make sales in many jurisdictions across the united states , where tax regulations are varied and complex . we must therefore continue to analyze our state tax exposure and determine what the appropriate tax treatments are , and make estimates for sales , franchise , income and other state taxes . 22 story_separator_special_tag and re-billable expenses , related facilities and depreciation costs , and amortization of certain intangible assets related to acquisitions . gross profit on the sale of third-party software products is also positively impacted by rebate credits we receive from microsoft for embedded software sales earned through the achievement of defined objectives . prior to the third quarter of 2013 , the earned rebate amount was treated as a reduction in software cost of sales in the quarter earned . beginning in the third quarter of 2013 , as a result of program modifications , we began treating a portion of the rebate as marketing development funds which are accounted for as a reduction in marketing expense if and when qualified program expenditures are made . under this rebate program , we recognized $ 298,000 of rebate credits in 2014 and $ 744,000 in 2013 , which were treated as reductions in cost of sales .
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results of operations the following table presents certain financial data as a percentage of total revenue for the periods indicated . our historical operating results are not necessarily indicative of the results for any future period . replace_table_token_6_th comparison of the years ended december 31 , 2014 and 2013 revenue our revenue is generated from the sale of software , both our own proprietary software and third-party software that we resell , and the sale of engineering services . total revenue increased $ 3.8 million , or 4 % , to $ 95.9 million in 2014 from $ 92.1 million in 2013. this increase was driven by higher sales of windows embedded operating systems , and an increase in engineering services revenue , partially offset by a decline in proprietary software revenue . one customer , future electronics , inc. accounted for 12 % of total revenues in 2014. no other customers accounted for 10 % or more of total revenue in either 2014 or 2013. revenue from our customers outside of north america decreased $ 1.7 million , or 14 % , to $ 10.0 million in 2014 , from $ 11.7 million in 2013. revenue from our customers outside of north america represented 10 % of our total revenue in 2014 , compared to 13 % in 2013. the decrease in non-north american revenue in 2014 was primarily attributable to lower sales of windows mobile operating systems in asia , lower engineering services revenue and lower proprietary software sales in asia . software revenue software revenue consists of sales of third-party software and revenue realized from our own proprietary software products , which include software license sales , royalties from our software products , support and maintenance revenue , and royalties from certain engineering service contracts .
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for a reconciliation to accounting principles generally accepted in the united states ( us gaap ) , see note 22 to the attached consolidated financial statements . in this form 10-k , the terms total cash cost and cash operating cost are used on a per ounce of gold basis . total cash cost per ounce is equivalent to mining operations expense for the period as found on the consolidated statements of operations , divided by the number of ounces of gold sold during the period . cash operating cost per ounce is equivalent to mining operations expenses for the period less production royalties , divided by the number of ounces of gold sold during the period . replace_table_token_15_th we have included total cash cost and cash operating cost information to provide investors with information about the cost structure of our mining operations . we use this information for the same purpose and for monitoring the performance of our operations . this information differs from measures of performance determined in accordance with gaap in canada and the united states and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with gaap . these measures are not necessarily indicative of operating profit or cash flow from operations as determined under gaap and may not be comparable to similarly titled measures of other companies . all figures in this item 7 are on a 100 % basis , which represents our current beneficial interest in gold production and revenues . once all capital has been repaid , the government of ghana would receive 10 % of dividends from the subsidiaries owning the bogoso/prestea and wassa monies . our business through our subsidiaries and joint ventures we own a controlling interest in four gold properties in southern ghana : the bogoso property ( bogoso ) , the prestea property ( prestea ) , the wassa property ( wassa ) and the prestea underground property ( prestea underground ) . bogoso and prestea are adjoining properties , operating as a single operation and referred to as bogoso/prestea . bogoso/prestea and the prestea underground are owned by our 90 % owned subsidiary , bogoso gold limited ( bgl ) . we hold a 90 % equity interest in wexford goldfields limited ( wgl ) , which owns wassa , located some 35 kilometers east of bogoso/prestea . wassa is currently in development , and we expect gold production to commence in early 2004. the prestea underground is located on the prestea property and consists of a currently inactive underground gold mine and associated support facilities . as of december 31 , 2003 bgl owned an approximately 66 % operating interest in this mine and we are currently seeking to determine if the underground mine can be reactivated on a profitable basis . we also hold interests in gold exploration properties in ghana , sierra leone , mali , suriname , and french guiana . the french guiana properties are mainly held through our 73 % -owned subsidiary , guyanor ressources s.a. ( guyanor ) . we hold a royalty right on the gross rosebel gold mine in suriname and expect to begin receiving cash royalties from this property during 2004 . 43 business strategy and development our business and development strategy since 1999 has been to focus primarily on the acquisition of producing and development stage gold properties in ghana and on the exploration , development and operation of these properties . given our significant mineral resource position , we are currently carrying out technical studies to expand our production at bogoso/prestea . at our wassa property , we commenced development in mid-2003 , and now expect to commence production in early 2004 by processing material from the existing heap leach pads left by the former owner . in early 2005 we plan to commence ore production from the wassa open pit mine . if the above mentioned expansion and development plans are approved and permitted ( as expected ) , our annualized production should exceed 350,000 ounces of gold commencing in 2005. however , there can be no assurance that development and start-up can be completed as anticipated or that our production goals will be achieved . our objective is to grow our business to become a mid-tier gold producer ( which we understand to be a producer with annual production of approximately 500,000 ounces ) over the next few years . due to higher gold prices and our improved financial condition , we believe we are well placed to pursue the acquisition of producing , development and advanced stage exploration gold properties and companies , primarily in ghana and elsewhere in africa . we are actively investigating potential acquisition and merger candidates , some of which have indicated to potential acquirers or their advisors that they or certain of their properties might be available for acquisition . however , we presently have no agreement or understanding with respect to any potential transaction . we have increased exploration activities and expenditures on our current exploration properties , primarily in ghana . overview of 2003 our financial condition showed a significant improvement during 2003 with records being set in several operating and financial parameters including , ounces sold , revenues , net income and operating cash flow . revenues of $ 64.4 million were up 66 % over 2002 , based on a 40 % increase in the number of ounces sold and a 17 % increase in average realized gold prices . net income of $ 22.0 million was up 350 % from the prior year , primarily due to the improved revenues . our gold sales increased to 174,315 ounces , a 40 % increase over 2002 's level , and the london p.m. fix gold price , which began the year at $ 344 per ounce , trended upward though most of 2003 to finish the year at $ 416 per ounce . story_separator_special_tag these holes were in areas that had received extensive mining and development in the past . no significant new mineralized zones were discovered . by the end of the year we had obtained access to new areas deeper in the mine , where we expect to concentrate our efforts in 2004. spending at the prestea underground project totaled $ 3.7 million during 2003 , including facility maintenance , engineering , drilling , geologic activities and equipment purchases . support crews continue to maintain the underground and surface facilities in good working order and assist our underground drilling teams . the prestea underground exploration programs for 2004 will involve drilling from underground and surface sites . drilling of targets below the extent of the existing mining will be conducted from a series of hanging wall cross cuts on the lower levels of the mine . the underground drilling will test the down dip extension of the high-grade ore zones which were previously exploited . bogoso/prestea expansion the known mineral reserves at bogoso/prestea can be grouped into three general categories based on the metallurgy of the ore. they are referred to as : ( a ) oxide ore which is non-refractory and has been successfully processed in the existing bogoso cil and gravity circuits ; ( b ) non-refractory transition and sulfide ores which we expect to successfully process at the bogoso processing plant following the reactivation of the processing plant 's flotation circuit in early 2004 ; and ( c ) refractory transition and sulfide ores which would require some form of oxidation process prior to gold recovery . the oxide ores are found at surface , down to the general level of the water table , while sulfide ores are located at depth . between these two distinct ore types lies the transition ore , of varying thickness , a zone of partially oxidized ore. our bogoso/prestea reserves at the end of 2003 are comprised of approximately 13 % oxide ore , 15 % transition ores , and 72 % sulfide ores on a gold content basis . the existing bogoso processing plant is configured to process primarily oxide ores . in recent years additions to the processing plant 's equipment made it possible to treat certain transition ores but not all of the transition ores known to exist at bogoso/prestea . gold recovery from oxide ores is typically around 80 % to 85 % but when processing transition ores the recovery rate drops substantially below this . in 2001 when processing large tonnages of transition ores from the old bogoso pits , the gold recovery rate dropped below 50 % . to facilitate efficient processing of the sulfide and transition ores and to expand the productive capacity of bogoso/prestea we plan to make major modification to the existing bogoso processing plant during 2004 and 2005 and at the same time add a second processing plant on the prestea property , which will be designed to process oxide ores and other non-refractory ores . in july 2003 we purchased a used 4,500 tonne per day conventional cil processing plant , associated stores inventory , and a six-megawatt powerhouse from an inactive mine site in ghana . this facility was dismantled in the third and fourth quarters of the year and will be moved to prestea in early 2004. during 2004 we plan to reassemble this processing plant at a site approximately 6 kilometers south of the town of prestea . with the appropriate modifications it should be able to process oxide ores and some of the transition ores found at bogoso/prestea . this new processing plant is now referred to as the bondaye processing plant . we expect the bondaye processing plant to be operational in the fourth quarter of 2004 if the required approvals and permits are obtained as expected . also during 2004 and into mid 2005 , we plan to modify the existing bogoso processing plant , via the addition of a bio-oxidation ( biox ) circuit , to process sulfide ore. the modifications would be done in a manner that will allow the bogoso processing plant to continue processing oxide and transition ores during 2004 until the biox modifications are completed . we expect the bogoso processing plant upgrades to be competed in 2005 and at that point begin to process only refractory transition and sulfide ores . once the bondaye processing plant construction and the bogoso processing plant upgrades are completed , we anticipate being able to process all of the known ore types existing at bogoso/prestea and in the surrounding area . 48 we currently estimate the cost to move , reassemble and modify the bondaye processing plant , to add the biox upgrade to the existing bogoso processing plant , and to expand the mining fleet at bogoso/prestea as required to feed the expanded processing plant complex , to total about $ 70 million , not including the $ 4.3 million initial purchase cost of the bondaye processing plant . the biox process is designed to treat refractory gold ores prior to cyanidization by utilizing naturally occurring bacteria capable of oxidizing gold-bearing sulfide concentrates under controlled conditions . prior to the biox process , the ore will be crushed and ground utilizing existing equipment at the bogoso processing plant . a combination of flotation and gravity circuits , including circuits already at the bogoso processing plant , will then separate a sulfide concentrate from the ore slurry with the gold locked in the matrix of the sulfide minerals . the bacteria used in the biox process oxidize the sulfide minerals in the concentrate thereby liberating the gold particles which are then recovered by cyanidation . the bacteria used in the biox process are non-pathogenic and pose no health risks . the biox process has been successfully employed since the mid 1980s with five operations now using the process worldwide including ashanti goldfields company limited 's obuasi gold mine located 100 kilometers north of bogoso .
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results of operations 2003 compared to 2002 net income totaled $ 22.0 million or $ 0.198 per share on revenues of $ 64.4 million for 2003 , versus net income of $ 4.9 million or $ 0.070 per share on revenues of $ 38.8 million during 2002. higher gold prices , increased gold production , a $ 2.3 million gain on currency exchange rates and a $ 1.9 million gain on the sale of marketable securities were the major factors contributing to the earnings improvement . realized gold prices averaged $ 364 per ounce for the year , a 17 % increase from the $ 311 per ounce realized in 2002. gold revenues for 2003 were based on sales of 174,315 ounces , a 49,915 ounce increase from 124,400 ounces in 2002 . 45 replace_table_token_16_th higher depreciation , depletion and amortization costs are related to higher gold production versus 2002. general and administrative costs rose by $ 1.7 million from 2002 due to increases in compensation expense , including stock option expense , purchase of gold puts , travel and tax and other professional services related to an expanded scope of corporate activities . the increase in foreign exchange gains is mostly related to the effect of a weakening us dollar offset by the associated impact on the value of cash equivalents invested in canadian dollar instruments . we did not record a tax expense or benefit during 2003. while we have substantial tax assets in canada , france and ghana from past losses , capital allowances and tax pools , a tax valuation allowance has been provided in an amount equal to our net tax assets . we will continue to monitor our expected future income tax position and may in the future deem it appropriate to recognize certain tax assets and liabilities in our balance sheet .
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revenue recognition on investments in real estate the partnership 's consolidated vies and the mf properties ( note 6 ) are lessors of multifamily rental units under leases with terms of one year or less . rental revenue is recognized , net of rental concessions , on a straight-line method over the related lease term . derivative instruments and hedging activities the company accounts for its derivative and hedging activities in accordance with the guidance on derivatives and hedging . the guidance on derivatives and hedging requires the recognition of all derivative instruments as assets or liabilities in the company 's consolidated balance sheets and measurement of these instruments at fair value . the accounting treatment is dependent upon whether or not a derivative instrument is designated as a hedge and , if so , the type of hedge . the company 's interest rate derivative agreements do not have a specific hedge designation under the guidance on derivatives and hedging , and therefore changes story_separator_special_tag general in this management 's discussion and analysis , the “ partnership ” refers to america first tax exempt investors , l.p. and its consolidated subsidiaries which consist of : atax tebs i , llc , a special purpose entity owned and controlled by the partnership , created to facilitate the tax exempt bond securitization ( “ tebs ” ) financing with freddie mac - see notes 2 and 9 to the consolidated financial statements . nine multifamily apartments ( `` mf properties '' ) owned by various partnership subsidiaries . such subsidiaries hold a 99 % limited partner interest in five limited partnerships and 100 % member positions in four limited liability companies . three apartment properties which are subject to a sales agreement and are also reported as mf properties ( the “ mf properties ” ) - see note 6 to the consolidated financial statements . the “ company ” refers to the consolidated financial statements reported in this form 10-k which include the assets , liabilities and results of operations of the partnership , its consolidated subsidiaries and three other consolidated entities in which the partnership does not hold an ownership interest but which own multifamily apartment properties financed with tax-exempt mortgage revenue bonds held by the partnership and which are treated as variable interest entities ( `` vies '' ) of which the partnership has been determined to be the primary beneficiary ( “ consolidated vies ” ) . all significant transactions and accounts between the partnership and the vies have been eliminated in consolidation . story_separator_special_tag 2011 , the total cost of borrowing was 2.05 % for the tebs facility . as of december 31 , 2010 , thetotal cost of borrowing was 2.24 % . economic conditions . the disruptions in domestic and international financial markets , and the resulting restrictions on the availability of debt financing that had prevailed since 2008 began to subside in 2010 and continued to recover in 2011. while economic trends show signs of a stabilization of the economy and debt availability has increased , overall availability remains limited and the cost of credit may continue to be adversely impacted . these conditions , in our view , will continue to create potential investment opportunities for the partnership . many participants in the multifamily housing debt sector either reduced their participation in the market or were forced to liquidate some or all of their existing portfolio investments in order to meet their liquidity needs . we believe this continues to create opportunities to acquire existing tax-exempt bonds from distressed holders at attractive yields . the partnership continues to evaluate potential investments in bonds which are available on the secondary market . we believe many of these bonds will meet our investment criteria and that we have a unique ability to analyze and close on these opportunities while maintaining our ability and willingness to also participate in primary market transactions . current credit and real estate market conditions also create opportunities to acquire quality mf properties from distressed owners and lenders . our ability to restructure existing debt together with the ability to improve the operations of the apartment properties through our affiliated property management company can position these mf properties for an eventual financing with tax-exempt mortgage revenue bonds meeting our investment criteria and that will be supported by a valuable and well-run apartment property . we believe we can selectively acquire mf properties , restructure debt and improve operations in order to create value to our unitholders in the form of a strong tax-exempt bond investment . on the other hand , continued economic weakness in some markets may limit our ability to access additional debt financing that the partnership uses to partially finance its investment portfolio or otherwise meet its liquidity requirements . in addition , the economic conditions including a slow job growth and low home mortgage interest rates have had a negative effect on some of the apartment properties which collateralize our tax-exempt bond investments and our mf properties in the form of lower occupancy.while some properties have been negatively effected , overall economic occupancy ( which is adjusted to reflect rental concessions , delinquent rents and non-revenue units such as model units and employee units ) of the apartment properties that the partnership has financed with tax-exempt mortgage revenue bonds was approximately at 85 % during 2011 as compared to 81 % during 2010 . overall economic occupancy of the mf properties has increased to approximately 83 % during 2011 from 80 % during 2010 . based on the growth statistics in the market , we expect to see continued improvement in property operations and profitability . we expect that property operations will improve in 2012 and 2013 and that rental rate and occupancy trends will be continue to be positive . story_separator_special_tag bridle ridge 's operations resulted in net operating income of approximately $ 702,000 and $ 560,000 before payment of bond debt service on net revenue of approximately $ 1.06 million and $ 972,000 in 2011 and 2010 , respectively . the increase in net operating income is due to an increase in economic occupancy . the property is current on principal and interest payments on the partnership 's bond as of december 31 , 2011 . brookstone - brookstone apartments is located in waukegan , illinois and contains 168 units . the tax-exempt mortgage revenue bond owned by the partnership is a private activity housing bond issued in conjunction with the syndication of lihtcs . the bond has an outstanding principal amount of $ 9.5 million and a base interest rate of 5.45 % per annum . the bond does not provide for contingent interest . these bonds were purchased in october 2009 for approximately $ 7.3 million providing an approximate yield to maturity of 7.5 % . brookstone 's operations resulted in net operating income of $ 905,000 and $ 888,000 before payment of bond debt service on net revenue of approximately $ 1.33 million and $ 1.30 million in 2011 and 2010 , respectively . the increase in net operating income is due to a decrease in utilities and advertising expenses . the property is current on principal and interest payments on the partnership 's bond as of december 31 , 2011 . 25 cross creek - cross creek apartments is located in beaufort , south carolina and contains 144 units . the tax-exempt mortgage revenue bond owned by the partnership is a private activity housing bond issued in conjunction with the syndication of lihtcs . the bond has an outstanding principal amount of $ 8.6 million and has a base interest rate of 6.15 % per annum . the bond does not provide for contingent interest . these bonds were purchased in april 2009 for approximately $ 5.9 million providing an approximate yield to maturity of 7.4 % . cross creek 's operations resulted in net operating income of $ 411,000 and $ 375,000 before payment of bond debt service on net revenue of approximately $ 1.17 million and $ 1.13 million in 2011 and 2010 , respectively . this increase in net operating income is due to a slight increase in economic occupancy . the property is current on the payment of principal and base interest on the partnership 's bond as of december 31 , 2011. gmf-madison tower - madison tower apartments is located in memphis , tennessee and contains 147 units . the tax-exempt mortgage revenue bond owned by the partnership was issued by the 501 ( c ) 3 not-for-profit owner of madison towers . the bond has an outstanding principal amount of $ 3.8 million and has a base interest rate of 6.75 % per annum . the bond does not provide for contingent interest . the bond was purchased at par in june 2011. madison tower 's operations resulted in net operating income of $ 263,000 before payment of bond debt service on net revenue of approximately $ 511,000 in 2011. the property is current on principal and interest payments on the partnership 's bond as of december 31 , 2011. gmf-warren/tulane - warren/tulane apartments is located in memphis , tennessee and contains 448 units . the tax-exempt mortgage revenue bond owned by the partnership was issued by the 501 ( c ) 3 not-for-profit owner of warren/tulane . the bond has an outstanding principal amount of $ 11.8 million and has a base interest rate of 6.75 % per annum . the bond does not provide for contingent interest . the bond was purchased at par in june 2011. warren/tulane 's operations resulted in net operating income of $ 818,000 before payment of bond debt service on net revenue of approximately $ 1.72 million in 2011. the property is current on principal and interest payments on the partnership 's bond as of december 31 , 2011. iona lakes - iona lakes apartments is located in fort myers , florida and contains 350 units . the tax-exempt mortgage revenue bond owned by the partnership is a traditional “ 80/20 ” bond issued prior to the tax reform act of 1986. the bond has an outstanding principal amount of $ 15.7 million and has a base interest rate of 6.9 % per annum . the bond also provides for contingent interest payable from excess cash flow generated by the underlying property through the potential payment of contingent interest . the bond accrues contingent interest at a rate of 2.6 % annually and such contingent interest is payable only if the underlying property generates excess operating cash flows or realizes excess cash through capital appreciation and a related sale or refinancing of the property . to date , the partnership has realized $ 8,000 contingent interest income related to this bond . iona lake 's operations resulted in net operating income of $ 1.08 million and $ 931,000 before payment of bond debt service on net revenue of approximately $ 2.67 million and $ 2.51 million in 2011 and 2010 , respectively . the increase in net operating income was a result of an increase in economic occupancy as well as decreased real estate taxes . the property is current on the payment of principal and base interest on the partnership 's bond as of december 31 , 2011 . runnymede apartments - runnymede apartments is located in austin , texas and contains 252 units . the tax-exempt mortgage revenue bond owned by the partnership is a private activity housing bond issued in conjunction with the syndication of lihtcs . the bond has an outstanding principal amount of $ 10.7 million and has a base interest rate of 6.00 % . the bond does not provide for contingent interest .
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executive summary tax-exempt mortgage revenue bonds . on december 31 , 2011 , the partnership owned 20 federally tax-exempt mortgage revenue bonds with an aggregate outstanding principal amount of $ 188.6 million . these bonds were issued by various state and local housing authorities in order to provide construction and or permanent financing of 20 multifamily residential apartments containing a total of 3,959 rental units located in the states of florida , illinois , iowa , kansas , kentucky , minnesota , ohio , south carolina , tennessee , and texas . in each case the partnership owns , either directly or indirectly , 100 % of the bonds issued for these properties . each bond is secured by a first mortgage or deed of trust on the financed apartment property . consolidated vies . the three consolidated vie multifamily apartment properties as of december 31 , 2011 , contained a total of 650 rental units . the properties underlying the fifteen non-consolidated tax-exempt mortgage bonds contain a total of 2,947 rental units at december 31 , 2011 . two bonds secured by the three ohio properties containing 362 rental units are subject to a sales agreement ( see note 3 to the consolidated financial statements ) and are eliminated in consolidation on the company 's financial statements . as of december 31 , 2010 , six of the 21 tax-exempt mortgage revenue bonds owned by the partnership were secured by properties held as vies which contained 1,152 rental units . as of december 31 , 2010 , the properties underlying the 13 non-consolidated tax-exempt mortgage revenue bonds contain a total of 2,144 rental units . two bonds secured by the three ohio properties containing 362 rental units are subject to a sales agreement ( see note 3 to the consolidated financial statements ) and are eliminated in consolidation on the company 's financial statements . mf properties .
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these statements include , among other things , statements concerning our expectations regarding : continued growth and market share gains ; variability in sales in certain product categories from year to year and between quarters ; expected impact of sales of certain products and services ; the impact of macro-economic and geopolitical factors on our international sales ; the proportion of our revenue that consists of our product and service revenue , and the mix of billings between products and services , and the duration of service contracts ; the impact of our product innovation strategy ; drivers of long-term growth and operating leverage , such as increased functionality and value in our standalone and bundled security subscription and support service offerings ; growing our sales to enterprise , service provider and government organizations , the impact of sales to these organizations on our long-term growth , expansion and operating results , and the effectiveness of our internal sales organization ; trends in revenue , costs of revenue and gross margin ; trends in our operating expenses , including sales and marketing expense , research and development expense , general and administrative expense , and expectations regarding these expenses as a percentage of revenue ; continued investments in research and development ; managing our continued investments in sales and marketing , and the impact of those investments ; expectations regarding uncertain tax benefits and our effective tax rate ; expectations regarding spending related to real estate and other capital expenditures ; competition in our markets ; integration of acquired companies and technologies and expectations related to acquisitions ; success and expansion of our recently implemented erp system ; our intentions regarding repatriation of cash , cash equivalents and investments held by our international subsidiaries and the sufficiency of our existing cash , cash equivalents and investments to meet our cash needs for at least the next 12 months ; other statements regarding our future operations , financial condition and prospects and business strategies ; and adoption of new accounting standards , including those related to revenue recognition and accounting for leases . these forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from those reflected in the forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those discussed in this annual report on form 10-k and , in particular , the risks 37 discussed under the heading “ risk factors ” in part i , item 1a of this annual report on form 10-k and those discussed in other documents we file with the sec . we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements . given these risks and uncertainties , readers are cautioned not to place undue reliance on such forward-looking statements . business overview we provide high performance cybersecurity solutions to a wide variety of enterprises , service providers and government organizations of all sizes across the globe , including a majority of the 2016 fortune 100. our cybersecurity solutions are designed to provide broad , rapid protection against dynamic and sophisticated security threats , while simplifying the it and security infrastructure of our end-customers . the evolving cyber threat environment is unprecedented both in terms of volume and sophistication of attacks . as a result , cybersecurity has increased both in priority and in management complexity for organizations of all sizes , especially enterprises . in addition , the growth of iot devices and the decision by organizations to increasingly move computing and infrastructure resources to the cloud necessitate increased visibility and security orchestration across a widely distributed ecosystem of networks . our common operating system , centralized management and open application program interfaces allow many of the solutions in our portfolio , as well as those of our partner community , to be combined to create an integrated security architecture . the fortinet security fabric is designed to address sophisticated threats and next-generation environments , including iot and the cloud . the fortinet security fabric connects our products , services and ecosystem partner solutions to help provide visibility and protection at all points in the network , from endpoint to data center to the cloud , regardless of whether deployed in physical , virtual or hybrid cloud environments or on endpoint devices . the fortinet security fabric delivers integrated scalability , access control , awareness , security , traffic segmentation , centralized management and orchestration . the fortinet security fabric is built around an open framework to ensure interoperability and synchronization of intelligence and response , and does so across the distributed network security infrastructure , including both from the cloud and for the cloud . at the core of the fortinet security fabric are our fortigate physical and software licenses , which ship with a broad set of security services , including firewall , vpn , anti-malware , anti-spam , application control , intrusion prevention , access control , web filtering , traffic and device segmentation and atp . many of these security services are tuned and updated by our fortiguard labs team , which provides threat research and a global cloud network of data collection and intelligence resources to deliver subscription-based services to fortigate appliances and software products . enterprise customers select the form and deployment method that best meet their specific security requirements , such as a high-speed dcfw at the network core , a ngfw at the edge , an internal segmentation firewall ( “ isfw ” ) between network zones , a distributed enterprise firewall at branch sites or software and hardware-based solutions designed for virtualized and cloud environments . many smaller businesses also tend to deploy utm devices . we derive a substantial majority of product sales from our fortigate appliances , which range from the fortigate-20 to -100 series , designed for small businesses , fortigate-200 to -900 series for medium-sized businesses , to the fortigate-1000 to -7000 series for large enterprises and service providers . story_separator_special_tag our cost of product revenue also includes supplies , shipping costs , personnel costs associated with logistics and quality control , facility-related 41 costs , excess and obsolete inventory costs , warranty costs , and amortization and impairment of intangible assets , if applicable . personnel costs include salaries , benefits and bonuses , as well as stock-based compensation . cost of service revenue . cost of service revenue is primarily comprised of salaries , benefits and bonuses , as well as stock-based compensation . cost of service revenue also includes supplies and facility-related costs . gross margin . gross profit as a percentage of revenue , or gross margin , has been and will continue to be affected by a variety of factors , including the average sales price of our products , any excess inventory write-offs , product costs , the mix of products sold and the mix of revenue between products , software licenses and services . service revenue and software licenses have had a positive effect on our total gross margin given the higher gross margins compared to product gross margins . during 2016 , product gross margin was positively impacted by higher sales of software products , as well as inventory management and warehouse efficiencies . service gross margins remained relatively comparable in 2016 compared to 2015. we believe our overall gross margin will remain at a relatively comparable level in 2017. operating expenses . our operating expenses consist of research and development , sales and marketing , general and administrative expenses , and restructuring charges . personnel costs are the most significant component of operating expenses and consist primarily of salaries , benefits , bonuses , stock-based compensation , and sales commissions , as applicable . we expect personnel costs to continue to increase in absolute dollars as we expand our workforce . research and development . research and development expense consists primarily of personnel costs . additional research and development expenses include asic and system prototypes and certification-related expenses , depreciation of capital equipment and facility-related expenses . the majority of our research and development is focused on both software development and the ongoing development of our hardware platform . we record all research and development expenses as incurred . our research and development teams are primarily located in canada and the u.s. sales and marketing . sales and marketing expense is the largest component of our operating expenses and primarily consists of personnel costs . additional sales and marketing expenses include promotional lead generation and other marketing expenses , travel , depreciation of capital equipment and facility-related expenses . we intend to hire additional personnel focused on sales and marketing and expand our sales and marketing efforts worldwide in order to capture additional market share in the high-return enterprise market , where customers tend to provide a higher lifetime value . general and administrative . general and administrative expense consists of personnel costs , as well as professional fees , depreciation of capital equipment and software , facility-related expenses , expenses associated with the erp system implementation and business acquisition costs . general and administrative personnel include our executive , finance , human resources , information technology and legal organizations . our professional fees principally consist of outside legal , auditing , accounting , tax , information technology and other consulting costs . restructuring charges . restructuring charges relate to alignment activities performed in connection with the meru and accelops acquisitions to reduce our cost structure and improve operational efficiencies , resulting in workforce reductions , contract terminations and other charges . interest income . interest income consists of income earned on our cash , cash equivalents and investments . we have historically invested our cash in corporate debt securities , commercial paper , u.s. government and agency securities , municipal bonds , money market funds and certificates of deposit . other expense — net . other expense—net consists primarily of foreign exchange gains and losses relate to foreign currency exchange remeasurement . provision for income taxes . we are subject to tax in the u.s. , as well as other tax jurisdictions or countries in which we conduct business . earnings from our non-u.s. activities are subject to income taxes in the local country which are generally lower than u.s. tax rates , and may be subject to u.s. income taxes . our effective tax rate differs from the u.s. statutory rate primarily due to foreign income subject to different tax rates than the u.s. , research and development tax credits , withholding taxes and nondeductible stock-based compensation expense . 42 the income tax provision for 2016 was comprised of domestic income taxes , foreign income taxes and foreign withholding taxes . our effective tax rate approximates the u.s. federal statutory tax rates plus the impact of state taxes , excess tax benefits related to stock-based compensation expense , research and development tax credits , foreign withholding tax , nondeductible stock-based compensation expense , and foreign income subject to lower tax rates than income earned in the u.s. critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based upon our financial statements , which have been prepared in accordance with gaap . these principles require us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue , cost of revenue and expenses , and related disclosures . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . to the extent that there are material differences between these estimates and our actual results , our future financial statements will be affected . we believe that , of the significant accounting policies described in note 1 to our consolidated financial statements included in part ii , item 8 of this annual report on form 10-k , the following accounting policies involve a greater degree of judgment and complexity .
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financial highlights we recorded total revenue of $ 1.28 billion in 2016 , an increase of 26 % compared to 2015 . product revenue was $ 548.1 million in 2016 , an increase of 15 % compared to 2015 . service revenue was $ 727.3 million in 2016 , an increase of 37 % compared to 2015 . cash , cash equivalents and investments were $ 1.31 billion as of december 31 , 2016 , an increase of $ 146.2 million , or 13 % , from december 31 , 2015 . deferred revenue was $ 1.04 billion as of december 31 , 2016 , an increase of $ 244.0 million , or 31 % , from december 31 , 2015 . we generated cash flows from operating activities of $ 345.7 million in 2016 , an increase of $ 63.2 million , or 22 % , compared to 2015 . we repurchased 3.9 million shares of common stock under our previously-announced share repurchase program for an aggregate purchase price of $ 110.8 million in 2016. revenue grew in 2016 as our strategy of investing in sales and marketing enabled us to continue to gain market share and customers . our sales increased in 2016 , primarily due to the strength in sales of our enterprise service bundles and the fortinet security fabric . we are also starting to see a shift from product revenues to higher-margin , recurring service revenues . on a geographic basis , revenue continues to be diversified globally , which remains a key strength of our business .
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the discussion of our financial condition and results of operations includes various forward-looking statements about our markets , the demand for our products and services and our future plans and results . these statements are based on assumptions that we consider to be reasonable , but that could prove to be incorrect . for more information regarding our assumptions , you should refer to the section entitled forward-looking statements and assumptions contained in this item 7 in this annual report on form 10-k. background we design and manufacture instruments and equipment used in the acquisition and processing of seismic data as well as in the characterization and monitoring of producing oil and gas reservoirs . we have been in the seismic instrument and equipment business since 1980 and market our products primarily to the oil and gas industry . we also design , manufacture and distribute thermal imaging equipment and thermal media products targeted at the screen print , point of sale , signage and textile market sectors . we have been manufacturing thermal imaging products in our thermal solutions segment since 1995. for a more detailed discussion of our business segments and products , see the information under the heading business in this annual report on form 10-k. story_separator_special_tag for the fiscal year ended september 30 , 2012 , revenues from our wireless products increased by $ 18.9 million , or 29.6 % , from the prior fiscal year . the increase in revenues resulted from the continued industry acceptance of our wireless systems in lieu of less efficient legacy cable-based systems . reservoir product sales , rentals and services for the fiscal year ended september 30 , 2012 , revenues from our reservoir products decreased $ 0.6 million , or 3.6 % , from the prior fiscal year . revenues from these products , which in recent years primarily include our seismic borehole tools , have historically been erratic . due to the recent receipt of large orders for our permanent seabed reservoir monitoring systems , we expect revenues for our reservoir products to increase significantly in future years . industrial product sales for the fiscal year ended september 30 , 2012 , sales of our industrial , or non-seismic , products increased $ 2.3 million , or 20.5 % , from the prior fiscal year . this increase was primarily driven by increased shipments of offshore cable products . the rate of new customer orders for our seismic products , especially large orders for our wireless , marine , borehole and subsea reservoir products , generally occur irregularly thereby making it difficult for us to predict our sales and production levels each quarter . furthermore , product shipping dates are generally determined by our customers and are not at our discretion . as a result , these factors have caused past sales of our seismic products to be unpredictable , or lumpy , and we expect this trend to continue into the future . 18 index to financial statements operating income . operating income for fiscal year 2012 increased $ 6.0 million , or 11.2 % , from fiscal year 2011. the higher level of operating income resulted primarily from increased sales and specifically sales and rentals of our wireless products . fiscal year 2011 compared to fiscal year 2010 net sales . sales of our seismic products for fiscal year 2011 increased $ 43.9 million , or 38.2 % , from fiscal year 2010. the components of this increase include the following : traditional product sales and rentals for the fiscal year ended september 30 , 2011 , revenues from our traditional products increased $ 1.3 million , or 2.0 % , from the corresponding period of the prior fiscal year . this increase in revenues resulted from increased shipments of marine products , and was partially offset by a decrease in sales of geophones products . wireless product sales and rentals for the fiscal year ended september 30 , 2011 , revenues from our wireless products increased by $ 40.5 million , or 174.5 % , from the prior fiscal year . the increase in revenues resulted from the customer acceptance of our wireless systems to replace less efficient legacy cable-based systems . reservoir product sales , rentals and services for the fiscal year ended september 30 , 2011 , revenues from our reservoir products increased $ 1.4 million , or 9.6 % , from the prior fiscal year . the increase in revenues resulted from increased sales of our seismic borehole tools . industrial product sales for the fiscal year ended september 30 , 2011 , sales of our industrial , or non-seismic , products increased $ 0.6 million , or 6.2 % , from the prior fiscal year . this increase was primarily driven by increased shipments of industrial sensor and specialty cable products . operating income . operating income for fiscal year 2011 increased $ 24.5 million , or 84.7 % , from fiscal year 2010. the higher operating income resulted primarily from increased product sales and equipment rentals , improved factory productivity , and a more favorable product mix . these improvements in our operating income were partially offset by ( i ) additional charges for inventory obsolescence due to the aging of certain of our inventories , ( ii ) increased incentive compensation expenses due to a higher level of pretax income , and ( iii ) operating losses at our subsidiary in the russian federation due to competitive pricing pressures in its local market . thermal solutions products fiscal year 2012 compared to fiscal year 2011 net sales . sales of our thermal solutions products for fiscal year 2012 decreased $ 0.9 million , or 6.5 % , from fiscal year 2011. we consider this decrease to be somewhat normal due to recurring fluctuations in product sales volume and not associated with any particular long-term trend . operating income . story_separator_special_tag in addition , we estimate that other capital expenditures for property and equipment could be approximately $ 14.0 million , in part resulting from the need to expand our production capacity due to the recently received statoil order . similar to fiscal year 2012 , in fiscal year 2013 we expect to sell a significant amount of our rental equipment to customers and , therefore , we expect to generate sales proceeds to partially or fully offset our investment in rental equipment . beyond this we expect to finance our capital expenditures in rental equipment and other property and equipment from our cash on hand , internal cash flow and or from borrowings under our credit agreement . for fiscal year 2012 , we generated approximately $ 2.5 million of cash in the financing activities from the exercise of stock options and related tax benefits . at september 30 , 2011 , we had $ 31.4 million in cash and cash equivalents . for fiscal year 2011 , we generated approximately $ 1.1 million of cash in operating activities . sources of cash generated in our operating activities resulted from net income of $ 29.7 million . additional sources of cash included net non-cash charges of $ 11.8 million for deferred income tax benefit , depreciation , amortization , stock-based compensation , inventory obsolescence and bad debts . other sources of cash included ( i ) a $ 2.0 million decrease in trade accounts and notes receivable primarily resulting from improved cash receipts from customers during fiscal year 2011 , ( ii ) a $ 1.8 million increase in accrued expenses and other primarily resulting from an increase of $ 0.8 million for incentive compensation expenses due to increased consolidated pretax earnings , and a $ 0.7 million increase in warranty accruals due to increased potential warranty exposure resulting from increased product sales , and ( iii ) a $ 1.2 million increase in accounts payable due to increased purchases of raw materials . these sources of cash were offset by ( i ) a $ 29.5 million increase in inventories due to the replenishment of low levels of our wireless data acquisition system inventories , and increasing levels of work-in-process resulting from product orders and anticipated demand for wireless data acquisition system sales and rentals , ( ii ) a $ 11.2 million adjustment to transfer gross profits from rental equipment sales to investing activities since such transactions involve the sale of long-lived assets , ( iii ) a $ 2.5 million increase in other current assets resulting from the advanced payment of income taxes in certain tax jurisdictions , ( iv ) a $ 1.7 million decrease in income tax payable resulting from the payment of income taxes owed on our pretax profits and ( v ) a $ 0.6 million decrease in deferred revenue resulting from a reduction in the amount of advanced payments received from our customers . for fiscal year 2011 , we used approximately $ 5.2 million of cash in investing activities . the uses of cash primarily resulted from ( i ) our investment of $ 15.4 million for rental equipment , ( ii ) $ 4.7 million of capital expenditures for property and equipment , and ( iii ) a $ 4.9 million investment in short-term investments . in addition , we transferred $ 0.2 million of inventories to our rental equipment during fiscal year 2011 which had a non-cash impact . the uses of cash outlined above were partially offset by $ 19.9 million of proceeds from the sale of used rental equipment . for fiscal year 2011 , we generated approximately $ 2.0 million of cash in the financing activities of our operations . during fiscal year 2011 , we generated $ 9.7 million of proceeds from the exercise of stock options and related tax benefits . partially offsetting these proceeds was a $ 7.7 million cash payment to pay off a mortgage loan obligation . 21 index to financial statements at september 30 , 2010 , we had $ 33.5 million in cash and cash equivalents . for fiscal year 2010 , we generated approximately $ 28.8 million of cash from our operating activities . sources of cash generated in our operating activities include net income of $ 14.1 million . additional sources of cash include net non-cash charges of $ 6.6 million for deferred income tax expense , depreciation , amortization , stock-based compensation , inventory obsolescence and bad debts . other sources of cash included ( i ) a $ 6.7 million decrease in inventories due to improved management activities , ( ii ) a $ 5.0 million increase in accrued expenses primarily resulting from higher incentive compensation costs resulting from higher levels of pretax income and ( iii ) a $ 1.9 million increase in income taxes payable primarily resulting from the increase in taxable income . these sources of cash were offset by ( i ) a $ 2.7 million increase in accounts and notes receivable resulting from higher levels of sales , ( ii ) a $ 0.9 million decrease in accounts payable due to increases in purchases of raw materials and ( iii ) a $ 0.9 million decrease in prepaid expenses and other resulting from the timing of funding our payrolls . for fiscal year 2010 , we used approximately $ 4.9 million of cash in investing activities primarily resulting from our capital expenditures for rental equipment . in addition , we transferred $ 0.3 million of inventories to our rental equipment during fiscal year 2010 which had a non-cash impact . for fiscal year 2010 , we generated approximately $ 1.3 million of cash in the financing activities of our operations . sources of cash included $ 3.3 million of proceeds from the exercise of stock options and related tax benefits . these sources of cash were offset by $ 1.8 million of principal payments under mortgage loans and a $ 0.1 million payment as a penalty for early extinguishment of debt .
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consolidated results of operations as we have reported in the past , our sales and operating profits have varied significantly from quarter-to-quarter , and even year-to-year , and are expected to continue that trend in the future , especially when our quarterly financial results are impacted by the presence or absence of relatively large , but somewhat erratic , shipments of seismic seabed , borehole reservoir characterization systems and or wireless data acquisition systems . we have recently received two large orders for permanent seabed reservoir characterization systems . in february 2012 , we received an order from shell brasil petróleo ltda for a $ 14.9 million system which is expected to be delivered in the second quarter of fiscal year 2013. in november 2012 we received the $ 160 million statoil order for two systems to be delivered over a three-year period through fiscal year 2015 with revenues and costs to be recognized on a percentage of completion basis . utilizing the percentage of completion revenue recognition method , we currently expect to recognize approximately 45 % , 40 % and 15 % of the statoil order revenues in fiscal years 2013 , 2014 and 2015 , respectively . as a result of these large orders , we expect our future revenues from the sale of seismic reservoir products to increase significantly compared to historical sales levels . 16 index to financial statements we report and evaluate financial information for two segments : seismic and thermal solutions . summary financial data by business segment follows ( in thousands ) : replace_table_token_4_th overview fiscal year 2012 compared to fiscal year 2011 consolidated net sales for fiscal year 2012 increased $ 18.7 million , or 10.8 % , from fiscal year 2011. the higher level of sales resulted from increased customer demand for our seismic products and particularly robust demand for sales and rentals of our land-based wireless ( or nodal ) data acquisition systems .
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106 urogen story_separator_special_tag the following discussion contains management 's discussion and analysis of our financial condition and results of operations and should be read together with the historical consolidated financial statements and the notes thereto included in “ financial statements and supplementary data ” . this discussion contains forward-looking statements that reflect our plans , estimates and beliefs and involve numerous risks and uncertainties , including but not limited to those described in the “ risk factors ” section of this annual report . actual results may differ materially from those contained in any forward-looking statements . you should carefully read “ special note regarding forward-looking statements ” and “ risk factors. ” overview we are a biopharmaceutical company dedicated to building and commercializing novel solutions that treat specialty cancers and urologic diseases . we have developed rtgel reverse-thermal hydrogel , a proprietary sustained release , hydrogel-based technology that has the potential to improve therapeutic profiles of existing drugs . our technology is designed to enable longer exposure of the urinary tract tissue to medications , making local therapy a potentially effective treatment option . our approved product jelmyto ( mitomycin ) for pyelocalyceal solution , and our investigational candidate ugn-102 ( mitomycin ) for intravesical solution , are designed to ablate tumors by non-surgical means and to treat several forms of non-muscle invasive urothelial cancer , including low-grade upper tract urothelial cancer ( “ low-grade utuc ” ) and low-grade intermediate risk non-muscle invasive bladder cancer ( “ low-grade intermediate risk nmibc ” ) , respectively . we estimate that the annual treatable patient population of low-grade utuc in the united states is approximately 6,000 to 7,000 ; the estimated annual treatable population of low-grade intermediate risk nmibc is approximately 80,000. rtgel is a novel proprietary polymeric biocompatible , reverse thermal gelation hydrogel , which , unlike the general characteristics of most forms of matter , is liquid at lower temperatures and converts into gel form when warmed to body temperature . we believe that these characteristics promote ease of delivery into and retention of drugs in body cavities , including the bladder and the upper urinary tract , forming a transient reservoir of drug that disintegrates over time while preventing rapid excretion , providing for increased dwell time . rtgel leverages the physiologic flow of urine to provide a natural exit from the body . we believe that rtgel , when formulated with an active drug , may allow for the improved efficacy of treatment of various types of specialty cancers and urologic diseases without compromising the safety of the patient or interfering with the natural flow of fluids in the urinary tract . rtgel achieves this by : increasing the exposure of active drugs in the bladder and upper urinary tract by significantly extending the dwell time of the active drug while conforming to the anatomy of the bladder and the upper urinary tract , which allows for enhanced drug tissue coverage . for example , the average dwell time of the standard mitomycin water formulation , currently used as adjuvant treatment , in the upper urinary tract is approximately five minutes , compared to approximately six hours when mitomycin is formulated with rtgel ; administering higher doses of an active drug than would otherwise be possible using standard water-based formulations . for instance , it is only possible to dissolve 0.5 mg of mitomycin in 1 ml of water while it is possible to formulate up to 8 mg of mitomycin with 1 ml of rtgel ; and maintaining the active drug 's molecular structure and mode of action . these characteristics of rtgel enable sustained release of mitomycin in the urinary tract for both jelmyto and ugn-102 . further , rtgel may be particularly effective in the bladder and upper urinary tract where tumor visibility and access are challenging , and where there exists a significant amount of urine flow and voiding . we believe that these characteristics of rtgel may prove useful for the local delivery of active drugs to other bodily cavities in addition to the bladder and upper urinary tract . jelmyto on april 15 , 2020 , the fda approved our new drug application ( “ nda ” ) for jelmyto ( mitomycin ) for pyelocalyceal solution , formerly known as ugn-101 , for the treatment of adult patients with low-grade utuc . jelmyto consists of mitomycin , an established chemotherapy , and sterile hydrogel , using our proprietary sustained release rtgel technology . it has been designed to prolong exposure of urinary tract tissue to mitomycin , thereby enabling the treatment of tumors by non-surgical means . new product exclusivity for jelmyto exists through april 15 , 2023 , orphan drug exclusivity through april 15 , 2027 as well as a composition of matter patent through 2031. low-grade utuc is a rare cancer that develops in the lining of the upper urinary tract , ureters and kidneys . in the united states , there are approximately 6,000 - 7,000 new or recurrent low-grade utuc patients annually . it is a challenging condition to treat due to the 75 complex anatomy of the urinary tract system . the current standard of care includes multiple surgeries , and most patients require a radical nephroureterectomy , which includes the removal of the renal pelvis , kidney , ureter and bladder cuff . treatment is further complicated by the fact that low-grade utuc is most commonly diagnosed in patients over 70 years of age , who may already have compromised kidney function and may suffer further complications as a result of a major surgery . the fda approval is based on results from our phase 3 olympus trial showing jelmyto achieved clinically significant disease eradication in adults with low-grade utuc . findings from the final study results include : complete response ( “ cr ” ) ( primary endpoint ) of 58 % ( 41/71 ) in the intent-to-treat population and in the sub-population of patients who were deemed not capable of surgical removal at diagnosis . story_separator_special_tag surgical tumor removal often has limited success due to the inability to properly identify , reach and resect all tumors . we believe that an effective chemoablation agent can potentially provide better eradication of tumors irrespective of the detectability and location of the tumors . in addition , by removing the need for surgery , patients may avoid potential complications associated with surgery . ugn-302 our immuno-uro-oncology pipeline includes ugn-302 , the sequential use of ugn-201 , a tlr 7/8 agonist and ugn-301 , an anti-ctla-4 antibody , being studied as an investigational treatment for high-grade non-muscle invasive bladder cancer ( high-grade nmibc ) . urogen 's approach involves the local delivery of these potent immunomodulators . ugn-301 , an immune checkpoint inhibitor , is delivered using urogen 's proprietary rtgel platform to increase dwell time , which has been shown to significantly improve the effectiveness of intravesical therapy . ugn-201 is a proprietary novel , liquid formulation of imiquimod , a generic toll-like receptor 7/8 , or tlr 7/8 agonist , which has been evaluated for the treatment of high-grade nmibc , which may include carcinoma in situ , or cis . toll-like receptor agonists play a key role in initiating the innate immune response system . we believe that the combination of ugn-201 with ugn-301 could represent a valid alternative to the current standard of care for the post-turbt adjuvant treatment of high-grade nmibc . in november 2019 , we entered into a worldwide license agreement with agenus inc. to develop and commercialize zalifrelimab , an anti-ctla-4 antibody , via intravesical delivery in combination with ugn-201 ( together referred to as ugn-302 ) for the treatment of urinary tract cancers , initially in high-grade nmibc . we believe that the combination treatment makes local therapy a potentially more effective treatment option while minimizing systemic exposure and potential side effects . our research and development and license agreements allergan/abbvie agreement in october 2016 , we entered into the allergan/abbvie agreement and granted allergan an exclusive worldwide license to research , develop , manufacture and commercialize pharmaceutical products that contain rtgel and clostridial toxins including botox . the license grants the exclusivity for the rtgel and clostridial toxins including botox alone or in combination with certain other active ingredients , referred to as the licensed products , which are approved for the treatment of adults with overactive bladder who can not use or do not adequately respond to anticholinergics . additionally , we granted allergan a non-exclusive , worldwide license to use certain of our trademarks as required for allergan to practice its exclusive license with respect to the licensed products . under the allergan/abbvie agreement , allergan is solely responsible , at its expense , for developing , obtaining regulatory approvals for and commercializing , on a worldwide basis , pharmaceutical products that contain rtgel and clostridial toxins ( including botox ) , alone or in combination with certain other active ingredients , collectively , the licensed products . allergan is obligated to pay us a tiered royalty in the low single digits based on worldwide annual net sales of licensed products , subject to certain reductions for the market entry of competing products and or loss of our patent coverage of licensed products . we are responsible for payments to any third party for certain rtgel -related third-party intellectual properties . in august 2017 , we announced that allergan had submitted an ind to the fda in order to be able to commence clinical trials in the united states using an rtgel formulation in combination with botox . in october 2017 , allergan commenced a phase 2 clinical trial of botox/ rtgel for the treatment of oab , with the potential to evolve from multiple injections of botox into the bladder to a single instillation of the novel formulation . 77 in august 2020 , we announced that the phase 2 apollo trial did not meet the primary endpoint , it is believed to be the result of botox not effectively permeating the urothelium . we are continuing to explore the potential use of rtgel in combination with other products in abbvie 's portfolio . agenus agreement in november 2019 , we entered into a license agreement with agenus inc. ( “ agenus ” ) . pursuant to the agreement , agenus granted us an exclusive , worldwide license ( not including argentina , brazil , chile , colombia , peru , venezuela and their respective territories and possessions ) , royalty-bearing , sublicensable license under agenus 's intellectual property rights to develop , make , use , sell , import and otherwise commercialize products incorporating a proprietary antibody of agenus known as agen1884 for the treatment of cancers of the urinary tract via intravesical delivery . agen1884 is an anti-ctla-4 antagonist that is currently being evaluated by agenus as a monotherapy in pd-1 refractory patients and in combination with agenus ' anti-pd-1 antibody ( agen2034 ) in solid tumors . ugn-301 is a formulation of rtgel and zalifrelimab that is in early stage development for high-grade nmibc . md anderson agreement based on nonclinical studies conducted by us , ugn-201 in combination with anti-ctla-4 antagonists have shown encouraging results for the potential treatment of high-grade nmibc . in january 2021 , we announced that we entered into a three-year strategic research collaboration agreement with md anderson focusing on ugn-302 as an investigational treatment for high-grade nmibc . under the agreement , md anderson and urogen will collaborate on the design and conduct of non-clinical and clinical studies with oversight from a joint steering committee . urogen will provide funding , developmental candidates , and other support . for additional information regarding our research and development and license agreements , see note 11 to our financial statements appearing elsewhere in this annual report . impact of covid-19 pandemic in the event of a prolonged disruption related to covid-19 , there could be detrimental impact to our ongoing and future clinical trials , our ongoing commercial launch and future commercialization activities for jelmyto , and our ability to access capital markets .
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results of operations comparison of the years ended december 31 , 2020 and 2019 the following table sets forth our results of operations for the years ended december 31 , 2020 and 2019. replace_table_token_1_th revenues revenues were $ 11.8 million and $ 18,000 for the years ended december 31 , 2020 and 2019 , respectively . the increase of $ 11.8 million reflects sales of our product jelmyto following its approval by the fda in april 2020. cost of revenues cost of revenues were $ 1.0 million and $ 0 for the years ended december 31 , 2020 and 2019 , respectively . in periods prior to receiving fda approval for jelmyto , we recognized inventory and related costs associated with the manufacture of jelmyto as research and development expenses . we expect this to continue to impact cost of revenues through the first quarter of 2022 as we produce jelmyto at costs reflecting the full costs of manufacturing and as we deplete inventories that we had expensed prior to receiving fda approval . gross margin would have been approximately 86 % versus 91 % for year ended december 31 , 2020 if we had not sold jelmyto units that were expensed prior to regulatory approval . research and development expenses research and development expenses decreased by $ 2.0 million to $ 47.3 million in the year ended december 31 , 2020 from $ 49.3 million in the year ended december 31 , 2019 . excluding the $ 10 million milestone payment related to our license agreement with agenus inc during 2019 , research and development expenses increased by $ 8.0 million .
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58 operating income by segment our operating income by segment is as follows : replace_table_token_14_th the operating loss within corporate and other increased approximately $ 28.4 million during the year ended march 31 , 2013 as compared to $ 4.3 million during the year ended march 31 , 2012. this increase is due in part to $ 8.4 million of incremental expenses associated with the corporate activities of high sierra . in addition , corporate general and administrative expense for the year ended march 31 , 2013 includes $ 10.1 million of compensation expense related to certain restricted units granted pursuant to employee and director compensation programs . corporate general and administrative expense for the year ended march 31 , 2013 also includes costs related to acquisitions , including $ 3.7 million of expense related to the acquisition of high sierra . the operations of our compressor leasing business are also included within corporate and other. crude oil logistics the following table summarizes the operating results of our crude oil logistics segment for the year ended march 31 , 2013 ( amounts in thousands ) . the operations of our crude oil logistics segment began with our june 19 , 2012 combination with high sierra . replace_table_token_15_th ( 1 ) revenues include $ 5.7 million of intersegment sales that are eliminated in our consolidated statement of operations . revenues . we generated revenue of $ 2.3 billion from crude oil sales during the year ended march 31 , 2013 , selling 24.4 million barrels at an average price of $ 95.30 per barrel . we also generated $ 16.4 million of revenue from the transportation of crude oil owned by other parties . cost of sales . our cost of crude oil sold was $ 2.3 billion during the year ended march 31 , 2013. we sold 24.4 million barrels at an average cost of $ 93.03 per barrel . our cost of sales during the year ended march 31 , 2013 was increased by $ 9.8 million of realized losses on derivatives . other operating expenses . our crude oil operations generated $ 28.2 million of operating and general and administrative expenses during the year ended march 31 , 2013. depreciation and amortization expense , which consists of depreciation on fixed assets and amortization of customer relationship intangible assets , was $ 9.2 million during the year ended march 31 , 2013 . 59 water services the following table summarizes the operating results of our water services segment for the year ended march 31 , 2013 ( amounts in thousands ) . the operations of our water services segment began with our june 19 , 2012 combination with high sierra . replace_table_token_16_th ( 1 ) revenues include $ 17.2 million of intersegment sales that are eliminated in our consolidated statement of operations . revenues . our water services segment generated $ 54.3 million of treatment and disposal revenue during the year ended march 31 , 2013 , taking delivery of 25.0 million barrels of wastewater at an average revenue of $ 2.17 per barrel . our water transportation business generated $ 7.9 million of revenues . cost of sales . the cost of sales for our water services segment was $ 5.6 million for the year ended march 31 , 2013 , an average cost of $ 0.22 per barrel delivered . cost of sales was increased by unrealized losses of $ 1.0 million and realized losses of $ 0.8 million on derivatives . a portion of our processing revenue is generated from the sale of recovered hydrocarbons ; we enter into these derivatives to protect against the risk of a decline in the market price of a portion of the hydrocarbons we expect to recover . other operating expenses . our water services segment generated $ 27.1 million of operating and general and administrative expenses during the year ended march 31 , 2013. depreciation and amortization expense , which consists of depreciation on fixed assets and amortization of customer relationship intangible assets , was $ 20.9 million during the year ended march 31 , 2013 . 60 natural gas liquids logistics the following table compares the operating results of our natural gas liquids logistics segment for the periods indicated : replace_table_token_17_th ( 1 ) the revenues in this table include $ 128.9 million of sales to our retail propane segment during the year ended march 31 , 2013 and $ 66.0 million of sales to our retail propane segment during the year ended march 31 , 2012. these intercompany sales , along with a corresponding amount of cost of sales , are eliminated in our consolidated statement of operations . revenues . exclusive of the operations acquired in our june 2012 merger with high sierra , revenues from wholesale propane sales decreased approximately $ 197.2 million during the year ended march 31 , 2013 , as compared to $ 923.0 million during the year ended march 31 , 2012. this resulted from a decrease in the average selling price of $ 0.46 per gallon , as compared to an average selling price per gallon of $ 1.40 in the prior year . this decrease in revenue was partially offset by an increase in volume sold of approximately 112.1 million gallons , as compared to 659.9 million gallons sold in the prior year . during the year ended march 31 , 2013 , the operations of high sierra contributed revenues of $ 115.6 million from propane sales . these operations sold 140.6 million gallons of propane at an average price of $ 0.82 per gallon . story_separator_special_tag exclusive of the operations acquired in our june 2012 merger with high sierra , revenues from wholesale sales of other natural gas liquids increased approximately $ 43.4 million during the year ended march 31 , 2013 , as compared to $ 251.6 million during the year ended march 31 , 2012. this resulted from an increase in volume sold of approximately 50.2 million gallons as compared to 135.0 million gallons in the prior year , partially offset by a decrease in the average selling price of $ 0.27 per gallon , as compared to $ 1.86 per gallon in the prior year . during the year ended march 31 , 2013 , the operations of high sierra contributed revenues of $ 563.2 million from sales of other natural gas liquids ( primarily butane ) . these operations sold 447.4 million gallons of other natural gas liquids at an average price of $ 1.26 per gallon . exclusive of the operations acquired in our june 2012 merger with high sierra , the increase in volume sold is due primarily to the november 2011 semstream acquisition , which expanded the markets we are able to serve . we believe the decline in average selling prices is due primarily to a greater than normal supply in the marketplace , due in part to low demand as a result of mild weather . 61 transportation and other revenues for the year ended march 31 , 2013 relate primarily to fees charged for transporting customer-owned product by rail car . cost of sales . exclusive of the operations acquired in our june 2012 merger with high sierra , costs of wholesale propane sales decreased approximately $ 212.2 million during the year ended march 31 , 2013 , as compared to $ 904.1 million during the year ended march 31 , 2012. this resulted from a decrease in the average cost of $ 0.47 per gallon , as compared to an average cost per gallon of $ 1.37 in the prior year . this decrease in cost was partially offset by an increase in volume sold of approximately 112.1 million gallons , as compared to 659.9 million gallons sold in the prior year . cost of propane sales were reduced by $ 14.8 million during the year ended march 31 , 2013 due to $ 11.6 million of realized gains and $ 3.2 million of unrealized gains on derivatives . these derivatives consisted primarily of propane swaps that we entered into as economic hedges against the potential decline in the market value of our propane inventories . excluding gains on derivatives , our average cost of propane sold during the year ended march 31 , 2013 was $ 0.92 cents per gallon . during the year ended march 31 , 2013 , the cost of propane sales of the high sierra operations were $ 109.9 million . these operations sold 140.6 million gallons of propane at an average price of $ 0.78 per gallon . exclusive of the operations acquired in our june 2012 merger with high sierra , cost of wholesale sales of other natural gas liquids increased approximately $ 43.2 million during the year ended march 31 , 2013 , as compared to $ 247.0 million during the year ended march 31 , 2012. this resulted from an increase in volume sold of approximately 50.2 million gallons as compared to 135.0 million gallons in the prior year , partially offset by a decrease in the average cost of $ 0.26 per gallon , as compared to $ 1.83 per gallon in the prior year . cost of other natural gas liquids sales during the year ended march 31 , 2013 was reduced by approximately $ 0.2 million due to realized gains on derivatives . during the year ended march 31 , 2013 , the cost of other natural gas liquids sales of the high sierra operations was $ 546.6 million . these operations sold 447.4 million gallons of other natural gas liquids ( primarily butane ) at an average price of $ 1.22 per gallon . costs of sales of other natural gas liquids during the year ended march 31 , 2013 were increased by $ 7.5 million of unrealized losses and $ 0.3 million of realized losses on derivatives . other cost of sales for the year ended march 31 , 2013 relate primarily to the cost of leasing rail cars used in the transportation of customer-owned product . operating expenses . exclusive of the operations acquired in our june 2012 merger with high sierra , operating expenses of our natural gas liquids logistics segment increased approximately $ 4.4 million during the year ended march 31 , 2013 as compared to operating expenses of $ 8.1 million during the year ended march 31 , 2012. the increase in operating expenses is due primarily to increased compensation and terminal operating expenses resulting from our semstream combination . during the year ended march 31 , 2013 , our natural gas liquids logistics segment incurred $ 15.1 million of operating expenses related to the operations of high sierra . general and administrative expenses . exclusive of the operations acquired in our june 2012 merger with high sierra , general and administrative expenses of our natural gas liquids logistics segment increased approximately $ 0.8 million during the year ended march 31 , 2013 as compared to general and administrative expenses of $ 2.7 million during the year ended march 31 , 2012. this increase is due primarily to increased compensation and related expenses resulting from our semstream combination . during the year ended march 31 , 2013 , our natural gas liquids logistics segment incurred $ 1.7 million of general and administrative expenses related to the operations of high sierra . depreciation and amortization expense . exclusive of the operations acquired in our june 2012 merger with high sierra , depreciation and amortization expense of our natural gas liquids logistics segment increased approximately $ 4.3 million during
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consolidated results of operations the following table summarizes our historical consolidated statements of operations for the years ended march 31 , 2013 and 2012 and the six months ended march 31 , 2011 and ngl supply 's consolidated statement of operations for the six months ended september 30 , 2010. replace_table_token_9_th all information herein related to the six months ended september 30 , 2010 represents the results of operations of ngl supply . see the detailed discussion of revenues , cost of sales , gross margin , operating expenses , general and administrative expenses , depreciation and amortization and operating income by operating segment below . set forth below is a discussion of significant changes in the non-segment related corporate other income and expenses during the respective periods . 54 interest expense the largest component of interest expense during fiscal 2011 through 2013 has been interest on revolving credit facilities and on senior notes that we issued in june 2012. see note 8 to our consolidated financial statements as of march 31 , 2013 included elsewhere in this annual report on form 10-k for additional information on our long-term debt . the change in interest expense during the periods presented is due primarily to fluctuations in the average outstanding debt balance , and in the applicable interest rates , as summarized below : replace_table_token_10_th interest expense also includes amortization of debt issuance costs , which represented $ 3.4 million of expense during the year ended march 31 , 2013 , $ 1.3 million of expense during the year ended march 31 , 2012 , $ 0.6 million of expense during the six months ended march 31 , 2011 , and less than $ 0.1 million of expense during the six months ended september 30 , 2010. interest expense also includes letter of credit fees , interest on equipment financing notes , and accretion of interest on non-interest bearing debt obligations assumed in business combinations .
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in particular , statements about our expectations , beliefs , plans , objectives , assumptions or future events or performance contained are forward-looking statements . we have based these forward-looking statements on our current expectations , assumptions , estimates and projections . while we believe these expectations , assumptions , estimates and projections are reasonable , such forward-looking statements are only predictions and involve known and unknown risks , uncertainties and other factors , many of which are outside of our control , which could cause our actual results , performance or achievements to differ materially from any results , performance or achievements expressed or implied by such forward-looking statements . these risks , uncertainties and other factors include , but are not limited to : our significant indebtedness , our ability to meet our debt obligations , and our ability to incur substantially more debt ; difficulties in successfully integrating the operations of acquired facilities or realizing the potential benefits and synergies of our acquisitions and joint ventures ; our ability to implement our business strategies in the u.s. and the u.k. and adapt to the regulatory and business environment in the u.k. ; potential difficulties operating our business in light of political and economic instability in the u.k. and globally relating to the u.k. 's departure from the european union ; the impact of fluctuations in foreign exchange rates , including the devaluations of the gbp relative to the usd ; the impact of payments received from the government and third-party payors on our revenue and results of operations including the significant dependence of our u.k. facilities on payments received from the nhs ; our ability to recruit and retain quality psychiatrists and other physicians , nurses , counselors and other medical support personnel ; the impact of competition for staffing on our labor costs and profitability ; the impact of increases to our labor costs in the u.s. and the u.k. ; the occurrence of patient incidents , which could result in negative media coverage , adversely affect the price of our securities and result in incremental regulatory burdens and governmental investigations ; our future cash flow and earnings ; our restrictive covenants , which may restrict our business and financing activities ; our ability to make payments on our financing arrangements ; the impact of the economic and employment conditions in the u.s. and the u.k. on our business and future results of operations ; compliance with laws and government regulations ; the impact of claims brought against us or our facilities including claims for damages for personal injuries , medical malpractice , overpayments , breach of contract , securities law violations , tort and employee related claims ; the impact of governmental investigations , regulatory actions and whistleblower lawsuits ; the impact of healthcare reform in the u.s. and abroad , including the potential repeal , replacement or modification of the patient protection and affordable care act ; the impact of adverse weather conditions , including the effects of hurricanes ; 45 the impact of our highly competitive industry on patient volumes ; our dependence on key management personnel , key executives and local facility management personnel ; our acquisition , joint venture and de novo strategies , which expose us to a variety of operational and financial risks , as well as legal and regulatory risks ; the impact of state efforts to regulate the construction or expansion of healthcare facilities on our ability to operate and expand our operations ; our potential inability to extend leases at expiration ; the impact of controls designed to reduce inpatient services on our revenue ; the impact of different interpretations of accounting principles on our results of operations or financial condition ; the impact of environmental , health and safety laws and regulations , especially in locations where we have concentrated operations ; the impact of an increase in uninsured and underinsured patients or the deterioration in the collectability of the accounts of such patients on our results of operations ; the risk of a cyber-security incident and any resulting violation of laws and regulations regarding information privacy or other negative impact ; the impact of laws and regulations relating to privacy and security of patient health information and standards for electronic transactions ; our ability to cultivate and maintain relationships with referral sources ; the impact of a change in the mix of our u.s. and u.k. earnings , adverse changes in our effective tax rate and adverse developments in tax laws generally ; changes in interpretations , assumptions and expectations regarding the tax act , including additional guidance that may be issued by federal and state taxing authorities ; failure to maintain effective internal control over financial reporting ; the impact of fluctuations in our operating results , quarter to quarter earnings and other factors on the price of our securities ; the impact of the trend for insurance companies and managed care organizations to enter into sole source contracts on our ability to obtain patients ; the impact of value-based purchasing programs on our revenue ; and those risks and uncertainties described from time to time in our filings with the sec . given these risks and uncertainties , you are cautioned not to place undue reliance on such forward-looking statements . these risks and uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements . these forward-looking statements are made only as of the date of this annual report on form 10-k. we do not undertake and specifically decline any obligation to update any such statements or to publicly announce the results of any revisions to any such statements to reflect future events or developments . overview our business strategy is to acquire and develop behavioral healthcare facilities and improve our operating results within our facilities and our other behavioral healthcare operations . story_separator_special_tag supplies expense was $ 119.3 million for the year ended december 31 , 2018 , or 4.0 % of revenue , compared to $ 114.4 million for the year ended december 31 , 2017 , or 4.0 % of revenue . same facility supplies expense was $ 111.1 million for the year ended december 31 , 2018 , or 3.9 % of revenue , compared to $ 107.7 million for the year ended december 31 , 2017 , or 3.9 % of revenue . rents and leases . rents and leases were $ 80.3 million for the year ended december 31 , 2018 , or 2.7 % of revenue , compared to $ 76.8 million for the year ended december 31 , 2017 , or 2.7 % of revenue . same facility rents and leases were $ 64.5 million for the year ended december 31 , 2018 , or 2.2 % of revenue , compared to $ 62.7 million for the year ended december 31 , 2017 , or 2.3 % of revenue . other operating expenses . other operating expenses consisted primarily of purchased services , utilities , insurance , travel and repairs and maintenance expenses . other operating expenses were $ 354.5 million for the year ended december 31 , 2018 , or 11.8 % of revenue , compared to $ 331.8 million for the year ended december 31 , 2017 , or 11.7 % of revenue . same facility other operating expenses were $ 329.1 million for the year ended december 31 , 2018 , or 11.5 % of revenue , compared to $ 314.8 million for the year ended december 31 , 2017 , or 11.5 % of revenue . depreciation and amortization . depreciation and amortization expense was $ 158.8 million for the year ended december 31 , 2018 , or 5.3 % of revenue , compared to $ 143.0 million for the year ended december 31 , 2017 , or 5.0 % of revenue . the increase in depreciation and amortization was attributable to depreciation associated with capital expenditures and real estate acquisitions during 2017 and 2018. interest expense . interest expense was $ 185.4 million for the year ended december 31 , 2018 compared to $ 176.0 million for the year ended december 31 , 2017. the increase in interest expense was primarily a result of higher interest rates applicable to our variable-rate debt slightly offset by the lower interest rates as a result of the repricing facilities amendments to the amended and restated credit agreement . debt extinguishment costs . debt extinguishment costs for the year ended december 31 , 2018 represented $ 0.6 million of cash charges and $ 0.3 million of non-cash charges recorded in connection with the repricing facilities amendments to the amended and restated credit agreement and $ 0.9 million of cash charges in connection with the redemption of the 9.0 % and 9.5 % revenue bonds . debt extinguishment costs for the year ended december 30 , 2017 represent $ 0.5 million of charges and $ 0.3 of non-cash charges recorded in connection with the third repricing amendment to the amended and restated senior credit facility . legal settlements expense . legal settlement costs of $ 22.1 million for the year ended december 31 , 2018 represent $ 19.0 million related to the government investigation of the company 's billing for lab services in west virginia and $ 3.1 million related to the resolution of the shareholder class action lawsuit filed in 2011 in connection with our merger with phc , inc. d/b/a pioneer behavioral health ( “ phc ” ) . loss on impairment . loss on impairment of $ 337.9 million for the year ended december 31 , 2018 represents a non-cash goodwill impairment charge of $ 325.9 million and a non-cash long-lived asset impairment charge of $ 12.0 million related to our u.k. facilities . transaction-related expenses . transaction-related expenses were $ 34.5 million for the year ended december 31 , 2018 compared to $ 24.3 million for the year ended december 31 , 2017. transaction-related expenses represent costs incurred in the respective periods primarily related to our acquisitions and related integrated efforts and , for 2018 , to the ceo transition . in december 2018 , mr. joey a. jacobs was removed from his positions as the ceo and chairman of the board of directors ( the “ board ” ) of the company . also in december 2018 , ms. debra k. osteen was elected by the board to serve as the company 's ceo . in connection with this ceo transition , the company recorded a charge of $ 14.0 million , which was comprised of cash payments to 50 mr. jacobs of $ 8.1 million , the accelerated ve sting of mr. jacobs ' restricted stock awards of $ 5.0 million , a cash payment to ms. osteen of $ 0.4 million and other costs of $ 0.5 million . ceo transition costs of $ 14.0 million were recorded in transaction-related expenses in the consolidated statements o f operations . transaction-related expenses are as summarized below ( in thousands ) : replace_table_token_7_th provision for income taxes . for the year ended december 31 , 2018 , the provision for income taxes was $ 6.5 million , reflecting an effective tax rate of ( 3.9 ) % , compared to $ 37.2 million , reflecting an effective tax rate of 15.7 % , for 2017. the change in the effective tax rate for the year ended december 31 , 2018 was primarily attributable to the disparity in the accounting treatment and the tax treatment of the loss on impairment recorded in 2018. year ended december 31 , 2017 compared to the year ended december 31 , 2016 revenue before provision for doubtful accounts .
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results of operations the following table illustrates our consolidated results of operations for the respective periods shown ( dollars in thousands ) : replace_table_token_4_th segments at december 31 , 2018 , the u.s. facilities segment included 213 behavioral healthcare facilities with approximately 9,300 beds in 40 states and puerto rico , and the u.k. facilities segment included 370 behavioral healthcare facilities with approximately 8,800 beds in the u.k. the following table sets forth percent changes in same facility operating data for our u.s. facilities for the years ended december 31 , 2018 and 2017 compared to same periods in the previous years : replace_table_token_5_th ( a ) results for the periods presented include facilities we have operated more than one year and exclude certain closed services . ( b ) average length of stay is defined as patient days divided by admissions . ( c ) segment ebitda is defined as income before provision for income taxes , equity-based 48 compensation expense , debt extinguishment costs , legal settlement s expense , loss on impairment , loss on divestiture , gain on foreign currency derivatives , transaction-related expenses , interest expense and depreciation and amortization . management uses segment ebitda as an analytical indicator to measure the performance of our segments and to devel op strategic objectives and operating plans for those segments . segment ebitda is commonly used as an analytical indicator within the health care industry , and also serves as a measure of leverage capacity and debt service ability . segment ebitda should no t be considered as a measure of financial performance under gaap , and the items excluded from segment ebitda are significant components in understanding and assessing financial performance . because segment ebitda is not a measurement determined in accordan ce with gaap and is thus susceptible to varying calculations , segment ebitda , as presented , may not be comparable to other similarly titled measures of other companies .
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f-14 q2 holdings , inc. notes to story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. in addition to historical consolidated financial information , the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . our actual results could differ materially from those discussed in the forward-looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report on form 10-k , particularly in the section titled “ risk factors. ” overview we are a leading provider of secure , cloud-based virtual banking solutions . we enable regional and community financial institutions , or rcfis , to deliver a robust suite of integrated virtual banking services and engage more effectively with their retail and commercial account holders who expect to bank anytime , anywhere and on any device . our solutions are often the most frequent point of interaction between our rcfi customers and their account holders . as such , we purpose-built our solutions to deliver a compelling , consistent user experience across digital channels and drive the success of our customers by extending their local brands , enabling improved account holder retention and creating incremental sales opportunities . the effective delivery and management of secure and advanced virtual banking solutions in the complex and heavily-regulated financial services industry requires significant resources , personnel and expertise . we provide virtual banking solutions that are designed to be highly configurable , scalable and adaptable to the specific needs of our rcfi customers . our solutions deliver to account holders a unified virtual banking experience across online , mobile , voice and tablet channels by leveraging a common platform that integrates our solutions with each other and with our customers ' other internal and third-party systems . in addition , we design our solutions and our data center infrastructure to comply with stringent security and technical regulations applicable to financial institutions and to safeguard our customers and their account holders through features such as real-time risk and fraud analytics . we deliver our solutions to the substantial majority of our customers using a software-as-a-service , or saas , model under which our customers pay subscription fees for the use of our solutions . a small portion of our customers host our solutions in their own data centers under term license and maintenance agreements . our customers have numerous account holders , and those account holders can represent one or more registered users on our solutions . we price our solutions based on the number of solutions purchased by our customers and the number of registered users utilizing our solutions . we earn additional revenues based on the number of bill-pay and certain other transactions that registered users perform on our virtual banking solutions in excess of the levels included in our standard subscription fee . as a result , our revenues grow as our customers buy more solutions from us and increase the number of registered users utilizing our solutions and as those users increase their number of transactions on our solutions . we have achieved significant growth since our inception . during each of the past five years , our average number of registered users per installed customer has grown , and we have been able to sell additional solutions to existing customers . our revenues per installed customer and per registered user vary period-to-period based on the length and timing of customer implementations , changes in the average number of registered users per customer , sales of additional solutions to existing customers , changes in the number of transactions on our solutions by registered users and variations among existing customers and new customers with respect to the mix of purchased solutions and related pricing . we believe we have a significant opportunity to continue to grow our business , and we intend to invest across our organization to increase our revenues and improve our operating efficiencies . these investments will increase our costs on an absolute dollar basis , but the timing and amount of these investments will vary based on the rate at which we expect to add new customers , the implementation and support needs of our customers , our software development plans , our technology infrastructure requirements and the internal needs of our organization . many of these investments will occur in advance of our realizing any resultant benefit which may make it difficult to determine if we are effectively allocating our resources . if we are successful in growing our revenues by increasing the number and scope of our customer relationships , we anticipate that greater economies of scale and increased operating leverage will improve our margins over the long term . we also anticipate that increases in the number of registered users for existing customers will improve our margins . however , we do not have any control or influence over whether account holders elect to become registered users of our customers ' virtual banking services . 41 we sell our solutions primarily through our professional sales organization . our target market of approximately 12,500 rcfis is well-defined as a result of applicable governmental regulations . as a result , we are able to effectively concentrate our sales and marketing efforts on these readily-identifiable financial institutions . we intend to add sales representatives for both banks and credit unions across the u.s. we also expect to increase our number of sales support and marketing personnel , as well as our investment in marketing initiatives designed to increase awareness of our solutions and generate new customer opportunities . we seek to help our rcfi customers succeed by providing advanced virtual banking solutions that allow our customers to distinguish themselves from competing financial institutions and better engage with their account holders . story_separator_special_tag our installed customers had approximately 6.3 million , 4.3 million and 3.1 million registered users as of december 31 , 2015 , 2014 and 2013 , respectively . revenue retention rate we believe that our ability to retain our installed customers and expand their use of our products and services over time is an indicator of the stability of our revenue base and the long-term value of our customer relationships . we assess our performance in this area using a metric we refer to as our revenue retention rate . we calculate our revenue retention rate as the total revenues in a calendar year from customers who were installed customers as of december 31 of the prior year , expressed as a percentage of the total revenues during the prior year from those installed customers . our revenue retention rate provides insight into the impact on current year revenues of the number of new customers implemented on the q2 platform during the prior year , the timing of our implementation of those new customers in the prior year , growth in the number of registered users and changes in their usage of our solutions , sales of new products and services to our existing installed customers during the current year and installed customer attrition . the most significant drivers of changes in our revenue retention rate each year have historically been the number of new customers in the prior year and the timing of our implementation of those new customers . the timing of our implementation of new customers in the prior year is significant because we do not start recognizing revenues from new customers until they become installed customers . if implementations are weighted more heavily in the first or second half of the prior year , our revenue retention rate will be lower or higher , respectively . our use of revenue retention rate has limitations as an analytical tool , and investors should not consider it in isolation . other companies in our industry may calculate revenue retention rate differently , which reduces its usefulness as a comparative measure . our revenue retention rate was 122 % , 122 % and 128 % for the years ended december 31 , 2015 , 2014 and 2013 , respectively . churn we utilize churn to monitor the satisfaction of our clients and evaluate the effectiveness of our business strategies . we define churn as the amount of any monthly recurring revenue losses due to installed customer cancellations and downgrades , net of upgrades and additions of new solutions , during a year , divided by our monthly recurring revenue at the beginning of the year . cancellations refer to installed customers that have either stopped using our services completely or remained a customer but terminated a particular service . downgrades are a result of customers taking less of a particular service or renewing their contract for identical services at a lower price . our annual churn has ranged from 5.4 % to 3.5 % over the last four years , and we had annual churn of 3.5 % , 4.8 % and 3.5 % for the years ended december 31 , 2015 , 2014 and 2013 , respectively . our use of churn has limitations as an analytical tool , and investors should not consider it in isolation . other companies in our industry may calculate churn differently , which reduces its usefulness as a comparative measure . 43 adjusted ebitda we define adjusted ebitda as net loss before depreciation , amortization , loss from discontinued operations , stock-based compensation , certain costs related to our recent acquisitions , provision for income taxes , total other expense , net , unoccupied lease charges and disposal of long-lived assets . we believe that adjusted ebitda provides useful information to investors and others in understanding and evaluating our operating results for the following reasons : adjusted ebitda is widely used by investors and securities analysts to measure a company 's operating performance without regard to items that can vary substantially from company to company depending upon their financing , capital structures and the method by which assets were acquired ; our management uses adjusted ebitda in conjunction with gaap financial measures for planning purposes , in the preparation of our annual operating budget , as a measure of our operating performance , to assess the effectiveness of our business strategies and to communicate with our board of directors concerning our financial performance ; adjusted ebitda provides more consistency and comparability with our past financial performance , facilitates period-to-period comparisons of our operations and also facilitates comparisons with other companies , many of which use similar non-gaap financial measures to supplement their gaap results ; and our investor and analyst presentations include adjusted ebitda as a supplemental measure of our overall operating performance . adjusted ebitda should not be considered as an alternative to net loss or any other measure of financial performance calculated and presented in accordance with gaap . the use of adjusted ebitda as an analytical tool has limitations such as : depreciation and amortization are non-cash charges , and the assets being depreciated or amortized will often have to be replaced in the future and adjusted ebitda does not reflect cash requirements for such replacements ; adjusted ebitda may not reflect changes in , or cash requirements for , our working capital needs or contractual commitments ; adjusted ebitda does not reflect the potentially dilutive impact of stock-based compensation ; adjusted ebitda does not reflect interest or tax payments that could reduce cash available for use ; and other companies , including companies in our industry , might calculate adjusted ebitda or similarly titled measures differently , which reduces their usefulness as comparative measures . because of these and other limitations , you should consider adjusted ebitda together with our gaap financial measures including cash flow from operations and net loss .
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results of operations consolidated statements of operations data the following table sets forth our consolidated statements of operations data for each of the periods indicated ( in thousands ) : replace_table_token_8_th _ ( 1 ) includes reclassified costs of research and development personnel who performed certain implementation and customer support services as follows ( in thousands ) : replace_table_token_9_th 51 ( 2 ) includes amortization of acquired technology of $ 659 thousand for the year ended december 31 , 2015 , and zero for all other years presented . ( 3 ) includes stock-based compensation expenses as follows ( in thousands ) : replace_table_token_10_th ( 4 ) unoccupied lease charges include costs related to our early exit from our previous headquarters , partially offset by anticipated sublease income from that facility . ( 5 ) we previously had a subsidiary which we fully divested in march 2013. loss from discontinued operations , net of tax reflects the financial results of this divested subsidiary . the following table sets forth our consolidated statements of operations data as a percentage of revenues for each of the periods indicated : replace_table_token_11_th _ ( 1 ) includes reclassified costs of research and development personnel who performed certain implementation and customer support services as follows : replace_table_token_12_th 52 ( 2 ) includes amortization of acquired technology of 0.6 % for the year ended december 31 , 2015 , and zero for all other years presented . ( 3 ) includes stock-based compensation expenses as follows : replace_table_token_13_th ( 4 ) unoccupied lease charges include costs related to our early exit from our previous headquarters , partially offset by anticipated sublease income from that facility . ( 5 ) we previously had a subsidiary which we fully divested in march 2013. loss from discontinued operations , net of tax reflects the financial results of this divested subsidiary .
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these deferred tax assets were subject to a full valuation allowance as of december 31 , 2020 and 2019. under the provisions of section 382 of the internal revenue code of 1986 , certain substantial changes in the company 's ownership , including a sale of the company , or significant changes in ownership due to sales of equity , may limit in the future the amount of net operating loss carryforwards available to offset future taxable income . the company recognizes uncertain tax positions in accordance with asc 740 on the basis of evaluating whether it is more-likely-than not that the tax positions will be sustained upon examination by tax authorities . for those tax positions that meet the more-likely-than not recognition threshold , we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement . as of december 31 , 2020 , and 2019 , the company has no significant uncertain tax positions . there are no unrecognized tax benefits included on the balance sheet that would , if recognized , impact the effective tax rate . the company does not anticipate there will be a significant change in unrecognized tax benefits within the next 12 months . prior to the conversion , celcuity was a limited liability company and therefore was taxed as a partnership for income tax purposes . accordingly , no benefit for income taxes was recorded prior to the conversion . for years prior to 2016 , the company is no longer subject to u.s. federal or state income tax examinations . the company 's policy is to recognize interest and penalties related to uncertain tax positions as a component of general and administrative expenses . 59 item 9. changes in and disagreements with accountants on accounting and financial disclosure none item 9a . controls and procedures evaluation of disclosure controls and procedures our management , with the participation of our chief executive officer and chief financial officer , evaluated the effectiveness of our disclosure controls and procedures as of december 31 , 2020. the term “ disclosure controls and procedures , ” as defined in rules 13a-15 ( e ) and 15d-15 ( e ) under the securities exchange act of 1934 , as amended ( the “ exchange act ” ) , means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the exchange act is recorded , processed , summarized and reported , within the time periods specified in the sec 's rules and forms . disclosure controls and procedures include , without limitation , controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the exchange act is accumulated and communicated to the company 's management , including its principal executive and principal financial officers , as appropriate to allow timely decisions regarding required disclosure . management recognizes that any controls and procedures , no matter how well designed and operated , can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures . based on the evaluation of our disclosure controls and procedures as of december 31 , 2020 , our chief executive officer and chief financial officer concluded that , as of such date , our disclosure controls and procedures were effective . management report on internal control over financial reporting our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in rule 13a-15 ( f ) under the securities exchange act of 1934. management has assessed the effectiveness of our internal control over financial reporting as of december 31 , 2020 based on criteria set forth by the committee of sponsoring organizations of the treadway commission ( “ coso - 2013 ” ) in internal control-integrated 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 “ risk factors ” discussed in item 1a of part i of this annual report . overview we are developing companion diagnostic tests designed to expand the eligible patient populations for targeted therapies by discovering new cancer sub-types molecular-based approaches can not detect . our proprietary celsignia diagnostic platform is the only commercially ready technology we are aware of that uses a patient 's living tumor cells to identify the specific abnormal cellular process driving a patient 's cancer and the targeted therapy that best treats it . we believe our celsignia platform provides two important improvements over traditional molecular diagnostics . first , molecular diagnostics can only provide a snapshot of the genetic mutations present in a patient 's tumor because they analyze cell fragments . using cell fragments prevents molecular diagnostics from analyzing the dynamic cellular activities , known as cell signaling , that regulate cell proliferation or survival . cancer can develop when certain cell signaling activity becomes abnormal , or dysregulated . since genetic mutations are often only weakly correlated to the dysregulated signaling activity driving a patient 's cancer , a molecular diagnostic is prone to providing an incomplete diagnosis . celsignia tests overcome this limitation by measuring dynamic cell signaling activity in a patient 's living tumor cells . story_separator_special_tag we have four collaborations underway that rely on the celsignia test for breast cancer to select breast cancer patients for treatment with her2 or a combination of pan-her and c-met targeted therapies . for the first one of these collaborations , we are fielding a prospective clinical trial with genentech and nsabp ( fact-1 ) to evaluate the efficacy of genentech 's her2 targeted therapies in patients with abnormal her2 signaling . for the second of these collaborations , we are fielding a prospective clinical trial with puma and west cancer center ( fact-2 ) to evaluate the efficacy and safety of puma 's drug , nerlynx , and chemotherapy , in breast cancer patients selected with our celsignia test . for our third collaboration , we are fielding a prospective open-label phase ii clinical trial with puma massachusetts general hospital , the ucla jonsson comprehensive cancer center and the vanderbilt-ingram cancer center to evaluate the efficacy of puma 's drug , nerlynx , and faslodex , an astrazeneca drug , in previously treated metastatic hr-positive , her2-negative breast cancer patients selected with our celsignia her2 pathway activity test . for our fourth collaboration , we are fielding a prospective open-label phase ii clinical trial with pfizer inc. and sarah cannon research institute to evaluate the efficacy of two pfizer targeted therapies , vizimpro , a pan-her inhibitor , and xalkori , a c-met inhibitor , in previously treated metastatic her2-negative breast cancer patients selected with our celsignia multi-pathway activity test . an additional collaboration to evaluate tissue samples from a phase ii study evaluating puma 's pan-her inhibitor , nerlynx , genentech 's her2 antibody , herceptin , and bristol-myers squibb 's egfr inhibitor , erbitux , in metastatic colorectal cancer patients is expected to be completed in late 2022. unlike the four clinical trial collaborations , our celsignia test will be used solely to evaluate tissue samples after they have been enrolled in this trial . we will not receive payment for the testing we perform . we expect our celsignia test will provide critical insight after the trial is completed about the patient characteristics most correlative to drug response . in conjunction with the development of our celsignia tests , we will seek collaborations with pharmaceutical companies to field clinical trials to advance the clinical development of their targeted therapies with the eventual goal of obtaining u.s. food and drug administration ( “ fda ” ) approval of a new drug indication . collaborations are expected to involve initially phase i or phase ii interventional clinical trials to evaluate the efficacy of our collaboration partners ' targeted therapies patients selected with one of our celsignia tests . we are currently evaluating , or expect to evaluate , a variety of targeted therapies in combination with other targeted therapies , hormonal therapies , or chemotherapies , including : i ) pan-her and c-met inhibitors ; ii ) pan-her inhibitors and endocrine therapy ; iii ) pan-her inhibitors and chemotherapies ; and iv ) pi3k inhibitors and endocrine therapy . the fda has approved three c-met inhibitors , six her-family inhibitors , and four pi3k inhibitors for cancer treatment . additional c-met , her-family , and pi3k inhibitors are being evaluated in on-going clinical trials . we have not generated any revenue from sales to date , and we continue to incur significant research and development and other expenses related to our ongoing operations . as a result , we are not and have never been profitable and have incurred losses in each period since we began operations in 2012. for the years ended december 31 , 2020 and 2019 , we reported a net loss of approximately $ 9.5 million and $ 7.4 million , respectively . as of december 31 , 2020 , we had a combined accumulated deficit of approximately $ 12.6 million under celcuity llc and $ 26.3 million under celcuity inc. as of december 31 , 2020 , we had cash and cash equivalents of approximately $ 11.6 million . 39 impact of covid-19 on our business a novel strain of coronavirus ( covid-19 ) was first identified in wuhan , china in december 2019 , and subsequently declared a pandemic by the world health organization . the impact of the covid-19 pandemic on our business is discussed in further detail below : health and safety to help protect the health and safety of our employees , suppliers and collaborators , we took proactive , aggressive action from the earliest signs of the outbreak . we enacted rigorous safety measures in our laboratory and administrative offices , including implementing social distancing protocols , allowing working from home for those employees that do not need to be physically present in a lab to perform their work , suspending travel , implementing temperature checks at the entrances to our facilities , extensively and frequently disinfecting our workspaces and providing masks to those employees who must be physically present . we expect to continue with these measures until the covid-19 pandemic is contained and we may take further actions as government authorities require or recommend or as we determine to be in the best interests of our employees , suppliers , and collaborators . clinical trials and collaborations as a result of the covid-19 pandemic , governmental authorities have implemented and are continuing to implement numerous and constantly evolving measures to try to contain the virus , such as travel bans and restrictions , limits on gatherings , quarantines , shelter-in-place orders , and business shutdowns .
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components of operating results revenue to date , we have not generated any revenue . initially , our ability to generate revenue will depend primarily upon our ability to obtain partnership agreements with pharmaceutical companies to provide companion diagnostics for such pharmaceutical partners ' existing or investigational targeted therapies . we expect these partnerships to generate significant revenue from the sale of tests to identify patients eligible for clinical trials , from milestone payments , and , potentially , from royalties on the incremental drug revenues our tests enable . once a new drug indication is received that requires use of our companion diagnostic to identify eligible patients , we expect to generate revenues from sales of tests to treating physicians . research and development since our inception , we have primarily focused on research and development of our celsignia platform , development and validation of our celsignia tests , and research related to the discovery of new cancer sub-types . research and development expenses primarily include : · employee-related expenses related to our research and development activities , including salaries , benefits , recruiting , travel and stock-based compensation expenses ; · laboratory supplies ; · consulting fees paid to third parties ; · clinical trial costs ; · facilities expenses ; and · legal costs associated with patent applications . internal and external research and development costs are expensed as they are incurred . as we continue to expand clinical trials to evaluate efficacy of targeted therapies in cancer patients selected with one of our celsignia tests , the proportion of research and development expenses allocated to external spending will grow at a faster rate than expenses allocated to internal expenses . general and administrative general and administrative expenses consist primarily of salaries , benefits and stock-based compensation related to our executive , finance and support functions .
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we are generating ehscs in which these genes have been inactivated individually as well as multiplexed in combination with cd33 . additionally , we are conducting ongoing discovery efforts on undisclosed targets for non-myeloid malignancies including multiple myeloma and t cell malignancies . for additional details on the license from nih , see the section titled “ business—license agreements. ” in contrast to other patient-specific cell therapies such as car-t cells and gene-modified allogeneic cell therapies , our manufacturing of ehscs is a rapid and elegant process , with the gene modification step for vor33 being completed in approximately three days . the primary reason we can produce ehscs so quickly is the lack of a need for cell expansion . our approach to creating ehscs also does not involve the insertion of new genetic material , thereby avoiding complications related to the use of delivery modalities necessary for gene insertion , such as the viral vectors used in vcar33 and other car-t therapies . the relatively simple and streamlined process of creating our ehscs provides significant advantages in the required manufacturing infrastructure and resources , which we believe will translate into higher scalability and a lower cost of goods . we believe rapid manufacturing time will also maximize the clinical application of our ehscs in routine transplant practice . since our inception in december 2015 , we have devoted substantially all of our resources to raising capital , organizing and staffing our company , business and scientific planning , conducting discovery and research activities , acquiring or discovering product candidates , establishing and protecting our intellectual property portfolio , developing and progressing our product candidates and preparing for clinical trials , establishing arrangements with third parties for the manufacture of our product candidates and component materials , and providing general and administrative support for these operations . we do not have any product candidates approved for sale and have not generated any revenue from product sales . through december 31 , 2020 , we funded our operations primarily through the sale of equity securities and debt financings and have received aggregate net proceeds from these transactions of approximately $ 112.3 million . we have incurred significant operating losses since inception , including net losses of $ 43.3 million and $ 10.8 million for the years ended december 31 , 2020 and 2019 , respectively . as of december 31 , 2020 , we had an accumulated deficit of $ 61.2 million . we expect to continue to incur significant and increasing expenses and operating losses for the foreseeable future , particularly if and as we continue to invest in our research and development activities , expand our product pipeline , hire additional personnel , invest in and grow our business , maintain , expand and protect our intellectual property portfolio , and seek regulatory approvals for and commercialize any approved product candidates . in addition , we expect to incur additional costs associated with operating as a public company , including significant legal , audit , accounting , regulatory , tax-related , director and 131 officer insurance premiums , investor relations and other expenses that we did not incur as a private company . as a result , we will need substantial additional funding to support our continuing operations and pursue our growth strategy . until such time as we can generate significant revenue from product sales , if ever , we expect to finance our operations through the public or private sale of equity , government or private party grants , debt financings or other capital sources , including potential collaborations with other companies or other strategic transactions . if we are unable to obtain additional funding , we could be forced to delay , reduce or eliminate some or all of our research and development programs , product portfolio expansion or any commercialization efforts , which could adversely affect our business prospects , or we may be unable to continue operations . if we raise funds through strategic collaborations or other similar arrangements with third parties , we may have to relinquish valuable rights to our platform technology , future revenue streams , research programs or product candidates or may have to grant licenses on terms that may not be favorable to us and or may reduce the value of our common stock . our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and disruptions to and volatility in the credit and financial markets in the united states and worldwide resulting from the ongoing covid-19 pandemic or other events . because of the numerous risks and uncertainties associated with product development , we can not predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability . as of december 31 , 2020 , we had cash and cash equivalents of $ 48.5 million . in february 2020 , we closed the second tranche of our series a-2 preferred stock financing and sold and issued an aggregate of 44,375,000 shares at a purchase price of $ 0.40 per share , resulting in proceeds of $ 17.7 million , net of issuance costs . in june 2020 , we completed a closing for the sale and issuance of an aggregate of 124,519,220 shares of our series b preferred stock at a purchase price of $ 0.52 per share , resulting in proceeds of $ 64.5 million , net of issuance costs . in january 2021 , we closed the second and final tranche of our series b preferred stock financing , selling an aggregate of 87,259,605 additional shares of our series b preferred stock at a purchase price of $ 0.52 per share ( the “ series b milestone financing ” ) for aggregate proceeds of $ 45.4 million , net of issuance costs . story_separator_special_tag research and development activities are central to our business model . we expect that our research and development expenses will increase significantly for the foreseeable future as we continue to identify and develop product candidates , particularly as more of our product candidates move into clinical development and later stages of clinical development . the successful development of vor33 , vcar33 , the vor33/vcar33 treatment system and any product candidates we may develop in the future is highly uncertain . therefore , we can not reasonably estimate or know the nature , timing and estimated costs of the efforts that will be necessary to complete the development and commercialization of any of our product candidates . we are also unable to predict when , if ever , material net cash inflows will commence from the sale of vor33 , vcar33 , the vor33/vcar33 treatment system or potential future product candidates , if approved . this is due to the numerous risks and uncertainties associated with developing product candidates , many of which are outside of our control , including the uncertainty of : the timing and progress of preclinical and clinical development activities ; the number and scope of preclinical and clinical programs we decide to pursue ; our ability to maintain our current research and development programs and to establish new ones ; establishing an appropriate safety profile with ind-enabling studies ; the number of sites and patients included in the clinical trials ; the countries in which the clinical trials are conducted ; per patient trial costs ; successful patient enrollment in , and the initiation of , clinical trials , as well as drop out or discontinuation rates , particularly in light of the current covid-19 pandemic environment ; the successful completion of clinical trials with safety , tolerability and efficacy profiles that are satisfactory to the fda or any comparable foreign regulatory authority ; the number of trials required for regulatory approval ; the timing , receipt and terms of any regulatory approvals from applicable regulatory authorities ; our ability to establish new licensing or collaboration arrangements ; the performance of our future collaborators , if any ; establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers ; significant and changing government regulation and regulatory guidance ; the impact of any business interruptions to our operations or to those of the third parties with whom we work , particularly in light of the current covid-19 pandemic environment ; obtaining , maintaining , defending and enforcing patent claims and other intellectual property rights ; launching commercial sales of our product candidates , if approved , whether alone or in collaboration with others ; and maintaining a continued acceptable safety profile of the product candidates following approval . any changes in the outcome of any of these variables could mean a significant change in the costs and timing associated with the development of our product candidates . for example , if the fda or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the 134 completion of clinical development of a product candidate , or if we experience significant delays in our clinical trials due to patient enrollment or other reasons , we would be required to expend significant additional financial resources and time on the completion of clinical development . we may never obtain regulatory approval for any of our product candidates . general and administrative expenses general and administrative expenses consist primarily of personnel-related costs , including salaries , bonuses , benefits and stock-based compensation expenses for individuals involved in our executive , finance , corporate , business development and administrative functions , as well as expenses for outside professional services , including legal , audit , accounting and tax-related services and other consulting fees , facility-related expenses , which include depreciation costs and other allocated expenses for rent and maintenance of facilities , insurance costs , recruiting costs , travel expenses and other general administrative expenses . we expect that our general and administrative expenses will increase significantly for the foreseeable future as our business expands and we hire additional personnel to support our continued research and development activities , including our future clinical programs . we also anticipate increased expenses associated with being a public company , including costs for legal , audit , accounting , investor and public relations , regulatory and tax-related services related to compliance with the rules and regulations of the securities and exchange commission ( the “ sec ” ) , listing standards applicable to companies listed on a national securities exchange , director and officer insurance premiums and investor relations costs . other income ( expense ) interest income interest income consists of interest income earned on our cash and cash equivalents held in financial institutions . interest expense related to convertible notes interest expense relates to interest incurred on the convertible notes we issued between october 2016 and december 2018 ( the “ convertible notes ” ) , as well as amortization of the related note discount which converted to shares of series a-2 preferred stock in february 2019 ( see note 6 to our audited consolidated financial statements included elsewhere in this in this annual report for additional information ) . change in fair value of derivative liabilities change in fair value of derivative liabilities relates to the bifurcated embedded derivative liabilities identified associated with the convertible notes . 135 results of operations comparison of years ended december 31 , 2020 and 2019 the following table summarizes our results of operations for the years ended december 31 , 2020 and 2019 ( in thousands ) : replace_table_token_1_th research and development expenses the following table summarizes our research and development expenses for the years ended december 31 , 2020 and 2019 ( in thousands ) : replace_table_token_2_th ( 1 ) in future periods when clinical trial expenses are incurred , we expect that external costs will be broken out between our clinical programs and our preclinical programs .
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financial condition and results of operations you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k ( the “ 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 , includes forward-looking statements that involve risks and uncertainties . as a result of many factors , including those factors set forth in the section titled “ risk factors , ” our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a cell therapy company combining a novel patient engineering approach with targeted therapies to provide a single company solution for patients suffering from hematological malignancies . leveraging our expertise in hematopoietic stem cell ( “ hsc ” ) biology and genome engineering , we genetically modify hscs to remove surface targets expressed by cancer cells and then provide these cells as stem cell transplants to patients . once these cells engraft into bone marrow , we will have engineered the patient such that their hscs and their blood cell progeny are designed to be treatment resistant to targeted therapies , which we believe will unlock the potential of these targeted therapies to selectively destroy cancerous cells while sparing healthy cells . as a result , our engineered hscs ( “ ehscs ” ) are designed to limit the on-target toxicities associated with these targeted therapies , which we refer to as companion therapeutics , thereby enhancing their utility and broadening their applicability .
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our disclosure controls include , without limitation , story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto and other financial information included elsewhere in this report . on july 24 , 2013 , marathon bar corp. ( “ marathon bar ” ) , a delaware corporation and mbar acquisition corp. ( “ merger sub ” ) , a wholly owned subsidiary of marathon bar , and lipocine operating inc. ( “ lipocine operating ” ) , a privately held company incorporated in delaware , executed an agreement and plan of merger ( “ merger agreement ” ) . pursuant to the merger agreement , merger sub merged with and into lipocine operating and lipocine operating was the surviving entity . additionally pursuant to the merger agreement , marathon bar changed its name to lipocine inc. the merger is accounted for as a reverse-merger and recapitalization . lipocine operating is the acquirer for financial reporting purposes and marathon bar is the acquired company . consequently , the assets and liabilities and the operations that are reflected in the historical financial statements prior to the merger are those of lipocine operating and are recorded at the historical cost basis of lipocine operating , and the consolidated financial statements after completion of the merger include the assets , liabilities and operations of marathon bar and lipocine operating ( “ combined company ” ) , from the closing date of the merger . additionally all historical equity accounts of lipocine operating , including par value per share , share and per share numbers , have been adjusted to reflect the number of shares received in the merger . as used in the discussion below , “ we , ” “ our , ” and “ us ” refers to the historical financial results of lipocine . forward looking statements this section and other parts of this report contain 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 , that involve risks and uncertainties . forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact . forward-looking statements may refer to such matters as products , product benefits , pre-clinical and clinical development timelines , clinical and regulatory expectations and plans , anticipated financial performance , future revenues or earnings , business prospects , projected ventures , new products and services , anticipated market performance , future expectations for liquidity and capital resources needs and similar matters . such words as “ may ” , “ will ” , “ expect ” , “ continue ” , “ estimate ” , “ project ” , and “ intend ” and similar terms and expressions are intended to identify forward looking statements . forward-looking statements are not guarantees of future performance and our 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 tothose discussed in part i , item 1a ( risk factors ) of this form 10-k. except as required by applicable law , we assume no obligation to revise or update any forward-looking statements for any reason . 41 overview of our business we are a specialty pharmaceutical company focused on applying our oral drug delivery technology for the development of pharmaceutical products in the area of men 's and women 's health . our proprietary delivery technology is designed to improve patient compliance and safety through orally available treatment options . our primary development programs are based on oral delivery solutions for poorly bioavailable drugs . we have a portfolio of proprietary product candidates designed to produce favorable pharmacokinetic characteristics and facilitate lower dosing requirements , bypass first-pass metabolism , reduce side effects , and eliminate gastrointestinal interactions that limit bioavailability . our current portfolio , includes our lead product candidate lpcn 1021 , an oral testosterone replacement therapy ( `` trt '' ) , which is currently in a pivotal phase 3 clinical study . additionally , we are currently in the process of establishing our pipeline of early clinical treatments including a next generation oral trt , lpcn 1111 , and an oral therapy for the prevention of preterm birth , lpcn 1107. to date , we have funded our operations primarily through the sale of equity securities and convertible debt and through up-front payments , research funding and milestone payments from our license and collaboration arrangements . we have not generated any revenues from product sales and we do not expect to generate revenue from product sales unless and until we obtain regulatory approval of lpcn 1021 or other products . we have incurred losses in most years since our inception . as of december 31 , 2014 , we had an accumulated deficit of $ 68.2 million . income and losses fluctuate year to year , primarily depending on the timing of recognition of revenues from our license and collaboration agreements . our net loss was $ 20.4 million for the year ended december 31 , 2014 , compared to $ 10.6 million for the year ended december 31 , 2013. substantially all of our operating losses resulted from expenses incurred in connection with our product candidate development programs , our research activities and general and administrative costs associated with our operations . we expect to continue to incur significant expenses and increasing operating losses for at least the next several years . story_separator_special_tag the fda guidelines for primary efficacy success is that at least 75 % of the subjects on active treatment achieve a testosterone cavg within the normal range ; and the lower bound of the 95 % confidence interval ( “ ci ” ) must be greater than 65 % . lpcn 1021 successfully met the fda primary efficacy guideline . in the eps analysis , 88 % of the subjects on active treatment achieved testosterone cavg within the normal range with lower bound ci of 82 % . additionally , sensitivity analysis using the fas and ss reaffirmed the finding that lpcn 1021 successfully met the fda primary efficacy guideline as 88 % and 80 % , respectively , of the subjects on active treatment achieved testosterone cavg within the normal range with lower bound ci of 82 % and 74 % , respectively . other highlights from the efficacy results include : · mean cavg was 447 ng/dl with coefficient of variance of 37 % ; · less than 12 % of the subjects were outside the tesosterone cavg normal range at final dose ; · 85 % of subjects arrived at final dose with no more than one titration ; and 43 · 51 % of subjects were on final dose of 225 mg bid which was also the starting dose . safety although the safety component of the soar trial is on-going , lpcn 1021 treatment has been well tolerated to date . lpcn 1021 safety highlights through week 13 of treatment include : · 3 % of the subjects reported a serious adverse events ( `` sae '' ) , with none of the sae 's being drug related ; · all the drug related adverse events were either mild or moderate in intensity ( none were severe ) ; and · hematocrit ( “ hct ” ) and prostate specific antigen ( “ psa ” ) increases were noted and consistent with other trt products with one subject discontinued for elevated hct exceeding pre-specified limits and one subject discontinued for elevated psa exceeding pre-specified limits . in the eps analysis , cmax ≤1500 ng/dl was 83 % , cmax between 1800 and 2500 ng/dl was 4.6 % and cmax > 2500 ng/dl was 2 % . three patients had a cmax > 2500 ng/dl which were transient , isolated and sporadic . moreover , none of these subjects reported any ae 's . results were generally consistent with those of approved trt products . the safety extension phase of the soar trial is on-going . the safety extension phase is designed to assess safety information such as metabolites , biomarkers , laboratory values , saes and aes , with subjects on their stable dose regimen in both the treatment arm and the active control arm . in december 2014 we received confirmation from the fda that the design of our soar trial is currently acceptable for filing an nda for the class trt labeling . the fda reiterated the primary efficacy endpoint required for approval being 75 % of subjects with a cavg for serum testosterone in the normal range with the lower bound of the two-sided 95 % confidence interval being > 65 % . additionally , the fda did not identify any additional clinical studies that would be required for nda filing , but did state that should any safety signal become apparent during analysis of our soar trial results or during the course of their review , it is possible that additional data may be required . based on the response received , we do not anticipate the need to conduct additional studies above those previously agreed to with the fda for nda filing . we expect to have a pre-nda meeting with the fda on march 19 , 2015. additionally we expect the last patient last visit in the safety extension phase of the soar trial to be in april 2015 with top-line safety results in the second quarter of 2015 and an nda filing to occur during the second half of 2015 assuming successful safety results . lpcn 1111 : a next-generation oral product candidate for trt lpcn 1111 is a next-generation , novel ester prodrug of testosterone which uses the lip'ral technology to enhance solubility and improve systemic absorption . in october 2014 , we successfully completed a phase 2a proof-of-concept study in hypogonadal men . the phase 2a open-label , dose-escalating single and multiple dose study enrolled 12 males . these subjects had serum total testosterone < 300 ng/dl based on two blood draws on two separate days . subjects received doses of lpcn 1111 as a single dose of 330 mg , 550 mg , 770 mg , followed by once daily administration of 550 mg for 28 days in 10 subjects , and once daily administration of 770 mg for 28 days in eight subjects . results from the phase 2a clinical study demonstrated the feasibility of a once daily dosing with lpcn 1111in hypogonadal men and a good dose response . additionally , the study confirmed that steady state is achieved by day 14 with consistent inter-day performance observed on day 14 , 21 and 28. no subjects exceeded cmax of 1500 ng/dl at any time during the 28 day dosing period on multi-dose exposure . overall , lpcn 1111 was well tolerated with no serious adverse events . we expect to initiate a phase 2b dose finding study in hypogonadal men in the third quarter of 2015 subject to clarity from the fda on the trt `` class '' label and financial resources . 44 lpcn 1107 : an oral product candidate for the prevention of preterm birth we believe lpcn 1107 has the potential to become the first oral hydroxyprogesterone caproate ( “ hpc ” ) product indicated for the prevention of preterm birth in women with a prior history of at least one preterm birth .
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results of operations comparison of the years ended december 31 , 2014 and 2013 the following table summarizes our results of operations for the years ended december 31 , 2014 and 2013 : replace_table_token_3_th research and development expenses the increase in research and development expenses in the year ended december 31 , 2014 was primarily due to an increase in external service provider costs of $ 9.9 million and an increase of $ 443,000 in internal personnel costs . the increase in external service provider costs was primarily due to an increase of $ 10.9 million in clinical research costs and an increase of $ 106,000 in consulting expenses for clinical and regulatory advisors , primarily related to our phase 3 clinical trial for lpcn 1021. the increase in personnel costs included $ 167,000 in severance payments to a terminated officer . these increases was partially offset by a reduction in manufacturing and drug purchase costs of $ 1.1 million which were incurred in 2013 and not repeated in 2014. general and administrative expenses the increase in general and administrative expenses in the year ended december 31 , 2014 was primarily due to an increase in equity compensation of $ 637,000 due primarily to accelerated vesting and or extension of exercise dates for retiring directors and a terminated officer ; increased compensation expense of $ 312,000 for new administrative personnel including a full year of salary of our chief financial officer ; other compensation increases of $ 135,000 , including $ 92,000 in severance payments to a terminated officer , $ 24,000 in employer 401 ( k ) plan match which began in april 2014 , and $ 19,000 in salary increases in 2014 ; increased director and officer liability insurance expense of $ 99,000 for the first full year as a public company ; $ 67,000 for recruiting expense ; and an increase of $ 69,000 for a higher
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corresponding historical periods and with the operational performance of other companies in our industry because it does not 63 give effect to potential differences caused by items we do not consider reflective of underlying operating performance . adjusted ebitda for the current quarter as well as the previous four quarters is presented below . replace_table_token_13_th ( 1 ) quarterly amounts relate to ongoing operations , excluding the transitional group and assets held for sale ( 2 ) legal settlement amounts are net of insurance recoveries ( 3 ) unused space charges include initial charge and subsequent accretion ( 4 ) quarterly amounts relate to the transitional group and discontinued operations adjusted ebitda for ongoing operations , which excludes the transitional group and discontinued operations , improved $ 5.4 million or 53.3 % for the fourth quarter of 2014 as compared to the same quarter last year as revenue declines of $ 18.0 million were more than offset by reduced operating expenses . adjusted ebitda was $ 15.6 million or $ 0.23 per diluted share for the fourth quarter of 2014 as compared to $ 10.2 million or $ 0.15 per diluted share for the fourth quarter of 2013. this favorability was a result of continued efforts to align current cost structure with total student enrollment and improved profitability from the university 64 group . we expect that our ongoing operations will be adjusted ebitda positive for the full year 2015 ; although not necessarily for each quarter as advertising investments are typically heavier in the first and third quarters of each year as reflected above in the table . the primary drivers of our plans to be adjusted ebitda positive for 2015 include : improved ebitda from our ctu segment ; positive adjusted ebitda for our aiu segment , driven primarily by an improved cost structure ; benefit from the $ 40.0 million of expense reductions we took in the latter half of 2014 , a portion of which will drive the ctu and aiu improvement ; and continued focus on stemming our losses in career colleges . however , these improvements will be substantially offset with management allocations that will be absorbed by our continuing operations which were previously allocated to our culinary arts campuses that are now reported within discontinued operations . therefore , our expected adjusted ebitda growth for 2015 is expected to be minimal as compared to 2014. adjusted ebitda for the transitional group and discontinued operations was - $ 13.0 million or - $ 0.19 per diluted share for the fourth quarter of 2014 as compared to - $ 33.1 million or - $ 0.50 per diluted share for the fourth quarter of 2013. this favorability was a result of the completion of teach-out operations at campuses that have now closed and continued focus on exiting and reducing real estate lease obligations once a teach-out is complete . such lease obligations are a large component of our cost structure and cash usage . in addition to real estate leases associated with our ongoing operations , campuses that have completed the teach-out process more often than not have ongoing lease obligations that continue for some time . during the past twelve months we have entered into sublease agreements and early lease termination agreements which will result in cash savings of $ 39 million , net of cash payments over the remaining life of the leases . see contractual obligations under liquidity , financial position and capital resources below for further information regarding our remaining lease obligations . we intend to continue to be proactive in our efforts to lower our real estate exposure , including termination agreements , sublease agreements and space consolidation but we anticipate that the level and volume of transactions in 2015 may be less than those negotiated in 2014. we anticipate adjusted ebitda for the transitional group and discontinued operations to continue to decrease through 2015 and we expect adjusted ebitda to be approximately negative $ 62.0 for the full year 2015 based on the current composition of our transitional group and discontinued operations . within the transitional group , we closed twenty campuses during 2014 , as well as divested one campus in the second quarter of 2014 , bringing the remaining number of transitional campuses to 12 , four of which are expected to close in 2015. as we continue to complete the teach-outs within the transitional group , we expect the operating loss and cash consumption associated with these campuses to further decline . we will continue to analyze the student outcomes and financial performance of each of our programs and campuses to make the necessary decisions that are in the best interest of our students , as well as for long-term success and value creation for the organization . as an organization , our focus continues to be to enroll , educate and place our students into a better position to succeed professionally and to close the gap between students and employers . in doing so , we seek to create a winning formula for our students , for employers that employ our graduates and for our shareholders . we have successfully executed against our strategic goals for 2014 and we remain committed to execute on our goals in 2015. we continue to believe that we are well-positioned to complete our turnaround strategy and generate long-term profitability . 2015 outlook an update on our expectations for performance and general business outlook for full year 2015 include : modest growth in total student enrollments for the year within our university group , with online being the primary contributor positive adjusted ebitda for full year 2015 from ongoing operations , which excludes the transitional group and campuses held for sale reduced operating expenses of $ 40 million based on actions that were taken in 2014 65 continued progress on reductions of real estate obligations end fiscal year 2015 with over $ 190 million in total cash , cash equivalents , story_separator_special_tag corresponding historical periods and with the operational performance of other companies in our industry because it does not 63 give effect to potential differences caused by items we do not consider reflective of underlying operating performance . adjusted ebitda for the current quarter as well as the previous four quarters is presented below . replace_table_token_13_th ( 1 ) quarterly amounts relate to ongoing operations , excluding the transitional group and assets held for sale ( 2 ) legal settlement amounts are net of insurance recoveries ( 3 ) unused space charges include initial charge and subsequent accretion ( 4 ) quarterly amounts relate to the transitional group and discontinued operations adjusted ebitda for ongoing operations , which excludes the transitional group and discontinued operations , improved $ 5.4 million or 53.3 % for the fourth quarter of 2014 as compared to the same quarter last year as revenue declines of $ 18.0 million were more than offset by reduced operating expenses . adjusted ebitda was $ 15.6 million or $ 0.23 per diluted share for the fourth quarter of 2014 as compared to $ 10.2 million or $ 0.15 per diluted share for the fourth quarter of 2013. this favorability was a result of continued efforts to align current cost structure with total student enrollment and improved profitability from the university 64 group . we expect that our ongoing operations will be adjusted ebitda positive for the full year 2015 ; although not necessarily for each quarter as advertising investments are typically heavier in the first and third quarters of each year as reflected above in the table . the primary drivers of our plans to be adjusted ebitda positive for 2015 include : improved ebitda from our ctu segment ; positive adjusted ebitda for our aiu segment , driven primarily by an improved cost structure ; benefit from the $ 40.0 million of expense reductions we took in the latter half of 2014 , a portion of which will drive the ctu and aiu improvement ; and continued focus on stemming our losses in career colleges . however , these improvements will be substantially offset with management allocations that will be absorbed by our continuing operations which were previously allocated to our culinary arts campuses that are now reported within discontinued operations . therefore , our expected adjusted ebitda growth for 2015 is expected to be minimal as compared to 2014. adjusted ebitda for the transitional group and discontinued operations was - $ 13.0 million or - $ 0.19 per diluted share for the fourth quarter of 2014 as compared to - $ 33.1 million or - $ 0.50 per diluted share for the fourth quarter of 2013. this favorability was a result of the completion of teach-out operations at campuses that have now closed and continued focus on exiting and reducing real estate lease obligations once a teach-out is complete . such lease obligations are a large component of our cost structure and cash usage . in addition to real estate leases associated with our ongoing operations , campuses that have completed the teach-out process more often than not have ongoing lease obligations that continue for some time . during the past twelve months we have entered into sublease agreements and early lease termination agreements which will result in cash savings of $ 39 million , net of cash payments over the remaining life of the leases . see contractual obligations under liquidity , financial position and capital resources below for further information regarding our remaining lease obligations . we intend to continue to be proactive in our efforts to lower our real estate exposure , including termination agreements , sublease agreements and space consolidation but we anticipate that the level and volume of transactions in 2015 may be less than those negotiated in 2014. we anticipate adjusted ebitda for the transitional group and discontinued operations to continue to decrease through 2015 and we expect adjusted ebitda to be approximately negative $ 62.0 for the full year 2015 based on the current composition of our transitional group and discontinued operations . within the transitional group , we closed twenty campuses during 2014 , as well as divested one campus in the second quarter of 2014 , bringing the remaining number of transitional campuses to 12 , four of which are expected to close in 2015. as we continue to complete the teach-outs within the transitional group , we expect the operating loss and cash consumption associated with these campuses to further decline . we will continue to analyze the student outcomes and financial performance of each of our programs and campuses to make the necessary decisions that are in the best interest of our students , as well as for long-term success and value creation for the organization . as an organization , our focus continues to be to enroll , educate and place our students into a better position to succeed professionally and to close the gap between students and employers . in doing so , we seek to create a winning formula for our students , for employers that employ our graduates and for our shareholders . we have successfully executed against our strategic goals for 2014 and we remain committed to execute on our goals in 2015. we continue to believe that we are well-positioned to complete our turnaround strategy and generate long-term profitability . 2015 outlook an update on our expectations for performance and general business outlook for full year 2015 include : modest growth in total student enrollments for the year within our university group , with online being the primary contributor positive adjusted ebitda for full year 2015 from ongoing operations , which excludes the transitional group and campuses held for sale reduced operating expenses of $ 40 million based on actions that were taken in 2014 65 continued progress on reductions of real estate obligations end fiscal year 2015 with over $ 190 million in total cash , cash equivalents ,
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consolidated results of operations the summary of selected financial data table below should be referenced in connection with a review of the following discussion of our results of operations for the years ended december 31 , 2014 , 2013 and 2012. results for the prior period have been reclassified for our campuses that have been sold , taught-out or are held for sale , to be comparable to the current year presentation ( dollars in thousands ) : replace_table_token_14_th ( 1 ) educational services and facilities expense includes costs directly attributable to the educational activities of our campuses , including : salaries and benefits of faculty , academic administrators and student support personnel , and costs of educational supplies and facilities , including rents on campus leases , certain costs of establishing and maintaining computer laboratories , costs of student housing , and owned and leased facility costs . also included in educational services and facilities expense are costs of other goods and services provided by our campuses , including costs of textbooks , laptop computers , restaurant services and contract training . ( 2 ) general and administrative expense includes salaries and benefits of personnel in corporate and campus administration , marketing , admissions , financial aid , accounting , human resources , legal and compliance . other expenses within this expense category include costs of advertising and production of marketing materials , occupancy of the corporate offices and bad debt expense . 66 year ended december 31 , 2014 as compared to the year ended december 31 , 2013 revenue current year revenue decreased 11.7 % or $ 98.3 million driven by an overall 8.0 % decline in total student enrollments . excluding our transitional group , which no longer enrolls new students as campuses are taught out , revenue declined approximately 8.5 % or $ 66.2 million driven by an overall 4.5 % decline in total student enrollments .
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hrg overview we are a holding company that conducts its operations through its operating subsidiaries . as of september 30 , 2016 , our principal operations were conducted through subsidiaries that offer branded consumer products and related businesses ( spectrum brands holdings , inc. , ( “ spectrum brands ” ) ) and insurance and reinsurance services ( fgl and front street re ( delaware ) ltd. , ( “ front street ” ) ) . we also own salus capital partners , llc ( “ salus ” ) , an asset-based lender , and 97.9 % of nzch corporation ( “ nzch ” , formerly zap.com corporation ) , a public shell company . from time to time , we may manage a portion of our available cash and engage in other activities through our wholly-owned subsidiaries , hgi funding , llc ( “ hgi funding ” ) and hgi energy holdings , llc ( “ hgi energy ” ) . we currently present our operations in two reportable segments : ( i ) consumer products , which consists of spectrum brands ; and ( ii ) insurance , which consists of front street . on november 8 , 2015 , anbang insurance group co. , ltd. , a joint-stock insurance company established in the people 's republic of china ( “ anbang ” ) , ab infinity holding , inc. , a wholly-owned subsidiary of anbang ( “ ab infinity ” ) , and ab merger sub , inc. , a wholly-owned subsidiary of ab infinity ( “ merger sub ” ) , entered into a definitive merger agreement ( which was amended on november 3 , 2016 , as amended , the “ fgl merger agreement ” and such merger , the “ fgl merger ” ) to acquire fgl for $ 26.80 per share . as a result of the fgl merger agreement , as of march 31 , 2016 , our ownership interest in fgl has been classified as held for sale in the accompanying consolidated balance sheets and fgl 's operations were classified as discontinued operations in the accompanying consolidated statements of operations and the consolidated statements of cash flows and reported separately for all periods presented . prior to the transaction , fgl was included in our insurance segment . as a result of classifying fgl as held for sale , all segmented information has been adjusted to exclude fgl from the insurance segment . see note 4 , divestitures to our consolidated financial statements included in part iv - item 15. exhibits , financial statements and schedules for additional information . during the fourth quarter of fiscal 2016 , hgi energy completed the sale of its equity interests in compass to a third party ( the “ compass sale ” ) . following the completion of the compass sale , the company no longer owns , directly or indirectly , any oil and gas properties and accordingly , the results of compass are presented as discontinued operations in the accompanying consolidated statements of operations and the operations of hgi energy are included in the corporate and other segment . see note 4 , divestitures to our consolidated financial statements included in part iv - item 15. exhibits , financial statements and schedules for additional information . consumer products segment through spectrum brands , we are a diversified global branded consumer products company with positions in seven major product categories : consumer batteries , small appliances , global pet supplies , home and garden control products , personal care products , hardware and home improvement products and global auto care . spectrum brands ' operating performance is influenced by a number of factors including : general economic conditions ; foreign exchange fluctuations ; trends in consumer markets ; consumer confidence and preferences ; overall product line mix , including pricing and gross margin , which vary by product line and geographic region ; pricing of certain raw materials and commodities ; energy and fuel prices ; and general competitive positioning , especially as impacted by competitors ' advertising and promotional activities and pricing strategies . insurance segment through front street and its bermuda and cayman-based subsidiaries , we engage in the business of life , annuity and long-term care reinsurance . 80 highlights for fiscal 2016 : significant transactions and activity during fiscal 2016 , spectrum brands completed a cash tender offer to purchase any and all of spectrum brands ' 6.375 % senior notes due 2020 ( the “ 6.375 % notes ” ) . as part of the transaction , spectrum brands received tenders from the holders of $ 390.3 million of its outstanding 6.375 % notes and has accepted for purchase all 6.375 % notes which were validly tendered . in addition , on october 20 , 2016 , spectrum brands redeemed the remaining $ 129.7 million aggregate principal amount of 6.375 % notes with a call premium of $ 4.6 million . on september 20 , 2016 , sbi issued 425.0 million aggregate principal amount of 4.00 % notes at par value , due october 1 , 2026 ( the “ 4.00 % notes ” ) . on october 6 , 2016 , subsequent to the end of the fiscal year , spectrum brands replaced all of its u.s. dollar-denominated term loans with new u.s. dollar-denominated term loans that carry lower interest rate margins , but otherwise are on the same terms as the old term loans , including the maturity date . on november 8 , 2015 , anbang entered into the fgl merger agreement . pursuant to this agreement , anbang , through its subsidiaries , will acquire all of the outstanding shares of fgl at closing . stockholders of fgl will receive $ 26.80 per share in cash at closing . at the date of the transaction , the company owned 47.0 million shares , or 80.5 % of fgl . story_separator_special_tag 82 results of operations fiscal 2016 compared to fiscal 2015 , and fiscal 2015 compared to fiscal 2014 presented below is a table that summarizes our results of operations and compares the amount of the change between the fiscal periods ( in millions ) : replace_table_token_11_th ( a ) the intersegment eliminations primarily represent the reversal and reclassification of impairments recorded in our insurance segment on affiliated investments , as well as usual intercompany transactions for the period . for fiscal 2015 , the insurance segment eliminations include the reversal of intercompany asset impairments of $ 57.1 million . ( b ) for its stand-alone reporting purposes , front street elected , since inception , to apply the fair value option to account for its funds withheld receivables , non-funds withheld assets and future policyholder benefits reserves related to its assumed reinsurance . for our consolidated reporting , the results from front street 's assumed reinsurance business with fgl is reported on fgl 's historical basis . accordingly , in order to align our consolidated reporting , we have recorded a net intersegment adjustment to operating income ( loss ) of $ 59.7 million , $ ( 115.4 ) million and $ 45.1 million for fiscal 2016 , 2015 and 2014 , respectively . upon completion of the fgl merger , our consolidated results will reflect all reinsurance business on the fair value option . revenues . revenues for fiscal 2016 increased $ 505.7 million , or 10.7 % , to $ 5,215.4 million from $ 4,709.7 million for fiscal 2015 . the increase was primarily due to growth from acquisitions and organic net sales from our consumer products segment , coupled with an increase in fair value of the underlying fixed maturity debt securities included in the funds withheld receivables in the insurance segment due to lower interest rates and tighter credit spreads . these increases were partially offset by negative impact of foreign exchange in the consumer products segment ; lower sales revenue associated with foh that was deconsolidated in fiscal 2015 ; and lower investment income as a result of the decrease in the asset-based loan portfolio of salus . revenues for fiscal 2015 increased $ 75.0 million , or 1.6 % , to $ 4,709.7 million from $ 4,634.7 million for fiscal 2014 . the increase was primarily due to sales growth driven by acquisitions in the consumer products segment . this was offset by the 83 negative impact of foreign exchange in the consumer products segment and a decrease in the fair value of the underlying fixed maturity debt securities included in the funds withheld receivables during fiscal 2015 , coupled with realized losses related to credit impairment losses related to intercompany investments and asset-based loan participations that were recorded in fiscal 2015. consolidated operating income . consolidated operating income for fiscal 2016 increased $ 582.2 million , or 1,271.2 % , to $ 628.0 million from an operating income of $ 45.8 million for fiscal 2015 . the $ 582.2 million increase in operating income was mainly due to increased profitability in our consumer products segment , lower impairments in our insurance and corporate and other segments , lower selling , acquisition , operating and general expenses in the corporate and other segment and an increase in the fair value of the underlying fixed maturity debt securities included in the funds withheld receivables during fiscal 2016 due to market conditions with decreasing risk-free rates and tightening credit spreads resulting in generally higher valuations of fixed maturity debt securities . operating income for fiscal 2015 decreased $ 381.6 million , or 89.3 % , to $ 45.8 million from $ 427.4 million for fiscal 2014 . the decrease was primarily due to impairments in our insurance and corporate and other segments ; an increase in the fixed index annuities ( “ fia ” ) present value of future credits in our insurance segment ; increased costs and lower revenues in our corporate and other segment ; and the severance payments associated with the departure of philip falcone , the company 's former chief executive officer , in december 2014 ( the “ 2014 ceo departure ” ) . interest expense . interest expense decreased $ 4.5 million to $ 397.1 million for fiscal 2016 from $ 401.6 million for fiscal 2015 . the decrease was primarily due to $ 58.8 million of one-time costs incurred in fiscal 2015 related to the financing of spectrum brands ' acquisition of aag ( the “ aag acquisition ” ) , the refinancing of certain of spectrum brands ' term loans ( the “ term loans refinancing ” ) and the refinancing of spectrum brands ' revolver facility ( the “ revolver facility refinancing ” ) and redemption of sbi 's 6.75 % senior unsecured notes ( the “ 6.75 % notes ” ) . expenses related to the financing of the aag acquisition included $ 14.1 million of costs related to bridge financing commitments and $ 4.5 million of costs related to interest on the acquired aag senior notes from the date of the acquisition through the time of payoff . expenses related to the term loan refinancing , revolver facility refinancing and redemption of the 6.75 % notes included : ( i ) $ 16.9 million of cash costs related to the call premium and pre-paid interest on the 6.75 % notes ; ( ii ) $ 10.4 million of cash costs related to fees associated with the refinancing of the term loan ; ( iii ) $ 8.8 million of non-cash costs for the write-off of unamortized deferred financing fees and original issue discount ; and ( iv ) $ 4.1 million of non-cash costs for the write off of unamortized deferred financing fees on the 6.75 % notes .
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summary of consolidated cash flows presented below is a table that summarizes the cash provided or used in our activities and the amount of the respective increases or decreases in cash provided or used from those continuing activities between the fiscal periods ( in millions ) : replace_table_token_25_th operating activities cash provided by operating activities totaled $ 558.2 million for fiscal 2016 as compared to $ 300.3 million for fiscal 2015 . the $ 257.9 million improvement in cash provided by operating activities was the result of a ( i ) $ 170.1 million increase in cash provided by the consumer products segment ; ( ii ) $ 38.9 million decrease in cash used by the insurance segment and ( iii ) $ 72.8 million increase in cash provided from net withdrawals from contractholder accounts related to the cession between front street and fgl , which is reflected in operating cash for the insurance segment ; partially offset by a $ 10.0 million decrease in dividends received from compass , which was sold in fiscal 2016 and is now classified as discontinued operations ; and a $ 2.6 million increase in cash used by the corporate and other segment .
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company overview sachem capital corp. was formed as hml capital corp. in january 2016 under the new york business corporation law . on december 15 , 2016 , we changed our name to sachem capital corp. prior to february 8 , 2017 , our business operated as a connecticut limited liability company under the name sachem capital partners , llc ( “ scp ” ) . on february 9 , 2017 , we completed our initial public offering ( the “ ipo ” ) in which we issued and sold 2.6 million of our common shares , $ .001 par value per share ( “ common shares ” ) , at $ 5.00 per share , which raised $ 13 million of gross proceeds . the net proceeds from the ipo were approximately $ 11.1 million . the primary purpose of the ipo was to raise additional equity capital to fund mortgage loans and expand our mortgage loan portfolio . the ipo was also intended to diversify our ownership so that we could qualify , for federal income tax purposes , as a real estate investment trust , or reit . 33 we believe that , upon consummation of the ipo , we met all the requirements to qualify as a reit for federal income tax purposes and elected to be taxed as a reit beginning with our 2017 tax year . as a reit , we are entitled to claim deductions for distributions of taxable income to our shareholders thereby eliminating any corporate tax on such taxable income . any taxable income not distributed to shareholders is subject to tax at the regular corporate tax rates and may also be subject to a 4 % exercise tax to the extent it exceeds 10 % of our total taxable income . to maintain our qualification as a reit , we are required to distribute each year at least 90 % of our taxable income . as a reit , we may also be subject to federal excise taxes and state taxes . operational and financial overview since december 2010 , when we commenced operations as scp , through december 31 , 2018 , we made an aggregate of 885 loans , which includes renewals and extensions of existing loans . at december 30 , 2018 , ( i ) our loan portfolio included 403 mortgage loans , with individual principal loan amounts ranging from approximately $ 8,000 to approximately $ 2.04 million and an aggregate loan amount of approximately $ 78.9 million , ( ii ) the average original principal amount of the mortgage loans in the portfolio was $ 196,000 and the median mortgage loan amount was $ 140,000 and ( iii ) approximately 79.0 % of the mortgage loans had a principal amount of $ 250,000 or less . in comparison , at december 31 , 2017 , ( i ) our loan portfolio included 337 loans , with individual principal loan amounts ranging from $ 16,900 to $ 1.67 million and an aggregate loan amount of approximately $ 63.3 million , ( ii ) the average original principal amount of the loans in the portfolio was $ 188,000 and the median loan amount was $ 122,000 and ( iii ) approximately 81.0 % of the loans had a principal amount of $ 250,000 or less . at december 31 , 2018 and 2017 , unfunded commitments for future advances totaled approximately $ 6.0 million and $ 3.4 million , respectively . similarly , our revenues and net income have been growing . for 2018 , revenues and net income were approximately $ 11.7 million and $ 7.8 million , respectively . for 2017 , revenues and net income were approximately $ 7.0 million and $ 4.9 million , respectively . we can not assure you that we will be able to sustain these growth rates . our operating expenses have increased significantly due to multiple factors including our conversion from a limited liability company to a regular c corporation , operating as a reit , our status as a publicly-held reporting company and growth in our operations . as a corporation , we incur various costs and expenses that we did not have as a limited liability company , such as director fees , directors ' and officers ' insurance and we incur significant compensation and other employee-related costs for services rendered by our senior executive officers . moreover , because various laws , rules and regulations that prohibit or severely limit our ability to enter into agreements with related parties , our operating expenses have increased as well . compensation expense , professional fees , filing fees , printing and mailing costs , exchange listing fees , transfer agent fees and other miscellaneous costs related to our compliance with various laws , rules and regulations applicable to reits and a publicly-held reporting company have all increased . for example , we are required to , among other things , file annual , quarterly and current reports with respect to our business and operating results . also , as a public reporting company , we must establish and maintain effective disclosure and financial controls . as a result , we have hired additional accounting and finance personnel with appropriate public company experience and technical accounting knowledge . our loans typically have a maximum initial term of one to three years and bear interest at a fixed rate of 5.0 % to 12.5 % per year and a default rate of 18 % per year . we usually receive origination fees , or “ points , ” ranging from 2 % to 5 % of the original principal amount of the loan as well as other fees relating to underwriting , funding and managing the loan , such as inspection fees . since we treat an extension or renewal of an existing loan as a new loan , we also receive additional “ points ” and other loan-related fees in connection with those transactions . interest is always payable monthly in arrears . story_separator_special_tag in addition , we are also in the early stages of exploring alternative financing arrangements that would provide us with additional working capital . other than with respect to the atm offering , we have not entered into any definitive agreements for a financing transaction and we can not assure you that that we will be able to consummate a financing transaction in the foreseeable future . in addition , beginning in the second half of 2018 , we started noticing subtle changes in the business environment . for example , traditional lending institutions , such as banks , appeared to be tightening their credit requirements . normally , that would be a positive development for our business . however , at the same time , we noticed that property values in connecticut were either stagnant or declining and the length of time between initial listing and sale was expanding . it is unclear whether these developments are merely temporary phenomena or represent long-term trends . in the meantime , the demand for our products and services continues to be robust . we believe that our best strategy to deal with adverse changes in the marketplace is to adhere to our basic underwriting guidelines . 35 financing strategy overview to continue to grow our business , we must increase the size of our loan portfolio , which requires that we raise additional capital either by selling shares of our capital stock or by incurring additional indebtedness . we do not have a policy limiting the amount of indebtedness that we may incur . thus , our operating income in the future will depend on how much debt we incur and the spread between our cost of funds and the yield on our loan portfolio . rising interest rates could have an adverse impact on our business if we can not increase the rates on our loans to offset the increase in our cost of funds and to satisfy investor demand for yield . in addition , rapidly rising interest rates could have an unsettling effect on real estate values , which could compromise some of our collateral . we do not have any formal policy limiting the amount of indebtedness we may incur . however , under the terms of the webster facility , unless otherwise explicitly permitted by the credit and security agreement , we may not incur any additional indebtedness without wbcc 's consent . the most significant exception to this covenant is one that permits us to separately finance the mortgage loans in our portfolio that secure “ commercial ” properties . depending on various factors we may , in the future , decide to take on additional debt to expand our mortgage loan origination activities to increase the potential returns to our shareholders . although we have no pre-set guidelines in terms of leverage ratio , the amount of leverage we will deploy will depend on our assessment of a variety of factors , which may include the liquidity of the real estate market in which most of our collateral is located , employment rates , general economic conditions , the cost of funds relative to the yield curve , the potential for losses and extension risk in our portfolio , the gap between the duration of our assets and liabilities , our opinion regarding the creditworthiness of our borrowers , the value of the collateral underlying our portfolio , and our outlook for interest rates and property values . at december 31 , 2018 , debt proceeds represented approximately 34.3 % of our total capital . however , to grow the business and satisfy the requirement to pay out 90 % of net profits , we expect to increase our level of debt over time to approximately 50 % of our total capital . we intend to use leverage for the sole purpose of financing our portfolio and not for speculating on changes in interest rates . we consummated our ipo in february 2017 , offering and selling 2,600,000 common shares at a price of $ 5.00 per share . the net proceeds , after payment of underwriting discounts and commissions and transaction fees were approximately $ 11.1 million , which we initially used to pay down the entire outstanding balance on the bankwell credit facility . in november 2017 , we completed a second public offering in which we sold an aggregate of 4,312,500 common shares at a public offering price of $ 4.00 per share . the gross proceeds from this offering were $ 17.25 million and the net proceeds were approximately $ 15.3 million , which were also used to reduce the outstanding balance on the bankwell credit facility . the bankwell credit facility was a $ 20 million revolving credit facility that we used to fund the loans we originated . the bankwell credit facility was secured by a first priority lien on all our assets , including our mortgage loan portfolio . it was also jointly and severally guaranteed by jjv , jeffrey c. villano and john l. villano , cpa , our co-chief executive officers . the liability of each guarantor was capped at $ 1 million . on may 11 , 2018 ( the “ closing date ” ) , we entered into a credit and security agreement with webster business credit corporation ( “ wbcc ” ) , bankwell bank and berkshire bank ( collectively , the “ lenders ” ) under which the lenders agreed to provide us with a $ 35 million revolving credit facility ( the “ webster facility ” ) to replace the bankwell credit facility , which was repaid in full and terminated . the webster facility is secured by a first priority lien on substantially all our assets , including our mortgage loan portfolio . amounts outstanding under the webster facility bear interest at a floating rate equal to the 30-day libor rate plus 4.00 % per annum and will be due and payable on may 11 , 2022. at december 31 , 2018 , the outstanding balance on the webster facility was accruing interest at the rate of 6.50
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results of operations we were formed in january 2016 and , prior to the ipo , had not engaged in any business activity . the results of operations discussed below for the year ended december 31 , 2017 , include those of scp for the portion of the period prior to the ipo . years ended december 31 , 2018 and 2017 total revenue total revenue for the year ended december 31 , 2018 was approximately $ 11.7 million compared to approximately $ 7.0 million for the year ended december 31 , 2017 , an increase of approximately $ 4.7 million , or 67.4 % . the increase in revenue represented an increase in lending operations . for 2018 , approximately $ 9.0 million of revenue represented interest income , approximately $ 1.4 represented origination fees and approximately $ 189,000 represented late and other fees . in comparison , in 2017 approximately $ 5.4 million of revenue represented interest income from loans , approximately $ 802,000 represented origination fees and approximately $ 137,000 represented late and other fees . other income also increased significantly from approximately $ 410,000 in 2017 to approximately $ 837,000 in 2018. components of other income include income from advances to borrowers of approximately $ 251,000 , lender fees , not including origination fees , of approximately $ 193,000 , loan modification fees of approximately $ 176,000 , extension fees of approximately $ 69,000 and in-house legal fees of approximately $ 76,000. operating costs and expenses total operating costs and expenses for the year ended december 31 , 2018 were approximately $ 3.9 million compared to approximately $ 2.1 million for 2017 , an increase of approximately $ 1.8 million , or 84.5 % . the increase in operating costs and expenses is due to an increase in our lending operations and our financing activities during the year .
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controls and procedures an evaluation was performed under the supervision and with the participation of our management , including our principal executive officer and principal financial officer , of the effectiveness of our disclosure controls and procedures ( as defined in rules 13a-15 ( e ) and 15d-15 ( e ) under the exchange act as of the end of the period covered by this annual report on form 10-k. based on the foregoing , our management concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the exchange act is recorded , processed , summarized and reported within the time periods specified in the sec rules and forms and such information is accumulated and communicated to our management , including our principal executive officer and principal financial officer , to allow timely decisions regarding required disclosure . there was no change in our internal control over financial reporting that occurred during the quarter ended november 30 , 2016 that has materially affected , or is reasonably likely to materially affect , our internal control over financial reporting . report of management on internal control over financial reporting our management is responsible for establishing and maintaining adequate internal control over financial reporting for the company . internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the united states . internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions ; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements ; providing reasonable assurance that receipts and expenditures of our assets are made in accordance with management 's authorization ; and providing reasonable assurance that unauthorized acquisition , use or disposition of our assets that could have a material effect on the financial statements would be prevented or detected on a timely basis . because of its inherent limitations , internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected . management conducted its evaluation of the effectiveness of our internal controls over financial reporting based on the framework in internal control — integrated framework ( 2013 ) issued by the committee of sponsoring organizations of the treadway commission . based on this evaluation , management concluded that our internal control over financial reporting was effective as of november 30 , 2016. the effectiveness of our assessment of internal control over financial reporting as of november 30 , 2016 has been audited by pricewaterhousecoopers llp , an independent registered public accounting firm , as stated in their report which appears herein . item 9b . other information none . 85 novagold resources inc. part iii item 10. directors , executive officers and corporate governance the information in our definitive proxy statement , filed pursuant to regulation 14a promulgated under the exchange act for the 2017 annual meeting of shareholders ( the “ 2017 proxy statement ” ) regarding directors and executive officers and section 16 reporting information appearing under the headings “ election of directors ” “ information concerning the board of directors and executive officers ” and “ security ownership of certain beneficial owners and management and related shareholder matters . ” is incorporated by reference in this section . finally , the information in our 2017 proxy statement regarding the audit committee under the heading “ statement of corporate governance practices ” is incorporated herein by reference . we have adopted a code of business conduct and ethics that applies to our chief executive officer , chief financial officer and corporate controller or persons performing similar functions . this code of business conduct and ethics is posted on our website ( www.novagold.com ) . we intend to satisfy the disclosure requirement under item 5.05 of form 8-k regarding an amendment to , or waiver from , a provision of the code of business conduct and ethics that applies to our principal executive officer , principal financial officer , principal accounting officer or controller , or persons performing similar functions , by posting such information on our website , at the address specified above . our code of business conduct and ethics , and charters for story_separator_special_tag the following discussion and analysis of our financial condition and results of operations constitutes management 's review of the factors that affected our financial and operating performance for the years ended november 30 , 2016 , 2015 and 2014. this discussion should be read in conjunction with the consolidated financial statements and notes thereto contained elsewhere in this report . overview our operations primarily relate to the delivery of project milestones , including the achievement of various technical , environmental , sustainable development , economic and legal objectives , obtaining necessary permits , completion of feasibility studies , preparation of engineering designs and the financing to fund these objectives . in 2016 , we successfully delivered on the key goals established at the beginning of the year . highlights of our accomplishments include : advancement of the donlin gold project in 2016 , permitting activities continued at donlin gold and were focused on advancing major permits and approvals with state and federal agencies as well as providing the u.s. army corps of engineers ( the “ corps ” ) , the lead agency for the donlin gold environmental impact statement ( eis ) , with requested input and information . story_separator_special_tag as the donlin gold eis and permitting processes progress , the owners ( barrick gold corporation and novagold ) continue to study ways to further enhance the project 's value and minimize initial capital through enhanced project design and execution , engagement of third-party operators for certain activities and potential for third-party financing of some capital intensive infrastructure . to date , these additional studies have identified opportunities that have the potential to benefit the project when the owners decide to update the feasibility study , which was completed in 2011 , and to initiate the engineering work necessary to advance the project design from feasibility level to basic and then detailed engineering . the owners will take all of this work into account before reaching a construction decision . our share of funding for donlin gold in 2016 was $ 8.7 million for permitting , community engagement and development efforts . our 50 % share of the 2017 work program is expected to be approximately $ 10 million . the 2017 work program and budget includes funds to continue to advance the permitting process through issuance of the final eis . in addition , donlin gold will continue to maintain its engagement with communities in the y-k region . we record our interest in the donlin gold project as an equity investment , which results in our 50 % share of donlin gold 's expenses being recorded in the income statement as an operating loss . the investment amount recorded on the balance sheet primarily represents unused funds advanced to donlin gold . galore creek project in 2016 , the galore creek partnership continued to advance technical studies to optimize the project design . final reports were completed on the first phase of the tunneling evaluation for access and material handling as well as enhancements to the mining , waste rock and water management plans . we expect this effort to further improve the value and marketability of the galore creek project , which we continue to be open to monetizing , in whole or in part , to strengthen our balance sheet and to contribute toward the development of the donlin gold project . 58 novagold resources inc. our share of cash funding for galore creek was $ 1.0 million in 2016 , primarily for technical studies , care and maintenance , and supporting community initiatives . in 2017 , our 50 % share of the work program is expected to be approximately $ 2 million to continue to advance technical studies , support community initiatives and provide site care and maintenance . we record our interest in the galore creek partnership as an equity investment , which results in our 50 % share of expenses being recorded in the income statement as an operating loss . the investment amount recorded on the balance sheet primarily represents the fair value of our investment in the galore creek partnership in 2011 , recorded upon completion of the earn-in by teck resources limited , as well as unused funds advanced to the partnership , all in canadian dollars , and translated to u.s. dollars at the current exchange rate . maintained our strong financial position cash and term deposits decreased by $ 21.5 million in 2016 , $ 3.5 million less than originally planned and , excluding the $ 15.8 million repayment of the remaining convertible notes in 2015 , was $ 1.3 million less than in the prior year . cash and term deposits totaled $ 105.3 million at november 30 , 2016. outlook our goals for 2017 include : · advance the donlin gold project toward a construction/production decision . · advance galore creek mine planning and project design . · maintain a healthy balance sheet . · maintain an effective corporate social responsibility program . · evaluate opportunities to monetize the value of galore creek . we do not currently generate operating cash flows . at november 30 , 2016 , we had cash and cash equivalents of $ 30.3 million and term deposits of $ 75.0 million . at present , we believe that these balances are sufficient to cover the anticipated funding at the donlin gold and galore creek projects in addition to general and administrative costs through completion of permitting of the donlin gold project . additional capital will be necessary if permits are received for the donlin gold project and a decision to commence engineering and construction is reached . future financings to fund construction are anticipated through debt , equity , project specific debt , and or other means . our continued operations are dependent on our ability to obtain additional financing or to generate future cash flows . however , there can be no assurance that we will be successful in our efforts to raise additional capital . for further information , see section item 1a , risk factors - our ability to continue the exploration , permitting , development , and construction of the donlin gold and galore creek projects , and to continue as a going concern , will depend in part on our ability to obtain suitable financing , above . in 2017 , we expect to spend approximately $ 23 million , including $ 11 million for general and administrative costs , $ 10 million to fund our share of expenditures at the donlin gold project and $ 2 million at the galore creek project . funding requirements for our share of joint donlin gold studies with barrick will be determined later in 2017. summary of consolidated financial performance replace_table_token_14_th 59 novagold resources inc. story_separator_special_tag justify ; margin : 0pt 0 '' > outstanding share data as of january 17 , 2017 , we had 321,529,277 common shares issued and outstanding .
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results of operations 2016 compared to 2015 loss from operations decreased $ 1.6 million from $ 31.7 million in 2015 to $ 30.1 million in 2016. the decrease resulted from lower losses from the equity investment in the donlin gold project . our share of losses at the donlin gold project decreased by $ 2.2 million , as 2016 activities continued to focus primarily on the eis and permitting . at the galore creek project , our share of losses increased by $ 0.8 million due to a gain on the sale of surplus equipment in the prior year . net loss increased from $ 32.0 million ( $ 0.10 per share – basic and diluted ) in 2015 to $ 33.8 million ( $ 0.11 per share – basic and diluted ) in 2016. the increase resulted primarily from a $ 3.3 million increase in other expense , partially offset by the $ 1.6 million reduction in the loss from operations . other expense was higher in 2016 , as the prior year amount included $ 4.8 million of foreign exchange gains related to the strengthening of the u.s. dollar in relation to the canadian dollar , partially offset by $ 0.6 million lower interest expense from to the repurchase of the remaining convertible notes in 2015 and a $ 0.4 million write-down of marketable securities in 2015 . 2015 compared to 2014 loss from operations decreased $ 6.3 million from $ 38.0 million in 2014 to $ 31.7 million in 2015. the decrease resulted from lower general and administrative expense and lower losses from equity investments in the donlin gold and galore creek projects . general and administrative expense decreased $ 2.2 million , primarily due to lower professional fees and favorable foreign exchange translation of expenses incurred in canadian dollars .
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likewise , all of our statements regarding anticipated growth in our portfolio from operations , acquisitions and anticipated market conditions , demographics and results of operations are forward-looking statements . forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events . you can identify forward-looking statements by the use of forward-looking terminology such as “ believes , ” “ expects , ” “ may , ” “ will , ” “ should , ” “ seeks , ” “ approximately , ” “ intends , ” “ plans , ” “ estimates , ” “ contemplates , ” “ aims , ” “ continues , ” “ would ” or “ anticipates ” or the negative of these words and phrases or similar words or phrases . forward-looking statements depend on assumptions , data or methods which may be incorrect or imprecise and we may not be able to realize them . we do not guarantee that the transactions and events described will happen as described ( or that they will happen at all ) . the following factors , among others , could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements : the factors included in this annual report on form 10-k , including those set forth under the heading `` business , '' risk factors , '' and `` management 's discussion and analysis of financial condition and results of operations '' ; changes in our industry , the real estate markets , either nationally or in manhattan or the greater new york metropolitan area ; resolution of legal proceedings involving the company ; reduced demand for office or retail space ; new office development in our market ; general volatility of the capital and credit markets and the market price of our class a common stock and our publicly-traded op units ; changes in our business strategy ; changes in technology and market competition , which affect utilization of our broadcast or other facilities ; changes in domestic or international tourism , including geopolitical events and currency exchange rates ; defaults on , early terminations of , or non-renewal of leases by , tenants ; bankruptcy or insolvency of a major tenant or a significant number of smaller tenants ; fluctuations in interest rates ; increased operating costs ; declining real estate valuations and impairment charges ; termination or expiration of our ground leases ; availability , terms and deployment of capital ; our failure to obtain necessary outside financing , including our unsecured revolving credit facility ; our leverage ; decreased rental rates or increased vacancy rates ; our failure to generate sufficient cash flows to service our outstanding indebtedness ; our failure to redevelop and reposition properties successfully or on the anticipated timeline or at the anticipated costs ; difficulties in identifying properties to acquire and completing acquisitions ; risks of real estate development ( including our metro tower development site ) , including the cost of construction delays and cost overruns ; inability to manage our properties and our growth effectively ; inability to make distributions to our securityholders in the future ; impact of changes in governmental regulations , tax law and rates and similar matters ; failure to continue to qualify as a real estate investment trust , or reit ; a future terrorist event in the u.s. ; environmental uncertainties and risks related to adverse weather conditions and natural disasters ; lack or insufficient amounts of insurance ; misunderstanding of our competition ; changes in real estate and zoning laws and increases in real property tax rates ; 49 inability to comply with the laws , rules and regulations applicable to similar companies ; and risks associated with security breaches through cyberattacks , cyber intrusions or otherwise , as well as other significant disruptions of our technology ( it ) networks related systems , which support our operations and our buildings . while forward-looking statements reflect our good faith beliefs , they are not guarantees of future performance . actual results may differ materially from our current projection . we disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors , of new information , data or methods , future events or other changes after the date of this annual report on form 10-k , except as required by applicable law . for a further discussion of these and other factors that could impact our future results , performance or transactions , see the section entitled “ risk factors '' of this annual report on form 10-k. you should not place undue reliance on any forward-looking statements , which are based only on information currently available to us . overview unless the context otherwise requires or indicates , references in this section to `` we , '' `` our '' and `` us '' refer to ( i ) our company and its consolidated subsidiaries . the following discussion and analysis should be read in conjunction with `` selected financial data , '' and our consolidated financial statements as of december 31 , 2016 and 2015 and for the years ended december 31 , 2016 , 2015 and 2014 and the notes related thereto which are included in this annual report on form 10-k. story_separator_special_tag div style= '' line-height:120 % ; padding-top:18px ; text-align : left ; font-size:10pt ; '' > observatory revenue the increase in observatory revenues was due to increased tourist visits , ticket price increases , changes in ticket mix and more favorable weather conditions in 2016 . 52 construction revenue the construction business ceased operations in 2015 , which is reflected in the elimination of construction revenues . third-party management and other fees the decrease reflects lower management fee income due to the wind-down of activities in managed entities . story_separator_special_tag liquidity and capital resources liquidity is a measure of our ability to meet potential cash requirements , including ongoing commitments to repay borrowings , fund and maintain our assets and operations , including lease-up costs , fund our redevelopment and repositioning programs , acquire properties , make distributions to our securityholders and other general business needs . based on the historical experience of our management and our business strategy , in the foreseeable future we anticipate we will generate positive cash flows from operations . in order to qualify as a reit , we are required under the code to distribute to our securityholders , on an annual basis , at least 90 % of our reit taxable income , determined without regard to the deduction for dividends paid and excluding net capital gains . we expect to make quarterly distributions to our securityholders . while we may be able to anticipate and plan for certain liquidity needs , there may be unexpected increases in uses of cash that are beyond our control and which would affect our financial condition and results of operations . for example , we may be required to comply with new laws or regulations that cause us to incur unanticipated capital expenditures for our properties , thereby increasing our liquidity needs . even if there are no material changes to our anticipated liquidity requirements , our sources of liquidity may be fewer than , and the funds available from such sources may be less than , anticipated or needed . our primary sources of liquidity will generally consist of cash on hand and cash generated from our operating activities , debt issuances and unused borrowing capacity under our unsecured revolving credit facility . we expect to meet our short-term liquidity requirements , including distributions , operating expenses , working capital , debt service , and capital expenditures from cash flows from operations , debt issuances , and available borrowing capacity under our unsecured revolving credit facility . the availability of these borrowings is subject to the conditions set forth in the applicable loan agreements . we expect to meet our long-term capital requirements , including acquisitions , redevelopments and capital expenditures through our cash flows from operations , our unsecured revolving credit facility , mortgage financings , debt issuances , common and or preferred equity issuances and asset sales . our properties require periodic investments of capital for individual lease related tenant improvements allowances , general capital improvements and costs associated with capital expenditures . our overall leverage will depend on our mix of investments and the cost of leverage . our charter does not restrict the amount of leverage that we may use . at december 31 , 2016 , we had approximately $ 554.4 million available in cash and cash equivalents and there was $ 1.1 billion available under our unsecured revolving credit facility . on august 23 , 2016 , qia purchased 29,610,854 newly issued class a common shares at $ 21.00 per share , equivalent to a 9.9 % economic interest in us on a fully diluted basis ( representing a 19.4 % ownership of class a common shares ) , however , qia can only vote shares equivalent to 9.9 % of all voting securities , with the balance of their shares to be voted by us in accord with the votes of all other voting securities . qia has a top-up right to maintain their ownership stake at 9.9 % over time . we received approximately $ 621.8 million in gross proceeds from the sale . proceeds from the investment were used to pay down the $ 45.0 million balance on our revolving credit facility . we intend to use the remaining proceeds for general corporate purposes , including redevelopment of the portfolio and future investments . in addition , for an initial period of five years from august 23 , 2016 , qia will have a right of first offer to co-invest with us as a joint venture partner in real estate investment opportunities initiated by us where we have elected , at our discretion , to seek out a joint venture partner . the right of first offer period will be extended for 30 months so long as at least one joint venture transaction is consummated by us and qia during the initial term , and will be extended for a further 30-month term if at least one more joint venture transaction is consummated during such initial extension period . as of december 31 , 2016 , we had approximately $ 1.6 billion of total consolidated indebtedness outstanding , with a weighted average interest rate of 4.19 % and a weighted average maturity of 4.7 years . as of december 31 , 2016 , exclusive of 56 principal amortization , we have approximately $ 336.0 million of debt maturing in 2017 and approximately $ 262.2 million of debt maturing in 2018. given our current liquidity , including availability under our unsecured revolving credit facility , we believe we will be able to refinance the maturing debt . unsecured revolving credit facility on january 23 , 2015 , we entered into an unsecured revolving credit agreement , which is referred to herein as the “ unsecured revolving credit facility , ” with bank of america , merrill lynch , goldman sachs and the other lenders party thereto . merrill lynch acted as joint lead arranger ; bank of america acted as administrative agent ; and goldman sachs acted as syndication agent and joint lead arranger . amount . the unsecured revolving credit facility is comprised of a revolving credit facility in the maximum original principal amount of $ 800.0 million . the unsecured revolving credit facility contains an accordion feature that would allow us to increase the maximum aggregate principal amount to $ 1.25 billion under specified circumstances . on july 6 , 2016 , we partially exercised the accordion feature and increased our borrowing capacity under the unsecured revolving credit facility from $ 800 million to $ 1.1 billion . guarantors .
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2016 highlights achieved net income attributable to the company of $ 51.5 million and core ffo of $ 269.0 million . occupancy and leased percentages at december 31 , 2016 : total portfolio was 88.1 % occupied ; including signed leases not commenced ( “ slnc ” ) , the total portfolio was 90.2 % leased . manhattan office portfolio ( excluding the retail component of these properties ) was 86.8 % occupied ; including slnc , the manhattan office portfolio was 89.1 % leased . retail portfolio was 88.6 % occupied ; including slnc , the retail portfolio was 89.6 % leased . empire state building was 90.5 % occupied ; including slnc , the empire state building was 91.8 % leased . executed 207 leases , representing 991,806 rentable square feet across the total portfolio , achieving a 32.7 % increase in mark-to-market rent over previously fully escalated rents on new , renewal , and expansion leases ; 155 of these leases , representing 724,417 rentable square feet , were within the manhattan office portfolio ( excluding the retail component of these properties ) capturing a 42.2 % increase in mark-to-market rent over previously fully escalated rents on new , renewal and expansion leases . executed 19 leases , representing 47,835 rentable square feet within the manhattan retail portfolio , achieving a 35.0 % increase in mark-to-market rent over previously fully escalated rents on new , renewal , and expansion leases . signed 78 new leases representing 542,190 rentable square feet in 2016 for the manhattan office portfolio ( excluding the retail component of these properties ) , achieving an increase of 50.6 % in mark-to-market rent over expired previously fully escalated rents . the empire state building observatory revenue grew 11.2 % to $ 124.8 million from $ 112.2 million in 2015. issued 29,610,854 class a common shares at $ 21.00 per share in a private placement transaction with qia which raised approximately $ 622 million in gross proceeds .
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discussion of our business and overall analysis of financial and other highlights affecting us , to provide context for the remainder of md & a . ● results of operations . an analysis of our financial results comparing the twelve months ended december 31 , 2016 and 2015 . ● liquidity and capital resources . an analysis of changes in our balance sheets and cash flows and discussion of our financial condition . ● critical accounting estimates . accounting estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts . the following discussion should be read in conjunction with our consolidated financial statements and accompanying notes included elsewhere in this report . the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . our actual results could differ materially from those discussed in the forward-looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this report , particularly under “ part i , item 1a . risk factors , ” and in other reports we file with the sec . all references to years relate to the calendar year ended december 31 of the particular year . overview we are an advanced renewable fuels and biochemicals company focused on the acquisition , development and commercialization of innovative technologies that replace traditional petroleum-based products by converting first generation biofuel plants into advanced biorefineries . founded in 2006 , we own and operate a 60 million gallon per year ethanol production facility ( keyes plant ) in california 's central valley , where we manufacture and produce denatured fuel ethanol , wdg , dco and cds , or syrup , and a 50 million gallon per year renewable chemical and advanced fuel production facility on the east coast of india ( kakinada plant ) , where we manufacture and produce high quality distilled biodiesel and refined glycerin . in addition , we are continuing to operate a research and development laboratory at the maryland biotech center , and hold a portfolio of patents and related technology licenses for the production of renewable fuels and biochemicals . we continue to evaluate the acquisition of businesses and the licensing of technologies that expand the transition of traditional biofuels plants to the production of valuable advanced biofuels . during the second quarter of 2016 , we announced the entry into an agreement to acquire edeniq , inc. , a cellulosic ethanol technology company . acquiring edeniq would extend our ethanol capabilities into cellulosic ethanol by providing capital light and operationally efficient solutions that can be easily integrated into existing corn ethanol plants . using our position as a producer of ethanol and biodiesel , we are also focused on the licensing of technology and the development of capabilities that allow for the production of advanced biofuels at facilities located at or near our current plants . 24 north america we produce four products at the keyes plant : denatured fuel ethanol , wdg , dco and cds . in 2016 , we sold 100 % of the ethanol and wdg we produced to j.d . heiskell pursuant to a purchase agreement established with j.d . heiskell . dco was sold to j.d . heiskell and other local animal feedlots ( primarily poultry ) . small amounts of cds were sold to various local third parties . ethanol pricing is determined pursuant to a marketing agreement between us and kinergy , and is generally based on daily and monthly pricing for ethanol delivered to the san francisco bay area , california , as published by opis , as well as quarterly contracts negotiated by kinergy with local fuel blenders . the price for wdg is determined monthly pursuant to a marketing agreement between a.l . gilbert and us , and is generally determined in reference to the price of ddg and corn . north american revenue is dependent on the price of ethanol and wdg . ethanol pricing is influenced by national inventory levels , national ethanol production , corn prices and gasoline demand . wdg is influenced by the price of corn , the supply of ddg , and demand from the local dairy and feed markets . our revenue is further influenced by our decision to operate the keyes plant at any capacity level , maintenance requirements , and the influences of the underlying biological processes . during 2016 , the most significant factors impacting revenue were the price received for ethanol and the price received for wdg . india during the twelve months ended december 31 , 2016 and 2015 , we operated the kakinada plant . however , our india operations were constrained by funds available from our working capital partner , the state bank of india loan repayments , and by the volatility of feedstock prices . the india segment has benefited from several recent governmental policy changes beginning in october 2014 with the deregulation of diesel and the related removal of government subsidies that artificially lowered the price of diesel below the world oil price . in august 2015 , a policy change occurred that allowed for the sale of transportation fuel to bulk sales customers which further opened the markets . in october 2015 , a policy change occurred that exempted biodiesel feedstock and chemicals used in the manufacture of biodiesel from central excise duty , including palm stearin , methanol and sodium methoxide . this policy change had a positive effect on the development of the markets for biodiesel products domestically . in 2016 , european biofuel-related import tariffs on goods from india were removed for approximately three years starting in 2017. this policy change is expected to have a positive effect on exports of our high quality distilled biodiesel into the european market at better margins . north america segment revenue substantially all of our north america revenues during the years ended december 31 , 2016 and 2015 were from sales of ethanol and wdg . story_separator_special_tag story_separator_special_tag the decrease in gross profit was attributable mainly to our feedstock costs which averaged overall 62 % of the revenues causing the decrease of 16 % in overall revenues in the year ended december 31 , 2016 compared to the year ended december 31 , 2015. overall sales volume decreased by 15 % to 20.5 metric tons while the average feedstock cost increased by 14 % to $ 503 per metric ton . operating expenses r & d fiscal year ended december 31 ( in thousands ) replace_table_token_8_th r & d expenses decreased by 17 % during the year ended december 31 , 2016 due to decreases in salaries of $ 30 thousand and professional and other fees of $ 48 thousand . sg & a fiscal year ended december 31 ( in thousands ) replace_table_token_9_th selling , general and administrative expenses ( sg & a ) . sg & a expenses consist primarily of salaries and related expenses for employees , marketing expenses related to sales of ethanol and wdg in north america and biodiesel and other products in india , as well as professional fees , other corporate expenses , and related facilities expenses . north america . sg & a expenses as a percentage of revenue in the year ended december 31 , 2016 decreased to 8 % as compared to 9 % in the year ended december 31 , 2015. the slight decrease in overall sg & a expenses in the year ended december 31 , 2016 was primarily attributable to : ( i ) decrease in professional fees of $ 0.7 million , ( ii ) decrease in salary and stock compensation expenses of $ 0.2 million , offset by ( iii ) $ 0.6 million increase in taxes and utilities and office supplies and services , ( iv ) increase in marketing and travel of $ 0.1 million during year ended december 31 , 2016 . 28 india . sg & a expenses as a percentage of revenue in the year ended december 31 , 2016 increased slightly to 8 % as compared to 7 % in the year ended december 31 , 2015. the overall sg & a expense decreased by 8 % in the year ended december 31 , 2016 compared to the year ended december 31 , 2015. the decrease was due to a decrease in plant services , utilities , and professional fees by $ 0.1 million and marketing and other expenses by $ 0.1 million , offset by an increase in salaries by $ 0.1 million . other income/expense fiscal year ended december 31 ( in thousands ) replace_table_token_10_th other ( income ) /expense . other ( income ) expense consists primarily of interest , amortization and extinguishment expense attributable to debt facilities acquired by our parent company and our subsidiaries , and interest accrued on the judgments obtained by cordillera fund and the industrial company . the debt facilities include stock or warrants issued as fees . the fair value of stock and warrants are amortized as amortization expense , except when the extinguishment accounting method is applied , in which case refinanced debt costs are recorded as extinguishment expense . north america . interest expense was higher in the year ended december 31 , 2016 due to higher debt balances in 2016. the decrease in amortization expense was due to the amortization of several amendment fees under the third eye capital notes and subordinated note refinancing fees added in 2015 , offset by debt issuance costs associated with the amendment and refinancing of subordinated notes in 2016. the debt extinguishment costs were lower in the year ended december 31 , 2016 than in the corresponding period of 2015 as extinguishment accounting was not applied to two subordinated notes with two accredited investors in the 2016 period compared to the extinguishment accounting that was applied once to subordinated notes that were refinanced in the 2015 period . the increase in other income in the year ended december 31 , 2016 was due to receipt of $ 0.5 million from a mandated gas credit from pg & e offset by amortization of debt guarantee fee in the first three months of 2016 compared to increases in expenses due to amortization of a debt guarantee fee in 2015. india . interest expense decreased as a result of the payoff of the state bank of india loan during the year ended december 31 , 2016 and principal and interest payments of $ 5.0 million on working capital loan . the gain on debt extinguishment was caused by the relief of $ 2.0 million of accrued interest on state bank of india loan by paying the final stipulated amount under the one time settlement sanction letter on october 20 , 2016. the slight increase in other income was caused by other miscellaneous income and foreign exchange gains during the year ended december 31 , 2016. liquidity and capital resources cash and cash equivalents cash and cash equivalents were $ 1.5 million at december 31 , 2016 , of which $ 1.0 million was held in north america and $ 0.5 million was held in our indian subsidiary . our current ratio was 0.26 and 0.27 , respectively , at december 31 , 2016 and 2015. we expect that our future available capital resources will consist primarily of cash generated from operations , remaining cash balances , eb-5 program borrowings , amounts available for borrowing , if any , under our senior debt facilities and our subordinated debt facilities , and any additional funds raised through sales of equity . 29 liquidity cash and cash equivalents , current assets , current liabilities and debt at the end of each period were as follows ( in thousands ) : replace_table_token_11_th our principal sources of liquidity have been cash provided by operations and borrowings under various debt arrangements .
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results of operations year ended december 31 , 2016 compared to year ended december 31 , 2015 revenues our revenues are derived primarily from sales of ethanol and wdg in north america and biodiesel and refined glycerin in india . fiscal year ended december 31 ( in thousands ) replace_table_token_5_th 26 north america . the average price of ethanol increased by 2 % to $ 1.78 for the year ended december 31 , 2016 compared to $ 1.74 per gallon in the year ended december 31 , 2015 while the ethanol sales volume slightly decreased to 55.6 million gallons during the year ended december 31 , 2016 compared to 55.8 million gallons during the year ended december 31 , 2015. the slight decrease in revenues in north america segment for the year ended december 31 , 2016 reflects a decrease in average wdg price by 11 % to $ 70.61 per ton in the year ended december 31 , 2016 compared to $ 79.68 in the year ended december 31 , 2015 , partially offset by an increase in wdg sales volume by 3 % to 372 thousand tons . for the year ended december 31 , 2016 , we generated approximately 77 % of revenues from sales of ethanol , and 20 % of revenues from sales of wdg and 3 % of revenues from dco and cds sales compared to 75 % of revenues from sales of ethanol , and 22 % of revenues from sales of wdg and 3 % of revenues from dco and cds sales for the year ended december 31 , 2015. for the year ended december 31 , 2016 and 2015 , the keyes plant operations averaged 101 % of 55 million gallon per year nameplate capacity . india . the decrease in revenues in the india segment for the year ended december 31 , 2016 reflects a decrease in sales volume of biodiesel and refined glycerin . biodiesel sales volume decreased by 18 % to 16.1
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digital billboards are generally located on major traffic arteries and streets . a substantial portion of this revenue is lessor revenue derived from operating leases accounted for under asc 842 , “ leases . ” rental revenue is recognized on a straight-line basis over the term of the respective lease . other other revenue includes barter revenue and network revenue . the company provides advertising broadcast time in exchange for certain products and services , including on-air radio programming . these barter arrangements generally allow the company to preempt such bartered broadcast time in favor of advertisers who purchase time for cash consideration . these barter arrangements are valued based upon the company 's estimate of the fair value of the products and services received . revenue is recognized on barter arrangements when we broadcast the advertisements story_separator_special_tag financial condition and results of operations . general the following discussion pertains to mediaco holding inc. and its subsidiaries ( collectively , “ mediaco ” or the “ company ” ) . we own and operate two radio stations located in new york city and outdoor advertising businesses geographically focused in southern georgia and eastern kentucky . our revenues are mostly affected by the advertising rates our entities charge , as advertising sales are the primary component of our consolidated revenues . these rates are in large part based on our radio stations ' ability to attract audiences in demographic groups targeted by their advertisers and the number of persons exposed to our billboards . the nielsen company generally measures radio station ratings weekly for markets measured by the portable people meter , which includes all of our radio stations . because audience ratings in a station 's local market are critical to the station 's financial success , our strategy is to use market research , advertising and promotion to attract and retain audiences in each station 's chosen demographic target group . our revenues vary throughout the year . revenue and operating income are usually lowest in the first calendar quarter for both our radio and outdoor advertising segments , partly because retailers cut back their advertising spending immediately following the holiday shopping season . in addition to the sale of advertising time for cash , stations typically exchange advertising time for goods or services , which can be used by the station in its business operations . these barter transactions are recorded at the estimated fair value of the product or service received . we generally confine the use of such trade transactions to promotional items or services for which we would otherwise have paid cash . in addition , it is our general policy not to preempt advertising spots paid for in cash with advertising spots paid for in trade . the following table summarizes the sources of our revenues for the ten-month period ended december 31 , 2019 and the year ended december 31 , 2020. the category “ non traditional ” principally consists of ticket sales and sponsorships of events our stations conduct in their local markets . the category “ other ” includes , among other items , revenues related to network revenues , production of billboard advertisements and barter . replace_table_token_1_th roughly 20 % of our expenses varies in connection with changes in revenue . these variable expenses primarily relate to costs in our sales department , such as salaries , commissions and bad debt . our costs that do not vary as much in relation to revenue are mostly in our programming and general and administrative departments , such as talent costs , rating fees , rents , utilities and salaries . lastly , our costs that are highly discretionary are costs in our marketing and promotions department , which we primarily incur to maintain and or increase our audience and market share . known trends and uncertainties the u.s. radio industry is a mature industry and its growth rate has stalled . management believes this is principally the result of two factors : ( 1 ) new media , such as various media distributed via the internet , telecommunication companies and cable interconnects , as well as social networks , have gained advertising share against radio and other traditional media and created a proliferation of advertising inventory and ( 2 ) the fragmentation of the radio audience and time spent listening caused by satellite radio , audio streaming services and podcasts has led some investors and advertisers to conclude that the effectiveness of radio advertising has diminished . along with the rest of the radio industry , our stations have deployed hd radio ® . hd radio offers listeners advantages over standard analog broadcasts , including improved sound quality and additional digital channels . in addition to offering secondary channels , the hd radio spectrum allows broadcasters to transmit other forms of data . we are participating in a joint venture with other broadcasters to provide the bandwidth that a third party uses to transmit location-based data to hand-held and in-car navigation devices . the number of radio receivers incorporating hd radio has increased in the past year , particularly in new automobiles . it is unclear what impact hd radio will have on the markets in which we operate . our stations have also aggressively worked to harness the power of broadband and mobile media distribution in the development of emerging business opportunities by developing highly interactive websites with content that engages our listeners , deploying mobile applications and streaming our content , and harnessing the power of digital video on our websites and youtube channels . the results of our radio operations are solely dependent on the results of our stations in the new york market . some of our competitors that operate larger station clusters in the new york market are able to leverage their market share to extract a greater percentage of available advertising revenue through packaging a variety of advertising inventory at discounted unit rates . story_separator_special_tag under the income method , the company projects cash flows that would be generated by each of its units of accounting assuming the unit of accounting was commencing operations in its respective market at the beginning of the valuation period . this cash flow stream is discounted to arrive at a value for the fcc license . the company assumes the competitive situation that exists in each market remains unchanged , with the exception that its unit of accounting commenced operations at the beginning of the valuation period . in doing so , the company extracts the value of going concern and any other assets acquired , and strictly values the fcc license . major assumptions involved in this analysis include market revenue , market revenue growth rates , unit of accounting audience share , unit of accounting revenue share and discount rate . each of these assumptions may change in the future based upon changes in general economic conditions , audience behavior , consummated transactions , and numerous other variables 22 that may be beyond our control . the projections incorporated into our license valuations take current economic conditions into consideration . under the market method , the company uses recent sales of comparable radio stations for which the sales value appeared to be concentrated entir ely in the value of the license , to arrive at an indication of fair value . below are some of the key assumptions used in our income method annual impairment assessments . in recent years , we have reduced long-term growth rates in the new york market in which we operate based on recent industry trends and our expectations for the market going forward . replace_table_token_2_th valuation of goodwill as a result of the fairway acquisition , the company has recorded $ 13.1 million of goodwill . this accounts for all goodwill on the consolidated balance sheet as of december 31 , 2020. the fairway acquisition closed on december 13 , 2019 and all assets acquired and liabilities assumed were valued as of that date , resulting in a goodwill valuation of $ 13.1 million . asc topic 350-20-35 requires the company to test goodwill for impairment at least annually . under asc 350 we have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value as a basis for determining whether it is necessary to perform an annual quantitative goodwill impairment test . given the macroeconomic environment as a result of the covid-19 pandemic we have elected not to perform the qualitative assessment . when performing a quantitative assessment for impairment , the company uses a market approach to determine the fair value of the reporting unit . management determines the fair value for the reporting unit by multiplying the cash flows of the reporting unit by an estimated market multiple . management believes this methodology for valuing outdoor advertising businesses is a common approach and believes that the multiples used in the valuation are reasonable given our peer comparisons , analyst reports , and market transactions . to corroborate the fair values determined using the market approach described above , management also uses an income approach , which is a discounted cash flow method to determine the fair value of the reporting unit . if the carrying value of a reporting unit 's goodwill exceeds its fair value , the company recognizes an impairment charge equal to the difference in the statement of operations . deferred taxes the company accounts for income taxes under the asset and liability method , which requires the recognition of deferred tax assets and liabilities for the expected future tax consequence of events that have been recognized in the company 's financial statements or income tax returns . income taxes are recognized during the year in which the underlying transactions are reflected in the consolidated statements of operations . deferred taxes are provided for temporary differences between amounts of assets and liabilities recorded for financial reporting purposes as compared to amounts recorded for income tax purposes . after determining the total amount of deferred tax assets , the company determines whether it is more likely than not that some portion of the deferred tax assets will not be realized . if the company determines that a deferred tax asset is not likely to be realized , a valuation allowance will be established against that asset to record it at its expected realizable value . 23 story_separator_special_tag style= '' text-align : right ; margin-bottom:0pt ; margin-top:0pt ; margin-left:0pt ; ; text-indent:0pt ; ; color : # 000000 ; font-size:10pt ; font-family : times new roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > 35 0.8 % corporate expenses excluding depreciation and amortization expense for the ten months ended december 31 , 2019 , mostly relate to nonrecurring transaction costs associated with the acquisition of a controlling interest in the company from emmis in november 2019 and two outdoor advertising businesses in december 2019. corporate expenses excluding depreciation and amortization expense for the year ended december 31 , 2020 , principally consist of the costs associated with being a public company , corporate staff to oversee the outdoor advertising business , and management fees paid to emmis .
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results of operations ten months ended december 31 , 2019 compared to year ended december 31 , 2020 net revenues : replace_table_token_3_th radio net revenues decreased for the year ended december 31 , 2020 compared to the ten-month period ended december 31 , 2019. despite having two additional months of results in the current year , revenues decreased as a result of the decline in advertising revenues due to the covid-19 pandemic , coupled with the cancellation of summer jam , our largest outdoor concert which is held annually in june . we were able to hold the event in june 2019 , but we were forced to cancel the event in june 2020. we typically monitor the performance of our stations against the performance of the new york radio market based on reports for the periods prepared by miller kaplan . miller kaplan reports are generally prepared on a gross revenues basis and exclude revenues from barter arrangements . a summary of market revenue performance and mediaco 's revenue performance in the new york market for the year ended december 31 , 2020 is presented below : for the year ended december 31 , 2020 overall market mediaco market revenue performance revenue performance new york ( 31.3 % ) ( 42.1 % ) our underperformance as compared to the overall market revenue performance in the year ended december 31 , 2020 was largely driven by the cancellation of summer jam in 2020 , as discussed above .
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during the year ended november 30 , 2017 , the share investments were recorded as current investments and were valued using quoted prices in active markets and story_separator_special_tag trilogy metals inc. management 's discussion & analysis for the fourth quarter and year ended november 30 , 2018 ( expressed in us dollars ) general this management 's discussion and analysis ( “ md & a ” ) of trilogy metals inc. ( “ trilogy ” , “ the company ” , “ us ” or “ we ” ) is dated february 8 , 2019 and provides an analysis of our audited financial results for the year ended november 30 , 2018 compared to the years ended november 30 , 2017 and november 30 , 2016. the following information should be read in conjunction with our november 30 , 2018 audited consolidated financial statements and related notes which were prepared in accordance with united states generally accepted accounting principles ( “ u.s . gaap ” ) . a summary of the u.s. gaap accounting policies are outlined in note 2 of the audited consolidated financial statements . all amounts are in united states dollars unless otherwise stated . references to “ canadian dollars ” and “ c $ ” and “ cdn $ ” are to the currency of canada and references to “ u.s . dollars ” , “ $ ” or “ us $ ” are to the currency of the united states . andrew west , certified professional geologist , an employee and exploration manager for trilogy , is a qualified person under national instrument 43-101 - standards of disclosure for mineral projects ( “ ni 43-101 ” ) , and has approved the scientific and technical information in this md & a . trilogy 's shares are listed on the toronto stock exchange ( “ tsx ” ) and the nyse american under the symbol “ tmq ” . additional information related to trilogy , including our annual report on form 10-k , is available on sedar at www.sedar.com and on edgar at www.sec.gov . description of business we are a base metals exploration company focused on exploring and developing our mineral holdings in the ambler mining district located in alaska , u.s.a. we conduct our operations through a wholly-owned subsidiary , novacopper us inc. which is doing business as trilogy metals us ( “ trilogy metals us ” ) . our upper kobuk mineral projects , ( “ ukmp ” or “ ukmp projects ” ) , consist of : i ) the 100 % owned ambler lands which host the arctic copper-zinc-lead-gold-silver project ( the “ arctic project ” ) ; and ii ) the bornite lands being explored under a collaborative long-term agreement with nana regional corporation , inc. ( “ nana ” ) , a regional alaska native corporation , which host the bornite carbonate-hosted copper project ( the “ bornite project ” ) . property review our principal assets , the ukmp projects , are located in the ambler mining district in northwest alaska . our ukmp projects comprise approximately 355,400 acres ( 143,825 hectares ) consisting of the ambler and bornite lands . arctic project the ambler lands , which host a number of deposits , including the high-grade copper-zinc-lead-gold-silver arctic project , and other mineralized occurrences within a 100 kilometer long volcanogenic massive sulfide ( “ vms ” ) belt , are owned by trilogy metals us . the ambler lands are located in northwestern alaska and consist of 114,500 acres ( 46,337 hectares ) of federal patented mining claims and state of alaska mining claims , within which vms mineralization has been found . we have recorded the ambler lands as a mineral property with acquisition costs capitalized and exploration costs expensed in accordance with our accounting policies . bornite project on october 19 , 2011 , trilogy metals us and nana signed a collaborative agreement to explore and develop the ambler mining district . under the exploration agreement and option to lease ( the “ nana agreement ” ) , we acquired , in exchange for , among other things , a $ 4.0 million cash payment to nana , the exclusive right to explore the bornite property and lands deeded to nana through the alaska native claims settlement act ( “ ancsa ” ) , located adjacent to the arctic project , and the non-exclusive right to access and entry onto nana 's lands . the agreement establishes a framework for any future development of either the bornite project or the arctic project . both projects are included as part of a larger area of interest set forth in the nana agreement . the agreement with nana created a total land package incorporating our ambler lands with the adjacent bornite and ancsa lands with a total area of approximately 355,400 acres ( 143,825 hectares ) . 66 upon the decision to proceed with development of a mine within the area of interest , nana maintains the right to purchase an ownership interest in the mine equal to between 16 % -25 % or retain a 15 % net proceeds royalty which is payable after we have recovered certain historical costs , including capital and cost of capital . should nana elect to purchase an ownership interest in the mine , consideration will be payable based on the elected percentage purchased and all the costs incurred on the properties less $ 40.0 million , not to be less than zero . the parties would form a joint venture and be responsible for all future costs incurred in connection with the mine , including capital costs of the mine , based on each party 's pro-rata share . nana would also be granted a net smelter return royalty between 1 % and 2.5 % upon the execution of a mining lease or a surface use agreement , the amount of which is determined by the particular area of land from which production originates . story_separator_special_tag should south32 not make its annual minimum payment or elect to withdraw , the option will lapse and south32 will have no claim to ownership or the funds it had already spent . the option payment for the first year was paid by south32 in april 2017 and expended on the year 1 exploration program at the bornite project . early in december 2017 , south32 committed to fund the $ 10 million 2018 program for the bornite project . the funds , which represent the second tranche , maintain the option agreement in good standing , and were fully received on january 24 , 2018. an additional $ 0.80 million was received during the year ended november 30 , 2018 from south32 as an advance on the year three funding . on january 31 , 2019 , we announced the 2019 program and budgets with south32 committing to fund the $ 9.2 million budget for the bornite project . the funds , which represent the third and final tranche , maintains the option agreement in good standing , and will be received on or before february 12 , 2019. subscription funding phase at any time during the option funding phase of the agreement , south32 may elect to subscribe for a 50 % interest in a newly formed llc which will take transfer of , and hold , trilogy metals us ' alaskan assets . as part of the subscription price , south32 will match any spending expended by us at the arctic project or on regional exploration over 3 years ( 2017 , 2018 and 2019 ) , to a cumulative maximum of $ 16 million . depending on when the option is exercised , certain amounts of the initial funding will be deducted from the subscription price . trilogy estimates that the subscription price will fund the ukmp through feasibility and the permitting of the first mine to be developed in the ambler mining district . once the full amount of the subscription payment of approximately $ 150 million is expended , the parties will contribute funding pro rata , as contemplated by the operating agreement which will govern the llc ( the “ llc agreement ” ) . the llc agreement anticipates a general manager , chief financial officer and chief operating and technical officer to be appointed by the llc 's board , which will have equal representation from trilogy and south32 . as the initial option payments are credited against the future subscription price upon exercise , we have accounted for the payment received as deferred consideration . at such time as the option is exercised , the initial payments received to that date will be recognized as part of the consideration received for our contribution of the alaska assets , including the ukmp , into the joint venture . if south 32 withdraws from the option agreement , the consideration will be recognized in the statement of loss at that time . 68 bornite project in partnership with south32 we completed a 2018 exploration program directed by the joint trilogy-south32 technical committee at the bornite project with a total budget of $ 10.8 million , fully funded by south32 . the focus of this year 's program was to follow-up on the 2017 wide step-out exploration program . this year 's program comprised of 12 drill holes totaling approximately 10,123 meters ( 33,212 feet ) of exploration drilling through a combination of infill and expansion drill holes in and around the known deposit . the original drilling campaign was budgeted to be 8,000 meters utilizing 3 drill rigs at a cost of $ 10.0 million and was subsequently expanded to 10,000 meters with the addition of 2 more drill rigs for a revised budget of $ 10.8 million . the 2018 program followed up on drilling completed during the 2017 exploration program , which was one of the larger programs in the history of drilling at the bornite project . the objective of the 2018 drill campaign was to infill and expand the currently defined open pit and underground mineral resources . in addition , we completed a cobalt resource estimate at bornite released on june 5 , 2018. on august 23 , 2018 , the company announced initial assay results from the first drill holes , rc18-0247 , from the bornite project and subsequently , on october 9 , 2018 , the company announced assay results for three additional drill holes ( rc18-0243 , rc18-0244 , rc18-0246 as well as additional results for rc18-0247 ) . assay results from three additional drill holes ( rc18-0248 , rc18-0249 and rc18-0250 ) were released on november 19 , 2018 and assay results from the remaining five drill holes ( rc18-0251 , rc18-0252 , rc18-0254 , rc18-0255 and rc18-0256 ) were released on december 13 , 2018. hole rc18-0253 was abandoned before reaching its target depth and re-collared as rc18-0254 . a total of 12 holes were drilled at the bornite project during the 2018 summer exploration program . our actual costs were slightly over the revised budget of $ 10.8 million due to unexpected repair and maintenance costs at our remote camp site . in fiscal 2018 , we expended $ 10.9 million on the bornite project , consisting of $ 4.2 million in drilling and geochemistry , $ 2.9 million in project support expenses , $ 2.6 million in wages and benefits , $ 0.1 million in engineering studies , $ 1.0 million in geophysical programs , and $ 0.1 million in environmental studies . early in december 2017 , south32 committed to fund the 2018 program and budget of $ 10.0 million focused at the bornite project .
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summary of results in thousands of dollars , except for per share amounts replace_table_token_9_th for the year ended november 30 , 2018 , we reported a net loss of $ 21.8 million ( or $ 0.18 basic and diluted loss per common share ) compared to a net loss for the corresponding period in 2017 of $ 21.1 million ( or $ 0.20 basic and diluted loss per common share ) and a net loss of $ 4.9 million for the corresponding period in 2016 ( or $ 0.05 basic and diluted loss per common share ) . the 2018 movement in net loss was primarily due to the increased size and magnitude of the field programs undertaken at our mineral properties . adding to this variance in 2018 were incremental increases in general and administrative expenses , salaries and stock-based compensation , offset by decreases in professional fees as well the loss on disposition of gold mining inc. ( “ gmi ” ) shares when compared to the prior year . the 2017 movement in net loss was primarily due to the significantly increased size and magnitude of the field programs undertaken at our mineral properties in 2017 offset by a one-time gain in 2016 on the sale of sunward investments ltd. ( “ sunward investments ” ) , which , through a subsidiary , owned 100 % of the titiribi gold-copper exploration project in colombia . additionally , there were losses recognized on both the sale of investments as well as investments designated as held for trading in 2017 that did not exist in the prior fiscal year .
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included in the consolidated balance sheet as of december 31 , 2011 , are the following amounts related to udt : december 31 2012 2011 cash $ $ 278,475 net property , plant , and equipment 651,032 accrued expenses 14,400 current and long-term debt ( 8 ) indebtedness on january 29 , 2009 , the company amended and extended its credit facility with bank of america , na . the facility is comprised of : ( i ) a revolving credit facility of $ 17 million ; ( ii ) a term loan of $ 2.1 million with a seven-year straight-line amortization ; ( iii ) a mortgage loan of $ 1.8 million with a 20 year straight-line amortization ; and ( iv ) a mortgage loan of $ 4.0 million with a 20-year straight-line amortization . extensions of credit under the revolving credit facility are based in part upon accounts receivable and inventory levels . therefore , the entire $ 17 million may not be available to the company . as of december 31 , 2012 , the company had no borrowings outstanding and availability of approximately $ 16.9 million based upon collateral levels in place as of that date . the credit facility calls for interest of libor plus a margin that ranges from 1.0 % to 1.5 % or , at the discretion of the company , the bank 's prime rate less a margin that ranges from 0.25 % to zero . in both cases the applicable margin is dependent upon company performance . the loans are collateralized by a first priority lien on all of the company 's assets , including its real estate located in georgetown , massachusetts , and in grand rapids , michigan . under the credit facility , the company is subject to a minimum fixed-charge coverage financial covenant , which the company was in compliance with as of december 31 , 2012. the company 's $ 17 million revolving credit facility matures november 30 , 2013. the company anticipates negotiating an extension of this facility . the company can not assure that such an extension will be completed on favorable terms or on a timely basis , if at all ; the term loans are all due on january 29 , 2016. at december 31 , 2012 , the interest rate on these facilities was 1.2 % , and there were no borrowings outstanding on the line of credit . on october 11 , 2012 , the company entered into a loan agreement to finance the purchase of two new molded fiber machines . one of the machines is presently operational . the value of the loan is approximately $ 5 million . the annual story_separator_special_tag overview ufp technologies is producer of innovative custom-engineered components , products and specialty packaging . the company serves a myriad of markets , but specifically targets opportunities in the medical , automotive , aerospace and defense and packaging markets . it also produces a variety of standard products that are , in some cases , patented or trademarked . in 2012 the company experienced organic sales growth of 2.9 % , reflecting increased demand for products from the medical market as well as for molded fiber packaging . this growth was achieved despite the loss of approximately $ 5 million in sales from the phase-out of a significant portion of an automotive program in the southeast , and was largely driven by 9 % growth in sales to the medical market and a 21 % increase in sales of molded fiber packaging product . excluding this loss of sales , the company achieved organic sales growth of 6.9 % . the company 's ability to leverage this sales growth to improve gross margins generated another year of record profitability ; operating income and net income for the year ended december 31 , 2012 increased 6.0 % and 5.3 % , respectively . 15 in 2013 , sales in the company 's automotive and military markets started slowly due to reduced military spending and temporary plant shutdowns by two automotive customers . the company 's strategy includes further organic growth and growth through strategic acquisitions . story_separator_special_tag well as demand for interior trim parts from the automotive industry of approximately $ 1.8 million ( component products segment ) . gross margin decreased slightly to 28.5 % for the year ended december 31 , 2011 , from 28.7 % in 2010. the slight decrease in gross margin is primarily attributable to costs of approximately $ 350,000 incurred as a result of the closure of the company 's manufacturing facility in alabama as well as approximately $ 300,000 incurred in additional health insurance claims ( overhead ) partially offset by manufacturing efficiencies achieved in the company 's plants ( as a percentage of sales material and direct labor collectively decreased by 0.2 % in 2011 ) . sg & a increased 5.6 % to $ 21.4 million for the year ended december 31 , 2011 , from $ 20.2 million in 2010. as a percentage of sales , sg & a was 16.8 % for both the years ended december 31 , 2011 , and 2010. the $ 1.2 million increase in sg & a for the year ended december 31 , 2011 , is primarily due to an increase in professional fees of approximately $ 400,000 associated with the development of enhanced internal operating and information systems and a re-branding and marketing project , approximately $ 400,000 in additional administrative salaries , wages and benefits and approximately $ 200,000 in additional health insurance claims . story_separator_special_tag under the credit facility , the company is subject to a minimum fixed-charge coverage 18 financial covenant , which the company was in compliance with as of december 31 , 2012. the company 's $ 17 million revolving credit facility matures november 30 , 2013. the company anticipates negotiating an extension of this facility . the company can not assure that such extension will be completed on favorable terms or on a timely basis , if at all ; the term loans are all due on january 29 , 2016. at december 31 , 2012 , the interest rate on these facilities was 1.2 % , and there were no borrowings outstanding on the line of credit . on october 11 , 2012 , the company entered into a loan agreement to finance the purchase of two new molded fiber machines . one of the machines is presently operational . the value of the loan is approximately $ 5 million . the annual interest rate is fixed at 1.83 % . as of december 31 , 2012 , approximately $ 4.4 million had been advanced on the loan and the outstanding balance is approximately $ 4.2 million . the loan will be repaid over a five-year term . the loan is secured by the related molded fiber machines . commitments , contractual obligations , and off-balance-sheet arrangements the following table summarizes the company 's contractual obligations at december 31 , 2012 : replace_table_token_5_th the company requires cash to pay its operating expenses , purchase capital equipment , and to service the obligations listed above . the company 's principal sources of funds are its operations and its revolving credit facility . although the company generated cash from operations in the year ended december 31 , 2012 , it can not guarantee that its operations will generate cash in future periods . subject to the risk factors set forth in part i , item 1a of this report and the general disclaimers set forth in our special note regarding forward-looking statements at the outset of this report , we believe that cash flow from operations will provide us with sufficient funds in order to fund our expected operations over the next twelve months . the company does not believe inflation has had a material impact on its results of operations in the last three years . the company had no off-balance-sheet arrangements in 2012 , other than operating leases . critical accounting policies the preparation of consolidated financial statements requires the company 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 , the company evaluates its estimates , including those related to product returns , bad debts , inventories , intangible assets , income taxes , warranty obligations , restructuring charges , contingencies , and litigation . the company bases its estimates on historical experience and on various other assumptions believed to be reasonable under the circumstances , including current and anticipated worldwide economic conditions , both in general and specifically in relation to the packaging industry , 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 . the company 's significant accounting policies are described in note 1 to the consolidated financial statements included in item 8 of this form 10-k. the company believes the following critical accounting policies necessitated that significant judgments and estimates be used in the preparation of its consolidated financial statements . 19 the company has reviewed these policies with its audit committee . revenue recognition the company recognizes revenue at the time of shipment when title and risk of loss have passed to the customer , persuasive evidence of an arrangement exists , performance of its obligation is complete , its price to the buyer is fixed or determinable , and the company is reasonably assured of collection . if a loss is anticipated on any contract , a provision for the entire loss is made immediately . determination of these criteria , in some cases , requires management 's judgment . should changes in conditions cause management to determine that these criteria are not met for certain future transactions , revenue for any reporting period could be adversely affected . goodwill goodwill is tested for impairment annually , and will be tested for impairment between annual tests if an event occurs or circumstances change that would indicate that the carrying amount may be impaired . impairment testing for goodwill is done at a reporting unit level . reporting units are one level below the business segment level , but can be combined when reporting units within the same segment have similar economic characteristics . the company 's reporting units include its component products segment , packaging segment ( excluding its molded fiber operation ) , and its molded fiber operation . an impairment loss generally would be recognized when the carrying amount of the reporting unit 's net assets exceeds the estimated fair value of the reporting unit . the company assessed qualitative factors as of december 31 , 2012 , and determined that it was more likely than not that the fair value of both reporting units with goodwill exceeded their respective carrying amounts . factors considered for each reporting unit included financial performance , forecasts and trends , market cap , regulatory and environmental issues , foreign currency , market analysis , recent transactions , macro-economic conditions , industry and market considerations , raw material costs , management stability , and the degree by which the fair value of each reporting unit exceeded its carrying value in 2010 when the company last performed step 1 of the goodwill impairment test , which requires a comparison of each reporting
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results of operations sales in the company 's component products segment increased 4.2 % to $ 88.2 million in 2012 from $ 84.7 million in 2011. operating income increased 4.2 % to $ 13.6 million in 2012 from $ 13.0 million in 2011 , reflecting profits on the sales growth partially offset by decreased operating income in the company 's automotive market . sales in the company 's packaging segment increased slightly to $ 42.8 million in 2012 from $ 42.6 million in 2011. operating income increased 14.9 % to $ 3.1 million in 2012 from $ 2.7 million in 2011. the relatively flat sales reflect a 21 % increase in molded fiber packaging product partially offset by a sales decline in foam packaging sales . the increase in operating income largely reflects the sales growth in molded fiber as this is a high fixed-cost business . additional details regarding the company 's segment results of operations are described in note 19 to the consolidated financial statements included in item 8 of this form 10-k. the following table sets forth , for the years indicated , the percentage of revenues represented by the items as shown in the company 's consolidated statements of operations : replace_table_token_4_th 2012 compared to 2011 net sales increased 2.9 % to $ 131.0 million for the year ended december 31 , 2012 , from net sales of $ 127.2 million in 2011. the $ 3.8 million increase in sales was largely attributable to increased sales into the medical market of approximately $ 3.1 million ( component products segment ) as well as a $ 2.7 million increase in sales of molded fiber packaging reflecting increased demand for environmentally friendly packaging solutions ( component products segment ) . these sales increases were partially offset by a $ 5 million reduction in sales from the phase-out of a significant portion of an automotive program in the southeast .
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research and development major components of research story_separator_special_tag the following discussion and analysis should be read in conjunction with “ selected financial data ” and our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion and analysis contains forward-looking statements based upon current beliefs , plans and expectations that involve risks , uncertainties and assumptions , such as statements regarding our plans , objectives , expectations , intentions and projections . our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors , including those set forth in part i , item 1a , “ risk factors ” in this annual report on form 10-k. see the sections entitled “ risk factors ” and “ cautionary note regarding forward-looking statements. ” company overview we are a clinical-stage biopharmaceutical company engaged in the discovery and development of orally administered small molecule drug candidates to fill significant unmet medical needs . we have a powerful pipeline of clinical drug candidates , led by our programs for the treatment of alzheimer 's disease ( “ ad ” ) and type 2 diabetes . our drug candidate for the treatment of ad , azeliragon 62 ( ttp488 ) , is an orally administered , small molecule antagonist targeting the receptor for advanced glycation endproducts ( “ rage ” ) , for which we have commenced patient enrollment and successfully completed the enrollment of sub-study a in a phase 3 cl inical trial ( the “ steadfast study ” ) under a food and drug administration ( “ fda ” ) agreed special protocol assessment ( “ spa ” ) . our type 2 diabetes drug candidates include ttp399 , an orally administered , liver-selective glucokinase activator ( “ gka ” ) , for whi ch we have completed our phase 2b clinical trial ( the “ agata study ” ) , and ttp273 , an orally administered , non-peptide agonist that targets the glucagon-like peptide-1 receptor ( “ glp-1r ” ) , for which we have completed a phase 2 clinical trial ( the “ logra stu dy ” ) in december 2016. we have three additional programs in various stages of preclinical and clinical development for the prevention of muscle weakness and the treatment of inflammatory disorders . subsequent to our initial public offering ( the “ ipo ” ) and the related reorganization transactions ( the “ reorganization transactions ” ) , vtv therapeutics inc. ( the “ company ” , the “ registrant ” , “ we ” or “ us ” ) is a holding company , and its principal asset is a controlling equity interest in vtv therapeutics llc ( “ vtv llc ” ) , the company 's principal operating subsidiary . the company has determined that vtv llc is a variable-interest entity ( “ vie ” ) for accounting purposes and that vtv therapeutics inc. is the primary beneficiary of vtv llc because ( through its managing member interest in vtv llc and the fact that the senior management of vtv therapeutics inc. is also the senior management of vtv llc ) it has the power to direct all of the activities of vtv llc , which include those that most significantly impact vtv llc 's economic performance . vtv therapeutics inc. has therefore consolidated vtv llc 's results under the vie accounting model in its consolidated financial statements . as the reorganization transactions were considered to be among entities under common control , the consolidated financial statements for periods prior to the ipo and reorganization transactions have been adjusted to combine vtvx holdings i llc ( formerly known as transtech pharma , llc , “ ttp ” or “ vtvx holdings i ” ) and vtvx holdings ii llc ( formerly known as and high point pharmaceuticals , llc , “ hpp ” or “ vtvx holdings ii ” and , collectively with ttp or vtvx holdings i , the “ predecessors ” ) for presentation purposes . to date , we have devoted substantially all of our resources to our research and development efforts relating to our investigational drug candidates , including conducting clinical trials with our drug candidates , providing general and administrative support for these operations and protecting our intellectual property . we do not have any products approved for sale and have not generated any revenue from drug sales . from our inception through december 31 , 2016 , we ( including our predecessors ) have funded our operations primarily through : a series of private placements of preferred equity from 1999 through 2006 totaling $ 109.3 million ; the receipt of $ 23.4 million from completed research collaborations with novo nordisk , a/s merck and boehringher ingelheim from 2001 to 2006 ; the receipt of $ 169.2 million of upfront , milestone and research fees during 2006 to 2010 under a license and research agreement with pfizer , inc. , which was terminated in 2011 ; the receipt of $ 55.7 million of upfront , milestone and research expense reimbursements from 2010 to 2013 under a license agreement for our gka programs with an affiliate of forest laboratories , inc. , which was terminated in 2013 ; various borrowings totaling $ 114.7 million from november 2011 through march 2014 from entities affiliated with macandrews & forbes incorporated ( “ macandrews ” ) , which were converted to series f and series b preferred units of ttp and hpp , our predecessors ; borrowings of $ 46.6 million from april 2014 through june 2015 from entities affiliated with macandrews ; the completion of the ipo in august 2015 , which raised proceeds of $ 104.4 million from the sale of our class a common stock , par value $ 0.01 per share ( the “ class a common stock ” ) , net of offering costs ; and the receipt of $ 12.5 million from a venture loan and security agreement ( the “ loan agreement ” ) with horizon technology finance corporation and silicon story_separator_special_tag a change in the outcome of any of these variables with respect to the development of a drug candidate could mean a significant change in the costs and timing associated with the development of that drug candidate . for example , if the fda or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a drug candidate , or if we experience significant delays in enrollment in any of our clinical trials , we could be required to expend significant additional financial resources and time with respect to the development of that drug candidate . general and administrative expenses general and administrative expenses consist primarily of salaries , benefits and related costs for employees in executive , finance , corporate development , human resources and administrative support functions . other significant general and administrative expenses include accounting and legal services , expenses associated with obtaining and maintaining patents , cost of various consultants , occupancy costs and information systems . our general and administrative expenses have increased and will continue to increase as we operate as a public company and commercialize our drug candidates . such increases have been driven by higher costs for director and officer liability insurance , costs related to the hiring of additional personnel and increased fees for outside consultants , lawyers and accountants . we also expect to incur additional costs in future periods as we continue to establish our investor relations function , implement a system of internal control over financial reporting and a system of disclosure controls and procedures that are compliant with applicable requirements and with corporate governance requirements and other rules of the stock exchange on which we are listed and other similar requirements applicable to public companies . interest expense , net for periods prior to the ipo and reorganization transactions , interest expense , net primarily consists of interest expense attributable to certain obligations that were not assumed by vtv therapeutics inc. through the reorganization transactions . beginning in october 2016 , interest expense , net primarily consists of our cash and non-cash interest expense related to our loan agreement . cash interest on the loan agreement is recognized at a floating interest rate equal to 10.5 % plus the amount by which the one-month london interbank offer rate ( “ libor ” ) exceeds 0.5 % . non-cash interest expense represents the amortization of the costs incurred in connection with the loan agreement , the allocated fair value of the warrants to purchase shares of our class a common stock issued in connection with the loan agreement ( the “ warrants ” ) and the accretion of the final interest payment ( which will be paid in cash upon loan maturity ) , all of which are recognized in our consolidated statement of operations using the effective interest method . other income ( expense ) , net other income ( expense ) , net primarily consists of expenses related to our capital structure prior to the ipo and reorganization transactions , such as expense related to interest expense on related party debt obligations and the change in the fair value of an obligation to make distributions to a former officer in exchange for the repurchase of the officer 's predecessor company units ( the “ contingent distributions ” ) . such expenses will no longer be recognized by us after fiscal 2015 as the related instruments were not assumed by vtv therapeutics inc. through the reorganization transactions . 65 story_separator_special_tag style= '' font-weight : bold ; font-style : italic ; font-family : times new roman ; font-size:10pt ; text-transform : none ; font-variant : normal ; '' > general and administrative expenses general and administrative expenses were $ 9.1 million and $ 11.7 million for the years ended december 31 , 2015 and 2014 , respectively . the decrease in general and administrative expenses during this period of $ 2.6 million , or 22.5 % , was primarily due to a decrease in compensation costs of approximately $ 3.4 million , which was largely driven by expense recognized in 2014 related to the departure of a former officer and director . such decrease was offset by higher professional and insurance costs associated with our transition to a public company in the latter half of fiscal 2015. other expense , net other expense , net primarily consisted of expenses related to our capital structure prior to the ipo and reorganization transactions , such as related party interest expense and other expense related to the change in the fair value of contingent distribution liability . such expenses will no longer be recognized by us after fiscal 2015 as many of the related instruments were not assumed by vtv therapeutics inc. through the reorganization transactions . for the years ended december 31 , 2015 and 2014 , related party interest expense was $ 1.7 million and $ 5.7 million , respectively , representing a decrease of $ 4.0 million . the decrease in interest expense was driven primarily by a $ 4.8 million decrease in the amortization of debt discount recognized by us , offset by an increase in related party interest expense for 2015 due to an increase in the amounts outstanding under the related agreements for seven months prior to the reorganization transactions . in addition , we recognized as other income $ 0.7 million as a result of the decrease in the fair value of the contingent distribution liability during the year ended december 31 , 2015. liquidity and capital resources we anticipate that we will continue to incur losses for at least the next several years as we continue our clinical trials . we believe that we will continue to meet our liquidity requirements through the first quarter of 2018 which is when we expect to receive results for part a of our steadfast study .
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results of operations comparison of the year ended december 31 , 2016 and 2015 the following table sets forth certain information concerning our results of operations for the periods shown : replace_table_token_6_th revenues revenues were $ 0.6 million and $ 0.5 million for the years ended december 31 , 2016 and 2015 , respectively . the revenue earned during the years ended december 31 , 2016 and 2015 was primarly attributable to the global license agreement that we entered into with calithera biosciences , inc. ( “ calithera ” ) in march 2015. in connection with this agreement we recognized as revenue an initial license fee of $ 0.6 million and reimbursement costs associated with the time devoted by our employees to develop additional hexokinase inhibitors . research and development expenses research and development expenses were $ 45.7 million and $ 29.6 million for the years ended december 31 , 2016 and 2015 , respectively . the increase in research and development expenses during the period of $ 16.2 million , or 54.6 % , was primarily due to : an increase in clinical trial costs of $ 15.4 million for azeliragon in 2016 , which was mainly driven by an increase of $ 9.1 million related to the steadfast study due to higher enrollment and related activities in 2016 ; an increase of $ 3.3 million in costs related to a drug-to-drug interaction and other supporting studies in 2016 ; and an increase of $ 2.5 million related to compound manufacturing costs for drug product to support the steadfast study ; a decrease in clinical trial costs of $ 1.5 million for ttp399 in 2016 , which was mainly driven by lower costs for the agata study due to its completion in august 2016 and decreases in compound manufacturing costs from 2015 because the drug product for the agata study was sourced in 2015 ; an increase in clinical trial costs of $ 0.6
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risk factors and forward-looking statements and factors that may affect future results sections of this md & a . overview of our business we are a global leader in the discovery , development , manufacture and commercialization of animal health medicines and vaccines , with a focus on both livestock and companion animals . for more than 60 years we have been committed to enhancing the health of animals and bringing solutions to our customers who raise and care for them . we manage our operations through two geographic operating segments : the united states ( u.s. ) and international . within each of these operating segments , we offer a diversified product portfolio for both livestock and companion animal customers in order to capitalize on local and regional trends and customer needs . see notes to consolidated financial statements— note 18. segment , geographic and other revenue information . we directly market our products to veterinarians and livestock producers located in approximately 45 countries across north america , europe , africa , asia , australia and south america , and are a market leader in nearly all of the major regions in which we operate . through our efforts to establish an early and direct presence in many emerging markets , such as brazil , china and mexico , we believe we are the largest animal health medicines and vaccines business as measured by revenue across emerging markets as a whole . in markets where we do not have a direct commercial presence , we generally contract with distributors that provide logistics and sales and marketing support for our products . we believe our investments in the industry 's largest sales organization , including our extensive network of technical and veterinary operations specialists , our high-quality manufacturing and reliability of supply , and our long track record of developing products that meet customer needs , has led to enduring and valued relationships with our customers . our research and development ( r & d ) efforts enable us to deliver innovative products to address unmet needs and evolve our product lines so they remain relevant for our customers . additionally , our management team 's focus on improving operational and cost efficiencies increases the likelihood of achieving our core growth strategies and enhancing long-term value for our shareholders . on february 1 , 2013 , our class a common stock began trading on the new york stock exchange ( nyse ) under the symbol “ zts. ” on february 6 , 2013 , an initial public offering ( ipo ) of our class a common stock was completed , which represented approximately 19.8 % of our total outstanding shares , with pfizer owning the remaining outstanding shares . on june 24 , 2013 , an exchange offer was completed whereby pfizer shareholders exchanged a portion of pfizer common stock for zoetis common stock , resulting in the full separation of zoetis and the disposal of pfizer 's entire ownership and voting interest in zoetis . unless the context requires otherwise , statements relating to our history , for periods prior to our ipo , describe the history of pfizer 's animal health business unit . a summary of our 2016 performance compared with the comparable 2015 and 2014 periods follows : replace_table_token_6_th ( a ) adjusted net income is a non-gaap financial measure . see the adjusted net income section of this md & a for more information . our operating environment industry the animal health industry , which focuses on both livestock and companion animals , is a growing industry that impacts billions of people worldwide . the primary livestock species for the production of animal protein are cattle ( both beef and dairy ) , swine , poultry , sheep and fish . livestock health and production are essential to meeting the growing demand for animal protein of a global population . factors influencing growth in demand for livestock medicines and vaccines include : human population growth and increasing standards of living , particularly in many emerging markets ; increasing demand for improved nutrition , particularly animal protein ; natural resource constraints , such as scarcity of arable land , fresh water and increased competition for cultivated land , resulting in fewer resources that will be available to meet this increased demand for animal protein ; increasing urbanization ; and 31 | increased focus on food safety and food security . the primary companion animal species are dogs , cats and horses . factors influencing growth in demand for companion animal medicines and vaccines include : economic development and related increases in disposable income , particularly in many emerging markets ; increasing pet ownership ; and companion animals living longer , increasing medical treatment of companion animals and advances in companion animal medicines and vaccines . product development initiatives our future success depends on both our existing product portfolio and our pipeline of new products , including new products that we may develop through joint ventures and products that we are able to obtain through license or acquisition . we believe we are an industry leader in animal health r & d , with a track record of generating new products and product lifecycle innovation . the majority of our r & d programs focus on product lifecycle innovation , which is defined as r & d programs that leverage existing animal health products by adding new species or claims , achieving approvals in new markets or creating new combinations and reformulations . perceptions of product quality , safety and reliability we believe that animal health customers value high-quality manufacturing and reliability of supply . the importance of quality and safety concerns to pet owners , veterinarians and livestock producers also contributes to animal health brand loyalty , which we believe often continues after the loss of patent-based and regulatory exclusivity . we depend on positive perceptions of the safety and quality of our products by our customers , veterinarians and end-users . in addition , negative beliefs about animal health products generally could impact demand for our products . story_separator_special_tag outbreaks of disease may reduce regional or global sales of particular animal-derived food products or result in reduced exports of such products , either due to heightened export restrictions or import prohibitions , which may reduce demand for our products . also , the outbreak of any highly contagious disease near our main production sites could require us to immediately halt production of our products at such sites or force us to incur substantial expenses in procuring raw materials or products elsewhere . alternatively , sales of products that treat specific disease outbreaks may increase . for example , from december 2014 through june 2015 , highly pathogenic h5 avian influenza virus infections were reported in domestic poultry , captive birds and wild birds in the united states , with a majority of confirmed infections occurring in backyard and commercial poultry flocks . the egg and turkey industry were the most impacted by this occurrence of avian influenza . usda surveillance indicates that more than 48 million birds were affected ( either infected or exposed ) in at least 20 states . although no new h5 avian influenza infections have been detected in the united states since june 2015 , an outbreak of highly pathogenic h7 avian influenza infections was reported in a commercial turkey flock in indiana in january 2016 , and both forms of the virus continue to pose a threat to the poultry industry . in march 2016 , we were granted a conditional license from the usda for a vaccine to help prevent avian influenza , and in june 2016 , we were awarded a contract to supply the usda with this vaccine for the national veterinary stockpile . the vaccine is intended for use in chickens as an aid in the prevention of disease caused by the h5n1 subtype of the virus . the usda will determine if a vaccination program should be implemented . it is important to note that human infection with avian influenza viruses has not occurred from eating properly cooked poultry or poultry products . we are closely monitoring the developments as this situation unfolds . the impact on our 2016 global revenue was not significant . manufacturing and supply in order to sell our products , we must be able to produce and ship our products in sufficient quantities . many of our products involve complex manufacturing processes and are sole-sourced from certain manufacturing sites . minor deviations in our manufacturing or logistical processes , such as temperature excursions or improper package sealing , could result in delays , inventory shortages , unanticipated costs , product recalls , product liability and or regulatory action . in addition , a number of factors could cause production interruptions that could result in launch delays , inventory shortages , recalls , unanticipated costs or issues with our agreements under which we supply third parties . our manufacturing network may be unable to meet the demand for our products or we may have excess capacity if demand for our products changes . the unpredictability of a product 's regulatory or commercial success or failure , the lead time necessary to construct highly technical and complex manufacturing sites , and shifting customer demand increase the potential for capacity imbalances . foreign exchange rates significant portions of our revenue and costs are exposed to changes in foreign exchange rates . our products are sold in more than 100 countries and , as a result , our revenue is influenced by changes in foreign exchange rates . for the year ended december 31 , 2016 , approximately 46 % of our revenue was denominated in foreign currencies . we seek to manage our foreign exchange risk , in part , through operational means , including managing same-currency revenue in relation to same-currency costs and same-currency assets in relation to same-currency liabilities . as we operate in multiple foreign currencies , including the australian dollar , brazilian real , canadian dollar , euro , u.k. pound and other currencies , changes in those currencies relative to the u.s. dollar will impact our revenue , cost of goods and expenses , and consequently , net income . exchange rate fluctuations may also have an impact beyond our reported financial results and directly impact operations . these fluctuations may affect the ability to buy and sell our goods and services between markets impacted by significant exchange rate variances . for the year ended december 31 , 2016 , approximately 54 % of our total revenue was in u.s. dollars . our year-over-year revenue growth was unfavorably impacted by 2 % from changes in foreign currency values relative to the u.s. dollar . in february 2014 , the venezuelan government issued a law on fair pricing , establishing a maximum profit margin of 30 % . at the time of its issuance , there was uncertainty as to how the law would be interpreted and applied . the venezuelan government also recently issued new regulations relating to the publication of these fair prices to consumers . while we believe we are currently fully compliant with this new law , it is uncertain how this law may be interpreted and enforced in the future . effective march 10 , 2016 , the venezuelan government made the following changes to its foreign currency exchange mechanisms : ( i ) the three-tier exchange rate system existing in the country changed to a dual system with the elimination of the sicad rate , ( ii ) the official cencoex rate was replaced with dipro and was devalued from 6.3 to 10 venezuelan bolivars per u.s. dollar , and ( iii ) the simadi rate was replaced with dicom . as of november 30 , 2016 , the venezuelan bolivar to u.s. dollar exchange rates were the dipro rate of 10 and the dicom rate of 663. beginning in the second quarter of 2016 , we use the dicom rate to report our venezuela financial position , results of operations and cash flows .
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operating segment results we believe that it is important to not only understand overall revenue and earnings growth , but also “ operational growth. ” operational growth is defined as revenue or earnings growth excluding the impact of foreign exchange . on a global basis , the mix of revenue between livestock and companion animal products was as follows : replace_table_token_18_th certain amounts and percentages may reflect rounding adjustments . 43 | earnings by segment and the operational and foreign exchange changes versus the comparable prior year period were as follows : replace_table_token_19_th * calculation not meaningful . certain amounts and percentages may reflect rounding adjustments . 2016 vs. 2015 u.s. operating segment u.s. segment revenue increased by $ 119 million , or 5 % , in 2016 compared with 2015 , of which approximately $ 24 million resulted from declines in livestock products and approximately $ 143 million resulted from growth in companion animal products . livestock revenue declined primarily due to product rationalizations as part of the company 's operational efficiency initiative , which impacted both poultry and swine . additionally , sales of cattle products were impacted by unfavorable market conditions , while swine was impacted by increased competition . companion animal revenue growth was driven by increased sales of apoquel ® , new product launches , and initial sales of products into expanded distribution relationships . partially offsetting growth was a decline in the company 's surgical fluid products . u.s. segment earnings increased by $ 118 million , or 8 % , in 2016 compared with 2015 , primarily due to revenue growth and improved gross margin . international operating segment international segment revenue increased by $ 4 million , in 2016 compared with 2015. segment revenue was unfavorably impacted by foreign exchange , which decreased revenue by approximately 5 % , primarily driven by the depreciation of the brazilian real , argentine peso and u.k. pound .
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the offering included 55,333 class a units at a public offering price of $ 9.00 per class a unit , which consisted of 55,333 shares of common stock and warrants to purchase 55,333 shares of common stock . the offering also included 292 class b units at a public offering price of $ 12,000 per class b unit , which consisted of 292 shares of series a convertible preferred stock convertible into a total of 389,111 shares of common stock and warrants to purchase 389,111 shares of common stock . in addition , the underwriter exercised the over-allotment option to purchase an additional 44,167 shares of common stock and warrants to purchase 44,167 shares of common stock , which are included in the gross proceeds of $ 4.4 million . the warrants had a per share exercise price of $ 11.25 , were exercisable immediately and were scheduled to expire five years from the date of issuance . as of december 31 , 2017 , all of the warrants issued in the april 3 , 2017 offering have been exercised and are no longer outstanding and all of the shares of series a convertible preferred stock have been converted into shares of common stock . accounting treatment the company allocated the proceeds from the sale of the class a and class b units to the separate securities issued . the company determined that , on the date of issuance , the warrants were not indexed to its stock because they did not meet the “ fixed-for-fixed ” criterion due to the price protection and fundamental transaction provisions and , therefore , the warrants were accounted for as liabilities with changes in fair value recorded in non-operating income ( expense ) in the consolidated statement of operations . the company allocated the amount representing the fair value of the warrants at the date of issuance separately to the warrant liability and recorded the remaining proceeds as common stock , in the case of the class a units , or as series a convertible preferred stock , in the case of the class b units . due to the allocation of a portion of the proceeds to the warrants , the series a convertible preferred stock contained a beneficial conversion feature upon issuance , which was recorded in the amount of $ 1,284,066 based on the intrinsic value of the beneficial conversion feature . the discount on the series a convertible preferred stock of $ 1,284,066 caused by allocation of the proceeds to the warrant was recorded as a deemed dividend upon issuance of the series a convertible preferred stock . as a result , total deemed dividends of $ 2,568,132 were recorded upon issuance of the series a convertible preferred stock , which is reflected as an addition to net loss in the consolidated statement of operations to arrive at net loss applicable to common shareholders . 64 exercise of 2017 warrants on june 29 , 2017 , the company offered to modify the rights of the holders of the warrants issued in the public offering the company completed on april 3 , 2017. the temporary modification included ( a ) lowering the exercise price of the warrants to $ 3.12 per share , ( b ) setting the applicable volume-weighted average price ( vwap ) at $ 6.24 per share , and ( c ) allowing for temporary cashless exercise of the warrants for all holders that accepted the temporary modification before 8:00 a.m. eastern daylight time on june 30 , 2017. holders of warrants to purchase a total of approximately 250,000 shares of common stock accepted the offer resulting in the cancellation of those warrants and the issuance by the company of a total of approximately 125,000 shares of common stock ( including shares held in abeyance ) . the shares of common stock are registered under the securities act of 1933 , as amended . in connection with the temporary modification , the company agreed to extend the “ lock-up period ” of the underwriting agreement between the company and aegis capital corp. , dated march 28 , 2017 , by 45 days and the company agreed not to enter into any further amendments to the warrants during such extended lock-up period without the prior written consent of each holder . during the third quarter of 2017 , all remaining warrants were exercised for cash so that no warrants issued in the april 3 , 2017 , financing remained outstanding . upon exercise of these warrants , the amount of the warrant liability at the date of exercise was reclassified from warrant liability to additional paid-in capital . the following table summarizes the 2017 liability warrant activity : shares weighted average exercise price outstanding as of january 1 , 2017 warrants granted 488,611 $ 11.25 warrants exercised ( 488,611 ) 3.12 outstanding as of december 31 , 2017 the company estimated the fair value of the warrants using the monte carlo simulation ( mcs ) model , which is a type of income approach , where the current value of an asset is expressed as the sum of probable future cash flows across various scenarios and time frames discounted for risk and time . the significant assumptions included timing of future rounds of financing , timing and success rates of oncology clinical trials , and the probability of a merger and acquisition adjusted for a lack of marketability discount . the mcs model also included a full term and an early conversion scenario that were each weighted at 50 % in the final concluded fair value . story_separator_special_tag these estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results and experiences may differ materially from these estimates . while our significant accounting policies are more fully described in note 3 to our financial statements , we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we use in the preparation of our financial statements . 43 financial instruments with characteristics of both liabilities and equity during the year ended december 31 , 2017 , the company issued certain financial instruments , consisting of warrants to purchase common stock , which have characteristics of both liability and equity . financial instruments such as warrants that are classified as liabilities are fair valued upon issuance and are re-measured at fair value at subsequent reporting periods with the resulting change in fair value recorded in “ change in fair value of common stock warrants ” in the consolidated statements of operations . the fair value of warrants is estimated using valuation models that require the input of subjective assumptions including stock price volatility , expected life , and the probability of future equity issuances and their impact to the price protection feature . no warrants that are classified as liabilities were outstanding at december 31 , 2017 and 2018. share-based payments we follow the provisions of asc 718 , compensation – stock compensation , which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees , non-employee directors , and consultants , including employee stock options . stock compensation expense based on the grant date 's fair value was estimated in accordance with the provisions of asc 718 and is recognized as an expense over the requisite service period with forfeitures recognized when they occur . the fair value of each option grant is estimated using the black-scholes option-pricing model , which requires assumptions regarding the expected volatility of our stock options , the expected life of the options , an expectation regarding future dividends on our common stock , and estimation of an appropriate risk-free interest rate . our expected common stock price volatility assumption is based upon the volatility of our stock price . the expected life assumption for stock option grants was based upon the simplified method provided for under asc 718-10 , which averages the contractual term of the options of ten years with the average vesting term of one to four years . the dividend yield assumption of zero is based upon the fact that we have never paid cash dividends and presently have no intention of paying cash dividends in the future . the risk-free interest rate used for each grant was based upon prevailing short-term interest rates over the expected life of the options . 44 story_separator_special_tag font-family : `` times new roman '' , times , serif ; font-size : 10pt ; ' > net cash flows from operating activities : net cash used in operating activities was $ 8,962,000 for the year ended december 31 , 2018 , an increase of $ 2,368,000 , or 36 % , compared to net cash used in operating activities for the year ended december 31 , 2017 of $ 6,594,000. the increase in the 2018 period as compared to 2017 resulted primarily from increased spending on r & d activities . we spent approximately $ 4.2 million on research and development for the year ended december 31 , 2018 , compared to $ 2.3 million in 2017. increases in compensation expense also contributed to the increase in cash used in operations over 2017. net cash flows from investing activities : net cash used in investing activities for the year ended december 31 , 2018 was $ 111,000. there was no comparable spending for the year ended december 31 , 2017. the increase was attributable to the purchase of fixed asset equipment and the replacement of our website during 2018. net cash flows from financing activities : net cash provided by financing activities was $ 12,291,000 for the year ended december 31 , 2018 , an increase of $ 1,508,000 , or 14 % , compared to net cash provided by financing activities of $ 10,783,000 , for the year ended december 31 , 2017. the increase was attributable to higher financing proceeds received in 2018 as compared to proceeds received from 2017 financings . 46 funding requirements we expect to incur ongoing operating losses for the foreseeable future as we continue to develop our planned therapeutic programs including related clinical studies and other programs in the pipeline . we expect that our existing resources combined with the $ 11.3 million proceeds from the march 2019 warrant exercise will be sufficient to fund our planned operations for at least the next 12 to 18 months from the date of this report . if we meet certain requirements , we may sell securities that are registered on our form s-3 registration statement ( file no . 333-220572 ) , and by raising capital through sales of securities to third parties and existing stockholders . if we are unable to raise additional capital when needed , however , we could be forced to curtail or cease operations . our future capital uses and requirements will depend on the time and expenses needed to begin and continue clinical trials for our new drug developments . additional funding may not be available to us on acceptable terms or at all .
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results of operations comparison of years ended december 31 , 201 8 and 201 7 revenue and cost of revenue : for the years ended december 31 , 2018 and 2017 , we have no source of sustainable revenue and no associated cost of revenue . operating expenses : total operating expenses were $ 11,434,000 for the year ended december 31 , 2018 , which is an increase of $ 3,785,000 or 49 % , from the year ended december 31 , 2017. operating expenses for 2018 consisted of research and development ( r & d ) expenses of $ 4,210,000 and general and administrative ( g & a ) expenses of $ 7,224,000. operating expenses for 2017 consisted of r & d expenses of $ 2,328,000 , g & a expenses of $ 4,859,000 and impairment of our acueity intangible assets of $ 462,000. research and development expenses : r & d expenses for the year ended december 31 , 2018 , were $ 4,210,000 , an increase of $ 1,882,000 or 81 % from total r & d expenses in 2017 of $ 2,328,000. the increase in r & d expense is attributed to salaries , stock-based compensation , manufacturing and clinical trial expenses associated with our endoxifen program . our r & d expenses have increased because we commenced two phase 2 studies of our proprietary endoxifen during the year ended december 31 , 2018. there were no phase 2 studies of endoxifen in 2017. stock-based compensation expense also increased approximately $ 627,000 in 2018 as compared to 2017. we expect our r & d expenses to increase throughout 2019 as we commence additional phase 2 clinical studies of endoxifen , continue the clinical trial of fulvestrant administered via our microcatheters and continue the development of other indications and therapeutics , including car-t and immunotherapies administered via our intraductal microcatheters .
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as of january 30 , story_separator_special_tag overview we are a global retailer offering apparel , accessories , and personal care products for men , women , and children under the gap , banana republic , old navy , athleta , and intermix brands . we have company-operated stores in the united states , canada , the united kingdom , france , ireland , japan , italy , china , hong kong , taiwan , and beginning in october 2015 , mexico . we have franchise agreements with unaffiliated franchisees to operate gap , banana republic , and old navy stores throughout asia , australia , europe , latin america , the middle east , and africa . under these agreements , third parties operate , or will operate , stores that sell apparel and related products under our brand names . our products are also available to customers online through company-owned websites and through the use of third parties that provide logistics and fulfillment services . in addition to operating in the specialty , outlet , online , and franchise channels , we also use our omni-channel capabilities to bridge the digital world and physical stores to further enhance our shopping experience for our customers . our omni-channel services , including order-in-store , reserve-in-store , find-in-store , and ship-from-store , as well as enhanced mobile experiences , are tailored uniquely across our portfolio of brands . most of the products sold under our brand names are designed by us and manufactured by independent sources . we also sell products that are designed and manufactured by branded third parties , primarily at our intermix brand . we identify our operating segments according to how our business activities are managed and evaluated . as of january 30 , 2016 , our operating segments included gap global , old navy global , banana republic global , athleta , and intermix . we have determined that each of our operating segments share similar economic and other qualitative characteristics , and therefore the results of our operating segments are aggregated into one reportable segment . as previously announced in january 2015 , we closed the piperlime brand during the first half of fiscal 2015 , including its online platform and the store in new york . financial results for fiscal 2015 are as follows : net sales for fiscal 2015 decreased 4 percent to $ 15.8 billion compared with $ 16.4 billion for fiscal 2014 . excluding the impact of foreign exchange , our net sales decreased 2 percent for fiscal 2015 compared with fiscal 2014 . see net sales discussion for impact of foreign exchange . comparable ( `` comp '' ) sales for fiscal 2015 decreased 4 percent compared with flat for last year . gross profit for fiscal 2015 was $ 5.7 billion compared with $ 6.3 billion for fiscal 2014 . gross margin for fiscal 2015 was 36.2 percent compared with 38.3 percent for fiscal 2014 . operating margin for fiscal 2015 was 9.6 percent compared with 12.7 percent for fiscal 2014 . operating margin is defined as operating income as a percentage of net sales . net income for fiscal 2015 was $ 920 million compared with $ 1.3 billion for fiscal 2014 . diluted earnings per share was $ 2.23 for fiscal 2015 compared with $ 2.87 for fiscal 2014 . during fiscal 2015 , we distributed $ 1.4 billion to shareholders through share repurchases and dividends . in june 2015 , we announced a series of strategic actions to position gap brand for improved business performance in the future , including right-sizing the gap brand store fleet , streamlining the brand 's headquarter workforce , and developing a clear , on-brand product aesthetic framework that will help strengthen the gap brand to compete more successfully on the global stage . during fiscal 2015 , the company completed the closure of about 150 global specialty stores related to the strategic actions . the company also incurred certain charges during fiscal 2015 in connection with the strategic actions , primarily consisting of impairment of store assets , lease termination fees and lease losses , employee related expenses , and impairment of inventory that did not meet brand standards . 18 the charges incurred related to the company 's strategic actions primarily related to gap brand are as follows : replace_table_token_5_th our business priorities in 2016 include : offering product that is consistently brand-appropriate and on-trend with high customer acceptance ; continuing to evolve our customer experience , with particular focus on the mobile and digital expressions of our brands ; and attracting and retaining great talent in our businesses and functions . for fiscal 2016 , our top objective is to improve sales performance through a more consistent , on-trend , product offering . to enable this , we have several product initiatives underway , and in addition , we plan to continue focus on our responsive supply chain and inventory management . further , we expect to continue our investment in our mobile digital capabilities and to enhance our shopping experience for our customers . we also plan to continue growth through new stores with a focus on asia , outlet , and athleta . in fiscal 2016 , we expect that foreign exchange rate fluctuations will continue to have a meaningful negative impact on our results , particularly in our largest foreign subsidiaries in canada and japan . with the depreciation of the canadian dollar , japanese yen , and other foreign currencies , we expect net sales translated into u.s. dollars will negatively impact our total company net sales growth . in addition , we expect gross margins for our foreign subsidiaries to be negatively impacted as our merchandise purchases are primarily in u.s. dollars . we expect this negative impact of foreign exchange rate fluctuations to be partially offset by the favorable impact of translation of expenses in foreign currencies into u.s. dollars . story_separator_special_tag in october 2015 , the company entered into a $ 400 million unsecured term loan ( the `` term loan '' ) . the term loan matures and is payable in full on october 15 , 2016 , but may be extended until october 15 , 2017. in january 2014 , the company entered into a 15 billion japanese yen , four -year , unsecured term loan ( `` japan term loan '' ) due january 2018 . a repayment of 2.5 billion japanese yen ( $ 21 million as of january 30 , 2016 ) is payable on january 15 , 2017. working capital as of january 30 , 2016 is impacted by the decrease in the operating cash flows discussed below and the adoption of the financial accounting standards board ( `` fasb '' ) , accounting standard update ( `` asu '' ) no . 2015-17 , income taxes . the adoption of the asu was applied prospectively and reduced the current portion of deferred tax assets as a result of classifying all net deferred tax assets as noncurrent as of january 30 , 2016. we believe that current cash balances and cash flows from our operations will be sufficient to support our business operations , including growth initiatives , planned capital expenditures , and repayment of debt , for the next 12 months and beyond . we are also able to supplement near-term liquidity , if necessary , with our $ 500 million revolving credit facility or other available market instruments . cash flows from operating activities net cash provided by operating activities during fiscal 2015 decreased $ 535 million compared with fiscal 2014 , primarily due to the following : a decrease of $ 342 million in net income ; a decrease of $ 107 million related to other current assets and other long-term assets primarily due to the change in timing of payments received related to our credit card program , which resulted in increased cash inflow in fiscal 2014 ; and a decrease of $ 150 million related to lease incentives and other long-term liabilities primarily due to the receipt of an upfront payment in fiscal 2014 related to the amendment of our credit card program agreement with the third-party financing company , which is being amortized into income over the term of the contract ; partially offset by an increase of $ 63 million related to income taxes payable , net of prepaid and other tax-related items , primarily due to timing of payments . net cash provided by operating activities during fiscal 2014 increased $ 424 million compared with fiscal 2013 , primarily due to the following : an increase of $ 284 million related to other current assets and other long-term assets primarily due to the change in timing of payments received related to our credit card program , which resulted in increased cash inflow in fiscal 2014 ; 24 an increase of $ 132 million related to lease incentives and other long-term liabilities primarily due to the receipt of an upfront payment in fiscal 2014 related to the amendment of our credit card program agreement with the third-party financing company , which is being amortized into income over the term of the contract ; and an increase of $ 184 million related to merchandise inventory primarily due to timing of receipts ; partially offset by a decrease of $ 146 million related to accounts payable primarily due to timing of payments ; a decrease of $ 28 million related to accrued expenses and other current liabilities primarily due to timing of payments ; and a decrease of $ 18 million in net income . we fund inventory expenditures during normal and peak periods through cash flows from operating activities and available cash . our business follows a seasonal pattern , with sales peaking during the end-of-year holiday period . the seasonality of our operations may lead to significant fluctuations in certain asset and liability accounts between fiscal year-end and subsequent interim periods . cash flows from investing activities net cash used for investing activities during fiscal 2015 increased $ 134 million compared with fiscal 2014 , primarily due to the following : $ 121 million of proceeds from the sale of a building owned but no longer occupied by the company in fiscal 2014 ; and $ 12 million more property and equipment purchases . net cash used for investing activities during fiscal 2014 decreased $ 28 million compared with fiscal 2013 , primarily due to the following : $ 121 million of proceeds from the sale of a building owned but no longer occupied by the company in fiscal 2014 ; partially offset by $ 50 million less maturities of short-term investments ; and $ 44 million more property and equipment purchases . in fiscal 2015 , cash used for purchases of property and equipment was $ 726 million . in fiscal 2016 , we expect cash spending for purchases of property and equipment to be about $ 650 million . cash flows from financing activities net cash used for financing activities during fiscal 2015 decreased $ 517 million compared with fiscal 2014 , primarily due to the following : $ 400 million proceeds from the issuance of short-term debt in fiscal 2015 ; and $ 164 million less repurchases of common stock ; partially offset by $ 4 million net cash out flows for fiscal 2015 compared with $ 38 million net cash inflows for fiscal 2014 related to issuance under share-based compensation plans and withholding tax payments related to vesting of stock units .
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results of operations net sales see item 8 , financial statements and supplementary data , note 16 of notes to consolidated financial statements for net sales by brand and region . 19 comparable sales the percentage change in comp sales by global brand and for total company , as compared with the preceding year , is as follows : replace_table_token_6_th comparable online sales favorably impacted total company comp sales by 2 percent , 2 percent , and 3 percent in fiscal 2015 , 2014 , and 2013 , respectively . only company-operated stores are included in the calculations of comp sales . the calculation of total company comp sales includes the results of athleta and intermix but excludes the results of our franchise business . a store is included in the comp sales calculations when it has been open and operated by the company for at least one year and the selling square footage has not changed by 15 percent or more within the past year . a store is included in the comp sales calculations on the first day it has comparable prior year sales . stores in which the selling square footage has changed by 15 percent or more as a result of a remodel , expansion , or reduction are excluded from the comp sales calculations until the first day they have comparable prior year sales . a store is considered non-comparable ( “ non-comp ” ) when it has been open and operated by the company for less than one year or has changed its selling square footage by 15 percent or more within the past year . a store is considered “ closed ” if it is temporarily closed for three or more full consecutive days or it is permanently closed . when a temporarily closed store reopens , the store will be placed in the comp/non-comp status it was in prior to its closure .
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these non-gaap financial measures are used by management to assess our performance and financial position and for presentations of our performance to investors . we further believe that presenting these non-gaap financial measures will permit investors to assess our performance on the same basis as applied by management and the banking industry . non-gaap financial measures have inherent limitations and are not required to be uniformly applied by individual entities . although non-gaap financial measures are frequently used by stakeholders to evaluate a company , they have limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of results reported under gaap . the following are the non-gaap financial measures presented in this form 10-k and a discussion of the reasons for which management and investors use these non-gaap measures . return on average tangible common equity — this schedule also includes “ net earnings applicable to common shareholders , excluding the effects of amortization of core deposit and other intangibles , net of tax , ” and “ average tangible common equity. ” return on average tangible common equity is a non-gaap financial measure that management believes provides useful information to management and others about our use of shareholders ' equity . management believes the use of ratios that utilize tangible equity provides additional useful information about performance because they present measures of those assets that can generate income . schedule 2 return on average tangible common equity ( non-gaap ) replace_table_token_2_th tangible equity ratio , tangible common equity ratio , and tangible book value per common share — this schedule also includes “ tangible equity , ” “ tangible common equity , ” and “ tangible assets. ” tangible equity ratio , tangible common equity ratio , and tangible book value per common share are non-gaap financial measures that management believes provide additional useful information about the levels of tangible assets and tangible equity . management believes the use of ratios that utilize tangible equity provides additional useful information about capital adequacy because the ratios present measures of those assets that can generate income . 28 zions bancorporation , national association and subsidiaries schedule 3 tangible equity ratio , tangible common equity ratio , and tangible book value per common share ( all non-gaap measures ) replace_table_token_3_th efficiency ratio and adjusted pre-provision net revenue — this schedule also includes “ adjusted noninterest expense , ” “ taxable-equivalent net interest income , ” “ adjusted taxable-equivalent revenue , ” “ pre-provision net revenue ( “ ppnr ” ) , ” and “ adjusted ppnr. ” the methodology of determining the efficiency ratio may differ among companies . management makes adjustments to exclude certain items , as identified in the subsequent schedule , which it believes allows for more consistent comparability among periods . management believes the efficiency ratio provides useful information regarding the cost of generating revenue . adjusted noninterest expense provides a measure as to how well we are managing our expenses , and adjusted ppnr enables management and others to assess our ability to generate capital to cover credit losses through a credit cycle . taxable-equivalent net interest income allows management to assess the comparability of revenue arising from both taxable and tax-exempt sources . 29 zions bancorporation , national association and subsidiaries schedule 4 efficiency ratio ( non-gaap ) and adjusted pre-provision net revenue ( non-gaap ) replace_table_token_4_th 1 excluding the $ 30 million charitable contribution , the efficiency ratio for 2020 , would have been 58.3 % . key corporate objectives while we serve a variety of customers , we are particularly focused on serving small businesses , mid-sized commercial businesses , affluent customers , and providing capital markets products to our commercial customers . the subsequent graphic illustrates our key corporate objectives . we conduct our operations through seven separately managed affiliates , each with its own local branding and management team . we continue to invest in relevant capabilities to maintain a competitive advantage . to facilitate the service to these customers , we are investing in the following five key areas , referred to as “ strategic enablers ” : risk management — we continue to invest in enhanced risk management practices to ensure prudent risk taking and appropriate oversight . people and empowerment — we are investing significantly in training our employees and providing them the tools and resources to build their capabilities , while promoting a diverse , inclusive , and equitable culture . technology — we are investing heavily in technologies that customers value most , that will make us more efficient , and that enable us to compete now and in the future against the largest banks , while helping to insulate us from the risks of bank-disrupting technology companies . operational excellence — we continue to support ongoing improvements in how we safely and securely deliver value to our customers , both internal and external . data and analytics — we continue to invest in advanced enterprise data and analytics to support local execution . 30 zions bancorporation , national association and subsidiaries results of operations covid-19 pandemic : the backdrop for our 2020 financial performance the year 2020 presented a great number of challenges , and the covid-19 pandemic resulted in hardships for many . key examples of our response to the challenging environment are set forth below . although the sharp reduction of shorter-term benchmark interest rates to nearly zero and a significant flattening of the interest rate curve resulted in a reduction of revenue , the fiscal stimulus provided by the cares act and specifically the ppp , allowed us to provide relief to more than 47,000 customers — 14,700 customers of which were new to us — by facilitating a lending lifeline to these businesses . these new customers helped increase the total number of our business customers by nearly 8 % in 2020. we ranked as the ninth largest originator of ppp loans by dollar volume of all the participating financial institutions , as disclosed by the sba . story_separator_special_tag due to the lower interest rate environment , the net impact of noninterest-bearing sources of funds on the nim decreased to 0.18 % in 2020 , compared with 0.46 % in 2019. average interest-earning assets increased $ 6.2 billion , or 10 % , in 2020 , from 2019 , with the average yield decreasing 80 bps . the yield on average interest-earning assets includes the dilutive effect of $ 4.5 billion ( 6 % of earning assets ) of ppp loans with a yield of 3.22 % , as compared with a yield on the non-ppp loan portfolio of 3.96 % . average loans increased in 2020 , primarily due to ppp loan originations , which were funded mainly through deposit growth . the average loan yield decreased 88 bps over the same prior year period , with decreases of 75 bps , 124 bps , and 51 bps in non-ppp commercial loans , cre , and consumer loans , respectively . recently , as benchmark interest rates have settled at a lower level , yields on new loans have been only modestly lower than yields on maturing loans . during 2020 , we provided assistance to many small businesses through the ppp . loan processing fees paid to us by the sba are accounted for as loan origination fees , which are deferred with the loan origination costs , and are recognized over the life of the loan as a yield adjustment . toward the end of the third quarter of 2020 , we extended the maturity dates of ppp loans with an initial two-year maturity to five years , which lengthened the period of time the remaining unamortized net deferred fees are recognized into interest income as a yield adjustment . when a ppp loan is paid off or forgiven by the sba prior to its maturity date , the remaining unamortized net deferred fees are immediately recognized into interest income at that time , and impact the ppp loan portfolio yield in that period . as of december 31 , 2020 , there were approximately $ 102 million of unamortized net origination fees related to the ppp loans . the ppp loan yield in 2020 was 3.22 % . beginning in october 2020 , the sba initiated forgiveness of the ppp loans . during 2020 , about 9,900 ppp loans , totaling $ 1.3 billion , received forgiveness by the sba and contributed $ 26 million of interest income through accelerated recognition of net unamortized deferred fees on these loans . additionally , on december 27 , 2020 , the consolidated appropriations act was signed into law , which extended the ppp and provided government funding for additional forgivable ppp loans . these developments , and other potential future program changes , will affect ppp interest income and the effective yield of the ppp loans in future periods . 34 zions bancorporation , national association and subsidiaries benchmark interest rates decreased in 2020 and 2019 , resulting in the previously described negative effect on yields . a portion of our variable-rate loans , such as those with longer initial fixed-rate periods or longer reset frequencies ( e.g. , five- and seven-year fixed-rate adjustable mortgages ) , have not yet been affected by declines in benchmark interest rates . generally , a larger portion of our interest-earning assets reprice when compared with our funding sources , partly because nearly half of our deposits are noninterest-bearing . average available-for-sale ( “ afs ” ) securities balances decreased by $ 181 million in 2020. yields on average afs securities decreased by 36 bps over the same time period . the duration of the afs securities portfolio is 3.1 % . principal repayment volume on afs securities during 2020 was $ 4.4 billion , or 32 % of the december 31 , 2019 balance . we purchased $ 6.2 billion of afs securities during 2020. average interest-bearing liabilities increased $ 563 million in 2020 , from 2019 , and the average rate paid on interest-bearing liabilities decreased 69 bps to 40 bps . average total deposits were $ 63.7 billion at an average cost of 17 bps during 2020 , compared with $ 55.1 billion at an average cost of 46 bps during 2019. various government stimulus programs have provided additional liquidity to individuals and small businesses , which has indirectly contributed to deposit growth . average interest-bearing deposits grew 10 % , and were $ 34.8 billion at an average cost of 30 bps during 2020 , compared with $ 31.7 billion at an average cost of 80 bps during 2019. average borrowed funds decreased $ 2.5 billion during 2020 , from 2019 , with average short-term borrowings decreasing $ 2.8 billion , and average long-term borrowings increasing $ 308 million during the same period . strong deposit growth allowed us to reduce short-term borrowings and to repurchase $ 429 million of our outstanding long-term debt maturing in 2021 and 2022. during 2020 , the average interest rate paid on short-term borrowings and the rate paid on long-term debt decreased by 184 bps and 124 bps , respectively , due to lower short-term rates and interest rate hedges on our long-term fixed-rate debt . the 29 bps decline in the cost of total deposits and the 50 bps decline in the cost of interest-bearing deposits can be largely attributed to the previously mentioned decline in benchmark market rates which reduced competitive pricing pressure for deposits . although we utilize a wide variety of sources for our funding needs , we benefit from access to deposits from a significant number of small- to mid-sized business customers , which provides us with a low cost of funds that has a positive impact on our nim . because many of our deposit accounts are of an operating nature for businesses and households , we expect our noninterest-bearing deposits to remain a competitive advantage .
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reviewing our agency ratings . we believe that a strong capital position is vital to continued profitability and to promoting depositor and investor confidence . we have a fundamental financial objective to consistently improve risk-adjusted returns on our shareholders ' capital . specifically , it is our policy to : maintain sufficient capital to support current needs ; maintain an adequate capital cushion to withstand adverse stress events while continuing to meet borrowing needs of our customers ; and meet fiduciary responsibilities to depositors and bondholders while managing capital distributions to shareholders through dividends and repurchases of common stock so as to be consistent with 12 u.s.c . § 56 and § 60 . 77 zions bancorporation , national association and subsidiaries our primary regulator is the occ . we continue to be subject to examinations by the cfpb with respect to consumer financial regulations . under the national bank act and occ regulations , certain capital transactions may be subject to the approval of the occ . we continue to utilize stress testing as the primary mechanism to inform our decisions on the appropriate level of capital and capital actions , based upon actual and hypothetically stressed economic conditions . the results of our internal stress tests are publicly available on our website . the timing and amount of capital actions are subject to various factors , including our financial performance , business needs , prevailing and anticipated economic conditions , and occ approval . capital management actions weighted average diluted shares outstanding decreased by 20.9 million from 2019 to 2020 , respectively . the decrease from 2019 was primarily due to the expiration of out-of-the money common stock warrants and a lower average bank common share price . on may 22 , 2020 , 29.2 million common stock warrants ( nasdaq : zionw ) expired .
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forward-looking statements include , but are not limited to , statements that represent our beliefs concerning future operations , strategies , financial results or other developments , and contain words and phrases such as `` anticipate , '' `` believe , '' `` plan , '' `` estimate , '' `` expect , '' `` intend , '' and similar expressions . forward-looking 35 statements are made based upon management 's current expectations and beliefs concerning future developments and their potential effects on us . such forward-looking statements are not guarantees of future performance . actual results may differ materially from those included in the forward-looking statements as a result of risks and uncertainties . those risks and uncertainties include , but are not limited to the risk factors listed in item 1a . `` risk factors . '' overview we provide financial products and services through the following reportable segments : retirement and investor services is organized into the accumulation business , which includes full service accumulation , principal funds ( our mutual fund business ) , individual annuities and bank and trust services ; and the guaranteed business , which includes investment only and full service payout . we offer a comprehensive portfolio of asset accumulation products and services for retirement savings and investment : to businesses of all sizes with a concentration on small and medium-sized businesses , we offer products and services for defined contribution pension plans , including 401 ( k ) and 403 ( b ) plans , defined benefit pension plans , nonqualified executive benefit plans and esop consulting services . for more basic investment needs , we offer simple ira and payroll deduction plans ; to large institutional clients , we also offer investment-only products , including gics and funding agreements and to employees of businesses and other individuals , we offer the ability to accumulate savings for retirement and other purposes through mutual funds , individual annuities and bank products . principal global investors , which consists of our asset management operations , manages assets for sophisticated investors around the world , using a multi-boutique strategy that enables the segment to provide an expanded range of diverse investment capabilities including equity , fixed income and real estate investments . principal global investors also has experience in currency management , asset allocation , stable value management and other structured investment strategies . principal international , which offers retirement products and services , annuities , mutual funds , institutional asset management and life insurance accumulation products through operations in brazil , chile , china , hong kong sar , india , mexico and southeast asia . u.s. insurance solutions , which provides individual life insurance as well as specialty benefits in the u.s. our individual life insurance products include universal and variable universal life insurance and traditional life insurance . our specialty benefit products include group dental and vision insurance , individual and group disability insurance and group life insurance . effective january 1 , 2011 , wellness services and fee-for-service claims administration transitioned to the specialty benefits division from the corporate segment . corporate , which manages the assets representing capital that has not been allocated to any other segment . financial results of the corporate segment primarily reflect our financing activities ( including interest expense and preferred stock dividends ) , income on capital not allocated to other segments , inter-segment eliminations , income tax risks and certain income , expenses and other after-tax adjustments not allocated to the segments based on the nature of such items . economic factors and trends in 2012 , positive net customer cash flows and market performance led to increases in our retirement and investor services segment 's account values and our principal global investors segment 's aum . since account values and aum are the base by which these businesses generate revenues , the increase in account values and aum has contributed to the overall improvement of our profits . in our principal international segment , we continued to grow our business organically through our existing subsidiaries and joint ventures and through strategic acquisitions . local currency aum , a key indicator of earnings growth for the segment , increased significantly as a result of positive net customer cash flows and market performance . the financial results for the principal international segment are also impacted by fluctuations of the foreign currency to u.s. dollar exchange rates for the countries in which we have business . the u.s. insurance solutions segment has been impacted by lower interest rates for the past few years as well as decreases in our long term interest rate assumptions . the current low interest rate environment has caused spread compression , whereas the decrease in long term interest rate assumptions has led to higher reserves and lower profit margins in both divisions . in addition , we experienced a slowdown in the growth of group products between 2009 and 2010 relative to prior years due to a combination of lower sales , higher lapses , reduced growth in salaries and reductions in covered lives of our existing group customers as a result of economic pressure . since 2011 , we have seen signs of recovery through higher sales , slight inforce membership growth and improved retention . 36 profitability our profitability depends in large part upon our : amount of aum ; spreads we earn that result from the difference between what we earn and what we credit to policyholders ; ability to generate fee revenues by providing administrative and investment management services ; ability to price our insurance products at a level that enables us to earn a margin over the cost of providing benefits and the related expenses ; ability to manage our investment portfolio to maximize investment returns and minimize risks such as interest rate changes or defaults or impairments of invested assets ; ability to effectively hedge fluctuations in foreign currency to u.s. dollar exchange rates on certain transactions and ability to manage our operating expenses . story_separator_special_tag . any of these situations could result in a charge to net income in a future period . at december 31 , 2012 , we had $ 4,996.9 million in available-for-sale fixed maturities with gross unrealized losses totaling $ 871.1 million . included in the gross unrealized losses are losses attributable to both movements in market interest rates as well as movement in credit spreads . net income would be reduced by approximately $ 871.1 million , on a pre-tax basis , if all the securities in an unrealized loss position were deemed to be other than temporarily impaired and our intent was to sell all such securities . mortgage loans . mortgage loans consist primarily of commercial mortgage loans . at december 31 , 2012 , the carrying value of our commercial mortgage loans was $ 10,183.3 million . commercial mortgage loans are generally reported at cost adjusted for amortization of premiums and accrual of discounts , computed using the interest method and net of valuation allowances . commercial mortgage loans are considered impaired when , based on current information and events , it is probable that we will be unable to collect all amounts due according to contractual terms of the loan agreement . when we determine that a loan is impaired , a valuation allowance is created for the difference between the carrying amount of the mortgage loan and the estimated value less cost to sell . estimated value is based on either the present value of the expected future cash flows discounted at the loan 's effective interest rate , the loan 's observable market price or the fair value of the collateral . the determination of the calculation and the adequacy of the mortgage loan valuation allowance and mortgage impairments are subjective . our periodic evaluation and assessment of the adequacy of the mortgage loan valuation allowance and the need for mortgage impairments is based on known and inherent risks in the portfolio , adverse situations that may affect the borrower 's ability to repay , the estimated value of the underlying collateral , composition of the loan portfolio , current economic conditions , loss experience and other relevant factors . the calculation for determining mortgage impairment amounts requires estimating the amounts and timing of future cash flows expected to be received on specific loans , estimating the value of the collateral and gauging changes in the economic environment in general . the total valuation allowance can be expected to increase when economic conditions worsen and decrease when economic conditions improve . for more detailed information concerning mortgage loan valuation allowances and impairments , see `` investments u.s. investment operations mortgage loans , '' and item 8 . `` financial statements and supplementary data , notes to consolidated financial statements , note 4 , investments mortgage loan valuation allowance . '' we have a large experienced commercial real estate staff centrally located in des moines , which includes commercial mortgage underwriters , loan closers , loan servicers , engineers , appraisers , credit analysts , research staff , legal staff , information technology personnel and portfolio managers . experienced commercial real estate senior management adheres to a disciplined process in reviewing all transactions for approval on a consistent basis . the typical commercial mortgage loan for us averages in the mid 48 % percent loan-to-value range at origination with a net operating income coverage ratio of 3.2 times the annual debt service and is internally rated a+ on a bond equivalent basis . based on the most recent analysis , our commercial mortgage loan portfolio , excluding mortgage loans held in our principal global investors segment , has an overall loan-to-value ratio of 54 % with a 2.2 times debt service coverage . the large equity cushion and strong debt service coverage in our commercial mortgage investments will help insulate us from stress during times of weak commercial real estate fundamentals . derivatives we primarily use derivatives to hedge or reduce exposure to market risks . the fair values of exchange-traded derivatives are determined through quoted market prices . the fair values of over-the-counter derivative instruments are determined using either pricing valuation models that utilize market observable inputs or broker quotes . on an absolute fair value basis , 92 % of our over-the-counter derivative assets and liabilities are valued using pricing valuation models , while the remaining 8 % are valued using broker quotes . see item 8 . `` financial statements and supplementary data , notes to consolidated financial statements , note 14 , fair value measurements '' for further discussion . the fair values of our derivative instruments can be impacted by changes in interest rates , foreign exchange rates , credit spreads , equity indices , and volatility , as well as other contributing factors . 38 we also issue certain annuity contracts and other insurance contracts that include embedded derivatives that have been bifurcated from the host contract . they are valued using a combination of historical data and actuarial judgment . see item 8 . `` financial statements and supplementary data , notes to consolidated financial statements , note 14 , fair value measurements '' for further discussion . we include our assumption for own non-performance risk in the valuation of these embedded derivatives . as our credit spreads widen or tighten , the fair value of the embedded derivative liabilities decrease or increase , leading to an increase or decrease in net income . if the current market credit spreads reflecting our own creditworthiness move to zero ( tighten ) , the reduction to net income would be approximately $ 10.7 million , net of dpac and income taxes , based on december 31 , 2012 , reported amounts . the use of risk margins for the valuation of embedded derivatives increases the fair value of the embedded derivative liabilities . the accounting for derivatives is complex and interpretations of the applicable accounting standards continue to evolve . judgment is applied in determining the availability and application of hedge accounting designations and the appropriate accounting treatment .
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transactions affecting comparability of results of operations acquisitions we entered into acquisition agreements for the following businesses , among others , during the past three years . first dental health . on november 1 , 2012 , we finalized the purchase of our 100 % interest in first dental health , a california based independent dental preferred provider organization . first dental health is consolidated within the u.s. insurance solutions segment . afp cuprum s.a. on october 8 , 2012 , we announced the signing of a definitive agreement to acquire cuprum , a premier pension manager in chile . the agreement required empresas penta s.a. and inversiones banpenta limitada to sell their 63 % ownership in cuprum pursuant to a public tender offer that also included the remaining 37 % of publicly traded shares . the transaction closed february 4 , 2013 , resulting in an approximately 90 % ownership stake in cuprum for a purchase price of approximately $ 1.4 billion . cuprum will be consolidated within the principal international segment . claritas administração de recursos ltda./claritas investments , ltd. on april 2 , 2012 , we finalized the purchase of a 60 % indirect ownership in claritas , a leading brazilian mutual fund and asset management company . the sao paulo-based company manages equity funds , balanced funds , managed accounts and other strategies for affluent clients and institutions through its multi-channel distribution network . claritas had $ 1.8 billion in aum at the time of acquisition and is consolidated within the principal international segment . origin asset management llp . on october 3 , 2011 , we finalized the purchase of a 74 % interest in origin asset management llp ( `` origin '' ) , a global equity specialist based in london . the initial payment was $ 63.6 million . origin had $ 2.6 billion in aum in global and international equities at the time of the acquisition and is consolidated within the principal global investors segment .
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see “ note about forward-looking statements ” and “ risk factors ” for a discussion of forward-looking statements and important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements . overview we design , engineer and are a leading manufacturer of high quality wood and concrete building construction products designed to make structures safer and more secure that perform at high levels and are easy to use and cost-effective for customers . we operate in three business segments determined by geographic region : north america , europe and asia/pacific . our primary business strategy is to grow through : increasing our market share and profitability in europe ; increasing our market share in the concrete space ; and continuing to develop our software to support our core wood products offering while leveraging our strengths in engineering , sales and distribution , and our strong brand name . 26 we believe these initiatives and objectives are crucial to not only offer a more complete solution to our customers and bolster our sales of core wood connector products , but also to mitigate the cyclicality of the u.s. housing market . on october 30 , 2017 , we announced the 2020 plan to provide additional transparency into the execution of our strategic plan and financial objectives . under the 2020 plan , we initially assumed ( i ) housing starts growing as a percentage in the mid-single digit , ( ii ) increasing our market share and profitability in europe , and ( iii ) gaining market share in both our truss and concrete product offerings . at the time of the announcement , our 2020 plan was centered on the following three key operational objectives . first , a continued focus on organic growth with a goal to achieve a net sales compounded annual growth rate of approximately 8 % ( from $ 860.7 million reported in fiscal 2016 ) through fiscal 2020. second , rationalizing our cost structure to improve company-wide profitability by reducing total operating expenses as a percentage of net sales from 31.8 % in fiscal 2016 to a range of 26.0 % to 27.0 % by the end of fiscal 2020. we expect to achieve this initiative , aside from top-line growth , through cost reduction measures in europe and our concrete product line , zero-based budgeting for certain expense categories , a sku reduction program to right-size our product offering and a commitment to remaining headcount neutral ( except in the production and sales departments to meet demands from sales growth ) . these reductions were to be offset by the company 's ongoing investment in its software initiatives as well as the expenses associated with our ongoing sap implementation , which includes increasing headcount when necessary . third , improving our working capital management and overall balance sheet discipline primarily through the reduction of inventory levels in connection with the implementation of lean principles in many of our factories . this included improving our inventory turn rate from two-times a year for fiscal 2016 to four-times by the end of 2020. with these efforts , we believed we could achieve an additional 25 % to 30 % reduction of our raw materials and finished goods inventory through 2020 without adversely impacting day-to-day production and shipping procedures . since 2016 , organic net sales has grown at a compound annual growth rate of 9.7 % . based on current trends and conditions , we expect to achieve our 8 % net sales goal stated in our 2020 plan . we are continuing to work towards reducing our operating expenses to a range of 26 % to 27 % of net sales by the end of 2020. operating expenses as a percentage of net sales were 27.9 % , 28.9 % and 31.3 % for the years ended december 31 , 2019 , december 31 , 2018 and december 31 , 2017 , respectively . in dollars , operating expenses increased $ 5.3 million or 1.7 % from the year ended december 31 , 2018 to the year ended december 31 , 2019 ( mostly due to increased personnel costs ) and increased $ 6.3 million or 2.1 % from the year ended december 31 , 2017 to the year ended december 31 , 2018 ( mostly due to increased consulting fees and legal fees , sales commissions and sap implementation costs ) . in late 2017 and throughout 2018 , we engaged a leading management consultant to perform an independent in-depth analysis of our operations , which contributed towards a reduction of expenses in 2018 and could result in initiatives that reduce expenses beyond the 2020 plan as well as improvements to net working capital . we incurred additional success-based consulting expenses in 2018 and 2019 due to these initiatives . these fees concluded as of the end of september 30 , 2019. we expect these related consulting fees incurred in 2018 and 2019 will have a one-year or less pay back . when we initiated our 2020 plan in october 2017 , it did not factor in macro events out of our control such as a volatile steel market as well as steel tariffs and other trade events . given increases in raw material cost and resulting degradation on our gross profit margins from 48 % in 2016 , we revised our 2020 target for improving our operating income margin to a range of 16 % to 17 % by the end of 2020. this is revised down from our initial 2020 target range of 21 % to 22 % , and in-line to slightly up compared to our operating margin of 16.4 % in 2016. while these macro events have caused us to revise this goal , it 's important to note that rationalizing our cost structure has helped mitigate further downward pressure on our operating margins . story_separator_special_tag weather conditions , such as extended cold or wet weather , which affect and sometimes delay installation of some of our products , could negatively affect our results of operations . political , economic events such as tariffs and the possibility of additional tariffs on imported raw materials or finished goods or such as labor disputes can also have an effect on our gross and operating profits as well as the amount of inventory on-hand . erp integration in july 2016 , our board of directors ( the “ board ” ) approved a plan to replace our current in-house enterprise resource planning ( “ erp ” ) and externally sourced accounting platforms with a fully integrated erp platform from sap america , inc. ( “ sap ” ) in multiple phases by location at all facilities plus our headquarters , with a focus on configuring , instead of customizing , the standard sap modules . we went live with our first wave of the sap implementation project in february of 2018 , and we implemented sap at two additional locations in 2019. we are tracking toward rolling out sap technology in our remaining u.s. branches by mid-2020 , and company-wide completion of the sap roll-out is currently targeted for the end of 2021. while we believe the sap implementation will be beneficial to the company over time , annual operating expenses have and are expected to continue to increase through 2024 as a 28 result of the sap implementation , primarily due to increases in training costs and the depreciation of previously capitalized costs . as of december 31 , 2019 , we have capitalized $ 19.3 million and expensed $ 25.8 million of the costs , including depreciation of capitalized costs associated with the sap implementation . business segment information historically our north america segment has generated more revenues from wood construction products compared to concrete construction products . during 2019 , economic conditions and wet weather resulted in lower than projected single-family housing starts in the first half of the year , which decreased wood construction product sales volumes over the same time period . wood construction product sales volume increased slightly compared to the year ended december 31 , 2018 , partly due to increased housing starts in the second half of 2019. concrete construction product sales volume increased compared to 2018 , which was primarily due to increased sales volumes . our wood construction product net sales increased 5 % for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , primarily due to both increased sales volumes and higher average sales prices . our concrete construction product net sales increased 18 % for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 also mostly due to increased sales volumes and higher average prices . our europe segment also generates more revenues from wood construction products than concrete construction products . in local currency , europe net sales increased primarily due to increases in average product prices . in united states dollars , wood construction product sales decreased 3.3 % for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 . concrete construction product sales are mostly project based , and net sales increased nearly 1.0 % for the year ended 2019 compared to the year ended 2018. europe net sales were negatively affected by foreign currency translations resulting from europe currencies weakening against the united states dollar . operating expenses decreased $ 4.8 million for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , which was partly due the negative affect by foreign currency translations . see “ europe ” below . our asia/pacific segment has generated revenues from both wood and concrete construction products . we believe that the asia/pacific segment is not significant to our overall performance . ( 1 ) when referred to above , the company 's return on invested capital ( “ roic ” ) for a fiscal year is calculated based on ( i ) the net income of that year as presented in the company 's consolidated statements of operations prepared pursuant to generally accepted accounting principles in the u.s. ( “ gaap ” ) , as divided by ( ii ) the average of the sum of total stockholders ' equity and total long-term interest bearing liabilities , ( which for the company are long-term capital lease obligations ) , at the beginning of and at the end of such year , as presented in the company 's consolidated balance sheets prepared pursuant to gaap for that applicable year . as such , the company 's roic , a ratio or statistical measure , is calculated using exclusively financial measures presented in accordance with gaap . business outlook based on current information and subject to future events and circumstances the company estimates that its full year 2020 : gross margin will be between approximately 43.5 % and 44.5 % . effective tax rate will be approximately 25.0 % and 26.0 % , including both federal and state income tax rates . 29 story_separator_special_tag the following table shows gross profit percentages by segment for the years ended december 31 , 2018 and 2019 , respectively : replace_table_token_9_th * the statistic is not meaningful or material . north america net sales increased 6.8 % primarily due to increased sales volume and average unit price in the united states . canada 's net sales were negatively affected by approximately $ 1.2 million due to foreign currency translation . in local currency , canada net sales increased primarily due to increases in sales volume . gross profit margin decreased to 44.8 % from 46.3 % , primarily due to increased raw material and labor costs .
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results of operations the following table sets forth , for the years indicated , the company 's operating results as a percentage of net sales for the years ended december 31 , 2019 , 2018 and 2017 , respectively : replace_table_token_4_th comparison of the years ended december 31 , 2019 and 2018 unless otherwise stated , the below results , when providing comparisons ( which are generally indicated by words such as “ increased , ” “ decreased , ” “ unchanged ” or “ compared to ” ) , compare the results of operations for the year ended december 31 , 2019 , against the results of operations for the year ended december 31 , 2018 . unless otherwise stated , the results announced below , when referencing “ both years , ” refer to the year ended december 31 , 2018 and the year ended december 31 , 2019 . the company changed its presentation of its consolidated statement of operations to display non–operating activities , including foreign exchange gain ( loss ) , and certain other income or expenses as a separate item below income from operations . foreign exchange gain ( loss ) , and other income or expenses were previously included in general and administrative expenses , and in income from operations , respectively . income before tax and net income for the year ended december 31 , 2018 presented below were not affected by the change in presentation . 30 the following table shows the change in the company 's operations from 2018 to 2019 , and the increases or decreases for each category by segment : replace_table_token_5_th net sales increased 5.4 % to $ 1,136.5 million from $ 1,078.8 million . net sales to home centers , dealer distributors , lumber dealers and contractor distributors increased average net sales unit prices . wood construction product net sales , including sales of connectors , truss plates , fastening systems , fasteners and shearwalls , represented 84 % of the company 's total net sales in both years .
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the fasb has issued asu 2018-02 , income statement—reporting comprehensive income ( topic 220 ) : reclassification of certain tax effects from accumulated other comprehensive income , which helps organizations reclassify certain stranded income tax effects in accumulated other comprehensive income resulting from the tax cuts and jobs act of 2017 ( tcja ) , enacted on december 22 , 2017. specifically , this asu allows a story_separator_special_tag the following discussion of our financial condition and results of operations should be read together with the consolidated financial statements and the notes to those statements included in item 8 “ financial statements and supplementary data . '' this discussion contains forward-looking statements that involve risks and uncertainties . for a description of these forward-looking statements , refer to part i “ cautionary note regarding forward-looking statements. ” a description of factors that could cause actual results to differ materially from the results we anticipate include , but are not limited to , those discussed in item 1a “ risk factors , ” as well as those discussed elsewhere in this annual report . overview we provide mission-focused technology solutions and services for u.s. defense , intelligence community and federal civilian agencies . now in our 50th year , we excel in full-spectrum cyber , data collection & analytics , enterprise it , systems engineering and software application development solutions that support national and homeland security . 21 with substantially all of our revenues being derived from contacts with the u.s. government , or through prime contractors supporting the u.s. government , our results and outlook are significantly impacted by u.s. government policy and spending . federal spending , particularly the dod , has experienced five years of consecutive growth . the dod appropriations for u.s. gfy 2018 and u.s. gfy 2019 grew 8 % and 3 % year-over-year , respectively . additionally , spending for it and cyber contracts increased across the federal government at rates faster than top-line budget growth . for u.s. gfy 2019 , the president signed into law appropriations on september 28 , 2018 funding approximately 75 % of the u.s. government , including the department of defense , the intelligence community , department of veterans affairs and department of health and human services among other select agencies . however , a number of federal civilian agencies , including the departments of homeland security , justice and state , remained funded under a continuing resolution ( cr ) through early december 2018. in december 2018 , congress and the president failed to reach an agreement to fund those departments that were operating under the cr , which forced a shutdown of all activities deemed nonessential . a majority of our contract work for these agencies had been deemed essential . exiting 2018 , and through the shutdown ended january 25 , 2019 , approximately 2 % of our workforce was impacted . the 2018 mid-term election established a divided congress . the composition of congress may limit major shifts in policy and could increase the likelihood that we will enter u.s. gfy 2020 under cr . we expect future appropriations to be debated with the consideration of policy priorities , national budget deficits , debt ceilings , the budget control act and an increasing global threat environment . our industry remains competitive on price . we will continually evaluate and adjust our levels of indirect spending to stay in line with the expected business opportunities to ensure our cost structure remains competitive . our industry also remains competitive in attracting and retaining employees with the necessary skills and security clearances to perform the services we have promised in our contracts . we will continue to pursue acquisitions that broaden our domain expertise and service offerings and or establish relationships with new customers . since going public in 2002 , we have acquired and integrated 28 businesses into our operations . revenues substantially all of our revenues are derived from services and solutions provided to the u.s. government or to prime contractors supporting the u.s. government , including services provided by our employees and our subcontractors , and solutions that include third-party hardware and software that we purchase and integrate as a part of our overall solutions . customer requirements may vary from period-to-period depending on specific contract and customer requirements . the following table shows revenues from each type of customer as a percentage of total revenues for the periods presented . replace_table_token_1_th our prime contractor revenues as a percentage of our total revenues were 89 % , 88 % and 88 % , respectively , for the three years ended december 31 , 2018 , 2017 and 2016 . we provide our services and solutions under three types of contracts : cost-reimbursable ; time-and-materials ; and fixed-price . cost-reimbursable contracts - we are reimbursed for costs that are determined to be reasonable , allowable and allocable to the contract and paid a fee representing the profit margin negotiated between us and the contracting agency , which may be fixed or performance based . under cost-reimbursable contracts we recognize revenues and an estimate of applicable fees earned as costs are incurred . we consider fixed fees under cost-reimbursable contracts to be earned in proportion to the allowable costs incurred in performance of the contract . for performance based fees under cost-reimbursable contracts , we recognize the relevant portion of the expected fee to be awarded by the customer based on factors such as our prior award experience and communications with the customer regarding performance . fixed-price contracts - we perform specific tasks for a fixed price . fixed-price contracts may include either a product delivery 22 or specific service performance over a defined period . revenues on fixed-price contracts that provide for us to render services throughout a period are recognized under a time based model or as earned based on a measure of progress using cost incurred , direct labor or direct labor hours . story_separator_special_tag at december 31 , 2018 , we were contingently liable under letters of credit totaling $ 9.6 million , which reduced our ability to borrow under our revolving credit facility by that amount . the maximum available borrowings under our revolving credit facility at december 31 , 2018 were $ 482.9 million . generally , cash provided by operating activities is adequate to fund our operations , including payments under our regular cash dividend program . due to short-term fluctuations in our cash flows and level of operations , it may become necessary from time-to-time to increase borrowings under our revolving credit facility to meet cash demands . cash flows from operating activities our operating cash flow is primarily affected by our ability to invoice and collect from our clients in a timely manner , our ability to manage our vendor payments and the overall profitability of our contracts . we bill most of our customers monthly after services are rendered . our accounts receivable days sales outstanding ( dso ) were 73 and 61 for the quarters ended december 31 , 2018 and 2017 , respectively . for the years ended december 31 , 2018 , 2017 and 2016 , our net cash flows from operating activities were $ 93.4 million , $ 153.0 million and $ 95.8 million , respectively . the decrease in net cash flows from operating activities during the year ended december 31 , 2018 when compared to the same period in 2017 was primarily due to an increase in accounts receivable related to the timing of collections , with some delays in payments due to the government shutdown . the increase in net cash flows from operating activities during the year ended december 31 , 2017 compared to the same period in 2016 was primarily due to an increase in net income , timing of receivables , accounts payable and accrued salaries and other related expenses , offset by an increase in income tax payments . cash used in investing activities our cash used in investing activities consists primarily of business combinations , purchases of property and equipment and investments in capitalized software for internal use . for the years ended december 31 , 2018 , 2017 and 2016 , our net cash used in investing activities were $ 44.3 million , $ 219.0 million and $ 72.1 million , respectively . for the year ended december 31 , 2018 , our net cash used in investing activities were primarily due to capitalized expenditures . for the year ended december 31 , 2017 , our net cash used in investing activities were primarily due to the acquisition of infozen and capital expenditures . the increase in capital expenditures was primarily due to the upfront purchases of equipment and infrastructure in support of a managed it services contract . for the year ended december 31 , 2016 , our net cash used in investing activities were primarily due to the acquisition of oceans edge , inc. , cyber division and edaptive systems llc as well as capital expenditures . 27 cash flows from ( used in ) financing activities for the years ended december 31 , 2018 , 2017 and 2016 , our net cash flows from ( used in ) financing activities were $ ( 53.3 ) million , $ 10.6 million and $ ( 10 ) thousand , respectively . for the year ended december 31 , 2018 , our net cash used in financing activities were primarily due to repayment of borrowings and payments of dividends which were partially offset by proceeds from the exercise of stock options . for the year ended december 31 , 2017 , our net cash flows from financing activities were primarily due to net borrowings under our revolving credit facility to fund the acquisition of infozen and proceeds from the exercise of stock options , which were partially offset by dividend payments and debt issuance costs related the amendment of our credit facility . for the year ended december 31 , 2016 , our net cash used in financing activities were primarily due to dividends paid offset by the proceeds from the exercise of stock options and the excess tax benefits from the exercise of stock options . revolving credit facility we maintain a credit agreement with a syndicate of lenders led by bank of america , n.a. , as sole administrative agent . the credit agreement provides for a $ 500 million revolving credit facility , with a $ 75 million letter of credit sublimit and a $ 30 million swing line loan sublimit . the credit agreement also includes an accordion feature that permits us to arrange with the lenders for the provision of additional commitments . the maturity date is august 17 , 2022 . borrowings under our credit agreement are collateralized by substantially all the assets of us and our material subsidiaries ( as defined in the credit agreement ) and bear interest at one of the following variable rates as selected by us at the time of borrowing : a london interbank offer rate ( libor ) based rate plus market spreads ( 1.25 % to 2.25 % based on our consolidated total leverage ratio ) or bank of america 's base rate plus market spreads ( 0.25 % to 1.25 % based on our consolidated total leverage ratio ) . the terms of the credit agreement permit prepayment and termination of the loan commitments at any time , subject to certain conditions . the credit agreement requires us to comply with specified financial covenants , including the maintenance of certain consolidated leverage ratios and a certain consolidated coverage ratio . the credit agreement also contains various covenants , including affirmative covenants with respect to certain reporting requirements and maintaining certain business activities , and negative covenants that , among other things , may limit or impose restrictions on our ability to incur liens , incur additional indebtedness , make investments , make acquisitions and undertake certain other actions .
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results of operations year ended december 31 , 2018 compared to year ended december 31 , 2017 consolidated statements of income the following table sets forth certain items from our consolidated statements of income and the relative percentages that certain items of expense and earnings bear to revenues as well as the year-over-year change from december 31 , 2017 to december 31 , 2018 . replace_table_token_3_th 24 revenues the primary driver of our increase in revenues relates to revenues from new contract awards , growth on existing contracts and our acquisition , which were offset by contracts and tasks that ended and reduced scope of work on some contracts . we expect revenues to increase in 2019 due to new contract awards and growth on existing programs . cost of services the increase in cost of services was primarily due to increases in revenues . as a percentage of revenues , direct labor costs decreased to 47 % compared to 48 % for the years ended december 31 , 2018 and 2017 , respectively . as a percentage of revenues , other direct costs , which include subcontractors and third party equipment and materials used in the performance of our contracts , increased to 39 % for the year ended december 31 , 2018 , compared to 37 % for the same period in 2017 . in 2019 , we expect cost of services as a percentage of revenues to remain relatively stable as compared to 2018 . general and administrative expenses the increase in general and administrative expenses was primarily due to staffing increases to support the growth of our business , infrastructure improvements and amortization of acquisition intangibles . as a percentage of revenues , general and administrative expenses decreased for the year ended december 31 , 2018 as compared to the same period in 2017 .
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these fees are accrued at the end of the quarter when the services are performed and generally paid the following quarter . additionally story_separator_special_tag the following analysis of our financial condition and results of operations should be read in conjunction with our accompanying consolidated financial statements and the notes thereto contained elsewhere in this annual report on form 10-k. historical financial condition and results of operations and percentage relationships among any amounts in the financial statements are not necessarily indicative of financial condition , results of operations or percentage relationships for any future periods . except per share amounts , dollar amounts in the tables included herein are in thousands unless otherwise indicated . overview general we were incorporated under the maryland general corporation law on may 30 , 2001. we operate as an externally managed , closed-end , non-diversified management investment company , and have elected to be treated as a bdc under the 1940 act . in addition , for federal income tax purposes we have elected to be treated as a ric under subchapter m of the code . as a bdc and a ric , we are subject to certain constraints , including limitations imposed by the 1940 act and the code . we were established for the purpose of investing in debt and equity securities of established private business operating in the u.s. our investment objectives are to : ( 1 ) achieve and grow current income by investing in debt securities of established businesses that we believe will provide stable earnings and cash flow to pay expenses , make principal and interest payments on our outstanding indebtedness and make distributions to stockholders that grow over time ; and ( 2 ) provide our stockholders with long-term capital appreciation in the value of our assets by investing in equity securities of established businesses that we believe can grow over time to permit us to sell our equity investments for capital gains . to achieve our investment objectives , our investment strategy is to invest in several categories of debt and equity securities , with each investment generally ranging from $ 8 million to $ 30 million , although investment size may vary , depending upon our total assets or available capital at the time of investment . we expect that our investment portfolio over time will consist of approximately 90.0 % debt investments and 10.0 % equity investments , at cost . as of september 30 , 2016 , our investment portfolio was made up of approximately 90.2 % debt investments and 9.8 % equity investments , at cost . we focus on investing in lower middle market companies in the u.s. that meet certain criteria , including , but not limited to , the following : the sustainability of the business ' free cash flow and its ability to grow it over time , adequate assets for loan collateral , experienced management teams with a significant ownership interest in the borrower , reasonable capitalization of the borrower , including an ample equity contribution or cushion based on prevailing enterprise valuation multiples and , to a lesser extent , the potential to realize appreciation and gain liquidity in our equity position , if any . we lend to borrowers that need funds for growth capital or to finance acquisitions or recapitalize or refinance their existing debt facilities . we seek to avoid investing in high-risk , early-stage enterprises . our targeted portfolio companies are generally considered too small for the larger capital marketplace . we invest by ourselves or jointly with other funds and or management of the portfolio company , depending on the opportunity and have opportunistically made several co-investments with our affiliate gladstone investment , pursuant to the co-investment order . we believe this ability to co-invest will continue to enhance our ability to further our investment objectives and strategies . if we are participating in an investment with one or more co-investors , our investment is likely to be smaller than if we were investing alone . going into fiscal year 2017 , we intend to continue to work through some of the older investments in our portfolio to enhance overall returns and hope to show our stockholders new conservative investments in businesses with steady cash flows . we are focused on building our pipeline and making investments that meet our objectives and strategies and that provide appropriate returns , in light of the accompanying risks . business portfolio and investment activity in general , our investments in debt securities have a term of no more than seven years , accrue interest at variable rates ( generally based on the one-month libor ) and , to a lesser extent , at fixed rates . we seek debt instruments that pay interest monthly or , at a minimum , quarterly , have a success fee or deferred interest provision and are primarily interest only with all principal and any accrued but unpaid interest due at maturity . generally , success fees accrue at a set rate and are contractually due upon a change of control of a portfolio company , typically from an exit or sale . some debt securities have deferred interest whereby some portion of the interest payment is added to the principal balance so that the interest is paid , together with the principal , at maturity . this form of deferred interest is often called pik interest . 42 typically , our equity investments consist of common stock , preferred stock , limited liability company interests , or warrants to purchase the foregoing . often , these equity investments occur in connection with our original investment , recapitalizing a business , or refinancing existing debt . during the year ended september 30 , 2016 , we invested $ 79.4 million in 10 new portfolio companies and extended $ 10.1 million of investments to existing portfolio companies . in addition , during the year ended september 30 , 2016 , we exited 13 portfolio companies through sales and early payoffs . story_separator_special_tag in may 2015 , through business loan , we entered into a fifth amended and restated credit agreement , which increased the commitment amount under our credit facility from $ 137.0 million to $ 140.0 million , extended the revolving period end date by three years to january 19 , 2019 , decreased the marginal interest rate added to 30-day libor from 3.75 % to 3.25 % per annum , set the unused commitment fee at 0.50 % on all undrawn amounts , expanded the scope of eligible collateral , and amended certain other terms and conditions . in june 2015 , through business loan , we entered into certain joinder and assignment agreements , adding three new lenders to the credit facility to increase borrowing capacity by $ 30.0 million to $ 170.0 million . refer to liquidity and capital resources revolving credit facility of this item 7 for further discussion of our credit facility . we issued shares of our common stock in an overnight offering in october 2015 , with the overallotment option closing in november 2015 , at a public offering price of $ 8.55 per share , which was below the then current net asset value ( nav ) of $ 9.06 per share . the resulting proceeds provided us with additional equity capital to help ensure continued compliance with regulatory tests . most recently , we issued additional shares of our common stock in an overnight offering in october 2016 , with an overallotment option closing in november 2016 , at a public offering price of $ 7.98 per share , which was below our september 30 , 2016 nav of $ 8.62 per share . the resulting proceeds , in part , will provide us with additional equity capital to help ensure continued compliance with regulatory tests and will allow us to grow the portfolio and generate additional income through new investments . refer to liquidity and capital resources equity common stock of this item 7 for further discussion of our common stock offerings . although we were able to access the capital markets over the last year , we believe uncertain market conditions continue to affect the trading price of our capital stock and thus may inhibit our ability to finance new investments through the issuance of equity . the current volatility in the credit market and the uncertainty surrounding the u.s. economy have led to significant stock market fluctuations , particularly with respect to the stock of financial services companies like ours . during times of increased price volatility , our common stock may be more likely to trade at a price below our nav per share , which is not uncommon for bdcs like us . 44 on november 18 , 2016 , the closing market price of our common stock was $ 8.10 , a 6.0 % discount to our september 30 , 2016 , nav per share of $ 8.62. when our stock trades below nav per common share , as it has fairly consistently over the last several years , our ability to issue equity is constrained by provisions of the 1940 act , which generally prohibits the issuance and sale of our common stock below nav per common share without first obtaining approval from our stockholders and our independent directors , other than through sales to our then-existing stockholders pursuant to a rights offering . at our annual meeting of stockholders held on february 11 , 2016 , our stockholders approved a proposal which authorizes us to sell shares of our common stock at a price below our then current nav per common share subject to certain limitations ( including , but not limited to , that the number of shares issued and sold pursuant to such authority does not exceed 25.0 % of our then outstanding common stock immediately prior to each such sale ) for a period of one year from the date of approval , provided that our board of directors makes certain determinations prior to any such sale . we completed the abovementioned 2016 common stock offering as a result of the stockholder approval of the proposal at our 2016 annual meeting of stockholders and additional board of directors approval . regulatory compliance our ability to seek external debt financing , to the extent that it is available under current market conditions , is further subject to the asset coverage limitations of the 1940 act , which require us to have an asset coverage ratio ( as defined in section 18 ( h ) of the 1940 act ) of at least 200 % on our senior securities representing indebtedness and our senior securities that are stock. as of september 30 , 2016 , our asset coverage ratio on our senior securities representing indebtedness was 462.3 % and our asset coverage ratio on our senior securities that are stock was 249.5 % . recent developments common stock offering in october 2016 , we completed a public offering of 2.0 million shares of our common stock . in november 2016 , the underwriters partially exercised their overallotment option to purchase an additional 173,444 shares of our common stock . gross proceeds totaled $ 17.3 million and net proceeds , after deducting underwriting discounts and offering costs borne by us , were approximately $ 16.4 million . refer to liquidity and capital resources equity common stock of this item 7 for further discussion of our common stock offerings . distributions on october 11 , 2016 , our board of directors declared the following monthly cash distributions to common and preferred stockholders : replace_table_token_8_th 45 story_separator_special_tag margin-bottom:0pt ; font-size:10pt ; font-family : times new roman '' > 48 net unrealized appreciation of investments during the year ended september 30 , 2016 , we recorded net unrealized depreciation of investments in the aggregate amount of $ 15.3 million .
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results of operations comparison of the year ended september 30 , 2016 to the year ended september 30 , 2015 replace_table_token_9_th nm = not meaningful investment income interest income increased by 0.9 % for the year ended september 30 , 2016 , as compared to the prior year . this increase was due primarily to an increase in the weighted average yield on our interest-bearing portfolio partially offset by a slight decrease in the principal balance of our interest-bearing investment portfolio outstanding during the year . the weighted average yield on our interest-bearing investments is based on the current stated interest rate on interest-bearing investments which increased to 11.1 % for the year ended september 30 , 2016 compared to 10.9 % for the year ended september 30 , 2015 , inclusive of any allowances on interest receivables made during those periods . the weighted average principal balance of our interest-bearing investment portfolio during the year ended september 30 , 2016 , was $ 317.0 million , compared to $ 319.1 million for the prior year , a decrease of $ 2.1 million , or 0.1 % . as of september 30 , 2016 , two portfolio companies , sunshine media holdings and vertellus , inc. , were either fully or partially on non-accrual status , with an aggregate debt cost basis of approximately $ 26.5 million , or 7.7 % of the cost basis of all debt investments in our portfolio . as of september 30 , 2015 , two portfolio companies were either fully or partially on non-accrual status , with an aggregate debt cost basis of approximately $ 26.4 million , or 7.1 % of the cost basis of all debt investments in our portfolio . 46 other income increased by 23.1 % during the year ended september 30 , 2016 , as compared to the prior year .
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during the year ended december 31 , story_separator_special_tag the following discussion and analysis contains forward-looking statements about future revenues , operating results , plans and expectations . forward-looking statements are based on a number of assumptions and estimates that are inherently subject to significant risks and uncertainties and our results could differ materially from the results anticipated by our forward-looking statements as a result of many known or unknown factors , including , but not limited to , those factors discussed in part i , item 1a . risk factors . also , please read the “ cautionary statement regarding forward-looking statements ” set forth at the beginning of this annual report on form 10-k. in addition , read the following discussion in conjunction with part 1 of this annual report on form 10-k as well as our consolidated financial statements and the related notes contained elsewhere in this annual report on form 10-k. overview 41 we provide post-acute health care services primarily to medicare beneficiaries throughout the united states , through our home health agencies , hospice agencies , hcbs , long-term acute care hospitals , and hci . our net service revenue increased $ 270.3 million to $ 2.1 billion for the year ending december 31 , 2019 from $ 1.8 billion for the year ending december 31 , 2018 largely as a result of the merger with almost family , inc. that occurred on april 1 , 2018. during 2019 , we acquired 27 agencies , such that , as of december 31 , 2019 , we operated 811 locations in 35 states within the continental united states and the district of columbia . on april 1 , 2018 , we completed our merger with almost family , whereby almost family became a wholly owned subsidiary of the company . the accompanying audited results of operations for the year ended december 31 , 2019 includes the results of almost family for the twelve month period and operations for the year ended december 31 , 2018 includes the results of operations for almost family for the period april 1 , 2018 to december 31 , 2018. see note 3 to the consolidated financial statement included in this annual report on form 10-k for additional information about the merger . segments our services are classified into five segments : ( 1 ) home health , ( 2 ) hospice , ( 3 ) hcbs , ( 4 ) facility-based services , offered primarily through our ltachs , and ( 5 ) hci . through our home health services segment we offer a wide range of services , including skilled nursing , medically-oriented social services , and physical , occupational and speech therapy . as of december 31 , 2019 , we operated 553 home health service locations , of which 350 are wholly-owned by us , 199 are majority-owned or controlled by us through equity joint ventures , two are controlled by us through license lease arrangements , and the remaining two are only managed by us . through our hospice services segment , we offer a wide range of services , including pain and symptom management , emotional and spiritual support , inpatient and respite care , homemaker services , and counseling . as of december 31 , 2019 , we operated 110 hospice locations , of which 53 are wholly-owned by us , 55 are majority-owned by us through equity joint ventures and two , are controlled by us through license lease arrangements . through our hcbs , our services are performed by paraprofessional personnel , and include assistance to elderly , chronically ill , and disabled patients with activities of daily living . as of december 31 , 2019 , we operated 107 community-based services locations , of which 97 are wholly-owned and 10 are majority-owned through an equity joint venture . we provide facility-based services principally through our ltachs . as of december 31 , 2019 , we operated 11 ltachs with 13 locations , of which all but two are located within host hospitals . we also operate one skilled nursing facility , two pharmacies , a family health center , a rural health clinic , and 13 physical therapy clinics . of these 31 facility-based services locations as of december 31 , 2019 , 20 are wholly-owned by us and 11 are controlled by us through equity joint ventures . our hci segment reports on our developmental activities outside its other business segments . the hci segment includes ( a ) imperium health management , llc , an aco enablement and management company , ( b ) long term solutions , inc. , an in-home assessment company serving the long-term care insurance industry , and ( c ) certain assets operated by advanced care house calls , which provides primary medical care for patients with chronic and acute illnesses who have difficulty traveling to a doctor 's office . these activities are intended ultimately , whether directly or indirectly , to benefit our patients and or payors through the enhanced provision of services in our other segments . the activities all share a common goal of improving patient experiences and quality outcomes , while lowering costs . they include , but are not limited to , items such as : technology , information , population health management , risk-sharing , care-coordination and transitions , clinical advancements , enhanced patient engagement and informed clinical decision and technology enabled in-home clinical assessments . we have 10 hci locations , with nine being wholly-owned and one controlled by us through an equity joint venture . the percentage of net service revenue contributed from each reporting segment for the each of the periods ended december 31 , 2019 , 2018 and 2017 was as follows : replace_table_token_3_th 42 development activities the following table provides a summary of our acquisitions , divestitures and internal development activities from january 1 , 2018 through december 31 , 2019 . story_separator_special_tag also , 2020 hospice cap amount will be $ 29,964.98. cms finalized the removal of the one year wage index lag and will use the current year 's wage index to geographically wage adjust hospice payments , and changes to the hospice election statement . the following table shows the hospice medicare payment rates for fiscal year 2020 , which will began on october 1 , 2019 and will end september 30 , 2020 : replace_table_token_6_th home and community-based services hcbs are in-home care services , which are primarily performed by skilled nursing and paraprofessional personnel , and include assistance with activities of daily living to elderly , chronically ill , and disabled patients . revenue is generated on an hourly basis and our current primary payors are tenncare managed care organization and medicaid . facility-based services on december 26 , 2013 , president obama signed into law the bipartisan budget act of 2013 `` public law 113-67 . '' this law prevents a scheduled payment reduction for physicians and other practitioners who treat medicare patients from taking effect on january 1 , 2014. included in the legislation are the following changes to ltach reimbursement : medicare discharges from ltachs will continue to be paid at full ltach pps rates if : ◦ the patient spent at least three days in a stch intensive care unit during a stch stay that immediately preceded the ltach stay , or 44 ◦ the patient was on a ventilator for more than 96 hours in the ltach ( based on the ms-ltach drg assigned ) and had a stch stay immediately preceding the ltach stay . ◦ also , the ltach discharge can not have a principal diagnosis that is psychiatric or rehabilitation . all other medicare discharges from ltachs will be paid at a new “ site neutral ” rate , which is the lesser of the ( `` ipps '' ) comparable per diem amount determined using the formula in the short-stay outlier regulation at 42 c.f.r . § 412.529 ( d ) ( 4 ) plus applicable outlier payments , or 100 % of the estimated cost of the services involved . the above new payment policy will be effective for ltach cost reporting periods beginning on or after october 1 , 2015 , and the site neutral payment rate will be phased-in over two years . for cost reporting periods beginning on or after october 1 , 2015 , discharges paid at the site neutral payment rate or by a medicare advantage plan ( part c ) will be excluded from the ltach average length-of-stay calculation . for cost reporting periods beginning in fiscal year 2016 and later , cms will notify ltachs of their “ ltach discharge payment percentage ” ( i.e. , the number of discharges not paid at the site neutral payment rate divided by the total number of discharges ) . for cost reporting periods beginning in fiscal year 2020 and later , ltachs with less than 50 % of their discharges paid at the full ltach pps rates will be switched to payment under the ipps for all discharges in subsequent cost reporting periods . however , cms will set up a process for ltachs to seek reinstatement of ltach pps rates for applicable discharges . medpac will study the impact of the above changes on quality of care , use of hospice and other post-acute care settings , different types of ltachs and growth in medicare spending on ltachs . medpac is to submit a report to congress with any recommendations by june 30 , 2019. the report is to also include medpac 's assessment of whether the 25 percent rule should continue to be applied . on august 2 , 2016 , cms released the final rule to update fiscal year 2017 ltach reimbursement and policies under the ltach pps , which affects discharges occurring in cost reporting periods beginning on or after october 1 , 2016. this estimated decrease is attributable to the statutory decrease in payment rates for site neutral ltach pps cases that do not meet the clinical criteria to qualify for higher ltach rates in cost reporting years beginning on or after october 1 , 2016. cases that do qualify for higher ltach pps rates will see a payment rate increase of 0.7 % ( including a market basket update of 2.8 % reduced by a multi-factor productivity adjustment of 0.3 % , minus an additional adjustment of 0.75 percentage point in accordance with the ppaca , for a net market basket of 1.75 % ) . the ltach pps standard federal payment rate for fiscal year 2017 is $ 42,476.41 ( increased from $ 41,762.85 in fiscal year 2016 ) . site-neutral discharges will have a 23 % reduction in payments . cms also proposes to begin enforcement of the 25 percent rule which will cap the number of patients treated at an ltach who have been referred from all locations of a hospital . grandfathered ltach facilities are exempt from the 25 percent rule , while rural ltachs will have a threshold of 50 % and msa-dominant hospitals will have a threshold between 25 % and 50 % . the 25 percent rule will apply to discharges occurring after october 1 , 2016. cms will have two separate outlier pools and thresholds for ltach-appropriate patients and for site-neutral patients . for 2017 , cms finalized an increase of its fixed-loss threshold to $ 21,943 from 2016 's $ 16,423 , to limit outlier spending at no more than 8 % of total ltach spending ( 2016 outlier payments may reach 9.0 % ) . cms is applying the proposed inpatient fixed-loss threshold of $ 23,570 for site neutral patients . cms also finalized four new measures for the ltach quality reporting program to meet the requirements of the improving medicare post-acute care transformation ( `` impact '' ) act . for the fiscal year 2018 ltach quality reporting program , cms added quality measures for medicare spending per beneficiary , discharge to community and potentially-preventable 30-day post-discharge readmissions .
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consolidated results of operations the following table sets forth , for the period indicated , our consolidated results ( amounts in thousands ) : replace_table_token_8_th the following table sets forth our consolidated results as a percentage of net service revenue , except income tax expense , which is presented as a percentage of income attributable to lhc group , inc. 's common stockholders : replace_table_token_9_th consolidated net service revenue for the year ended december 31 , 2019 was $ 2.1 billion compared to $ 1.8 billion for the same period in 2018 , an increase of $ 270.3 million , or 14.9 % . consolidated net service revenue growth in 2019 was primarily due to both our acquisitions during 2019 and 2018 , and an increase in same store growth . consolidated net service revenue was comprised of the following for the periods ending december 31 : replace_table_token_10_th revenue derived from medicare represented 64.1 % and 65.4 % of our consolidated net service revenue for the years ended december 31 , 2019 and 2018 , respectively . 48 the following table sets forth each of our segment 's revenue growth or loss , along with key applicable statistical data , for the twelve months ended december 31 , 2019 and the related change from the same period in 2018 ( amounts in thousands , except statistical data , and revenue excludes implicit price concessions ) : replace_table_token_11_th ( 1 ) organic - combination of same store , a location that has been in service with us for greater than 12 months , and de novo , an internally developed location that has been in service for 12 months or less .
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forward-looking statements that involve risks and uncertainties . you should review the sections titled “ summary risk factors ” and part i , item 1a . “ risk factors ” in this form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described below . our results of operations for the year ended december 31 , 2018 , including a discussion of the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , has been reported previously in our annual report on form 10-k for the year ended december 31 , 2019 , filed with the sec on march 10 , 2020 , under the heading “ management 's discussion and analysis of financial condition and results of operations. ” overview we are a clinical stage biopharmaceutical company focused on developing and commercializing a pipeline of novel , proprietary therapeutics that have the potential to transform radiotherapy in cancer . we leverage our expertise in superoxide dismutase mimetics to design drugs to reduce normal tissue toxicity from radiotherapy and to increase the anti-cancer efficacy of radiotherapy . our lead product candidate , avasopasem manganese ( gc4419 , also referred to as avasopasem ) , is a potent and highly selective small molecule dismutase mimetic we are initially developing for the reduction of severe oral mucositis , or som . som is a common , debilitating complication of radiotherapy in patients with head and neck cancer , or hnc . in february 2018 , the u.s. food and drug administration , or fda , granted breakthrough therapy designation to avasopasem for the reduction of som induced by radiotherapy , with or without systemic therapy . in october 2018 , we began evaluating avasopasem in a phase 3 registrational trial , which we refer to as the roman trial , and we expect to report topline data from this trial in the second half of 2021. we believe avasopasem , which to date is not approved for any indication , has the potential to be the first fda-approved drug and the standard of care for the reduction in the incidence of som in patients with hnc receiving radiotherapy , and we plan to further evaluate its use in other radiotherapy-induced toxicities , including esophagitis . in january 2020 , we announced that the first patient was dosed in a phase 2a trial evaluating the efficacy of avasopasem in reducing the incidence of radiotherapy-induced esophagitis in patients with lung cancer , which we refer to as the aesop trial . we expect to report topline data from this trial in the first half of 2022. in june 2020 , following a delay in the planned initiation of the trial due to the covid-19 pandemic , the first patient was dosed in a phase 2a multi-center trial in europe assessing the safety of avasopasem in patients with hnc undergoing standard-of-care radiotherapy , which we refer to as the eusom trial . we expect to report topline data from this trial in the second half of 2021. in addition to developing avasopasem for the reduction of normal tissue toxicity from radiotherapy , we are also developing our dismutase mimetics to increase the anti-cancer efficacy of higher daily doses of radiotherapy , including stereotactic body radiation therapy , or sbrt . our second dismutase mimetic product candidate , gc4711 , is being developed to increase the anti-cancer efficacy of sbrt and we have successfully completed phase 1 trials of intravenous gc4711 in healthy volunteers . in october 2020 , we announced interim data from our pilot phase 1/2 safety and anti-cancer efficacy trial of avasopasem in combination with sbrt in patients with locally advanced pancreatic cancer , or lapc . in the analysis of the intent-to-treat population , multiple endpoints to date showed a positive trend in favor of improved anti-cancer efficacy with avasopasem compared to placebo . while many of the patients were early in their follow-up post treatment , addition of the dismutase mimetic to sbrt appeared to improve survival and response rate versus placebo . toxicity was comparable across both treatment arms , with no significant differences in overall or grade 3 gi toxicity post-sbrt . the data presented included all patients followed for a minimum of three months and 19 for more than one year , with data through august 24 , 2020. we plan to provide final data from this trial with at least one year of follow-up on all patients in the second half of 2021. we leveraged our observations from the pilot lapc trial to prepare our gc4711 clinical trials in combination with sbrt . we initiated a phase 1/2 trial in patients with non-small cell lung cancer , or nsclc , in october 2020 , which we refer to as the greco-1 trial . the greco-1 trial is supported in part by a small business innovation research grant from the national cancer institute of the national institutes of health for the investigation of our dismutase mimetics in combination with sbrt for the treatment of lung cancer . we intend for this trial to assess the anti-cancer efficacy and safety of gc4711 in combination with sbrt . subsequently , we 103 intend to assess the anti-cancer efficacy and safety of gc4711 in combination with sbrt and a checkpoint inhibitor . we expect to report initial data fro m this trial in the first half of 2022. we also plan to initiate a phase 2b trial of gc4711 in combination with sbrt in patients with lapc in the first half of 2021 , which we refer to as the greco-2 trial . in september 2020 , we initiated a pilot phase 2 clinical trial of avasopasem to evaluate its ability to improve 28-day mortality in hospitalized patients who are critically ill with covid-19 . the randomized , double-blind , placebo-controlled phase 2 trial is designed to assess the safety and efficacy of avasopasem in improving 28-day mortality , compared to placebo . story_separator_special_tag we delayed the initiation of the eusom trial due to concerns with clinical trial enrollment in europe during the covid-19 pandemic . the first patient was dosed in this trial in june 2020 , and target enrollment was decreased to approximately 35 patients due to the delay . this trial was expected to contribute to the safety database for avasopasem in patients with hnc receiving radiotherapy . as a result of the delay in initiating the trial in europe , the target enrollment for the roman trial was increased to approximately 450 patients in order to ensure we are positioned to maintain the planned size of the safety database in a timely manner . we have since completed enrollment in the eusom trial and continue to monitor the covid-19 pandemic in europe and any potential impact on the data readout for this trial , which is expected in the second half of 2021. completion of enrollment for the roman trial is expected in the first half of 2021 and topline data is expected in the second half of 2021 , subject to the continuing impact of the covid-19 pandemic on our business . mitigation activities to minimize covid-19-related operation disruptions are ongoing given the severity and evolving nature of the situation , and we are continuing to monitor the impact of the covid-19 pandemic on our operations and ongoing clinical development activity , generally . our third-party contract manufacturing partners continue to operate at or near normal levels . while we currently do not anticipate any material interruptions in our clinical trial supply or manufacturing scale-up activities , it is possible that the covid-19 pandemic and response efforts may have an impact in the future on our third-party suppliers and contract manufacturing partners ' ability to manufacture our clinical trials supply or progress manufacturing scale-up activities . we have also implemented measures designed to protect the health and safety of our workforce , including a work-from-home policy in line with state and local requirements for employees who can perform their jobs offsite . we are continuing our essential research and development activities at our laboratory and are taking precautionary measures to protect our employees working in our facilities in such capacities . critical accounting policies our management 's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , and expenses and the disclosure of contingent assets and liabilities in our financial statements . on an ongoing basis , we evaluate our estimates and judgments , including those related to accrued expenses and stock-based compensation . 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 . 105 while our significant accounting policies are described in more detail in note 2 to our consolidated financial statements included elsewhere in this annual report on form 10-k , we believe the following accounting policies are the most critical to the judgments and estimates used in the preparation of our financial statements . in-process research and development and goodwill intangible assets acquired in a business combination are recognized separately from goodwill and are initially recognized at their fair value at the acquisition date . intangible assets related to in-process research and development , or ipr & d , are treated as indefinite lived intangible assets and not amortized until they are placed into service , typically upon regulatory approval . at that time , we will determine the useful life of the intangible asset and begin amortization . ipr & d assets are reviewed for impairment annually or more frequently if indicators of potential impairment exist . there were no impairments of ipr & d assets for the years ended december 31 , 2020 and 2019. goodwill represents the excess of the purchase price over the estimated fair value of the identifiable assets acquired and liabilities assumed in a business combination . we evaluate goodwill for impairment annually or more frequently upon the occurrence of triggering events or substantive changes in circumstances that could indicate a potential impairment . an impairment loss is recognized when the fair value of the reporting unit to which the goodwill relates is below its carrying value for the difference between the fair value and its carrying amounts . there was no impairment of goodwill for the years ended december 31 , 2020 and 2019. royalty purchase liability pursuant to our amended royalty agreement with blackstone life sciences , we received a cash payment of $ 20.0 million in each of november 2018 , april 2019 and february 2020 and are eligible to receive up to an additional $ 57.5 million from blackstone based upon the achievement of the remaining specified clinical milestones . we have accounted for the amended royalty agreement under accounting standards codification topic 470 , debt . the proceeds received are recorded as long-term debt obligations . interest expense on such obligation is imputed by estimating risk adjusted future royalty payments over the term of the amended royalty agreement which takes into consideration the probability of obtaining fda approval . other significant assumptions include adjustments to estimated gross revenues to arrive at net product sales from which a royalty payment can be estimated . the non-cash interest expense recorded increases the balance of our royalty obligation . the royalty obligation will be reduced when royalty payments are made , if any .
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results of operations for the years ended december 31 , 20 20 and 201 9 the following table sets forth our results of operations for the years ended december 31 , 2020 and 2019 ( in thousands ) : replace_table_token_2_th research and development expense research and development expense increased by $ 12.5 million from $ 42.3 million for the year ended december 31 , 2019 to $ 54.8 million for the year ended december 31 , 2020. the increase was primarily attributable to an increase of $ 7.4 million for avasopasem development costs , as we expanded enrollment in our roman trial , conducted other clinical trials of avasopasem in the u.s. and europe , and scaled up manufacturing . personnel related and share-based compensation expense increased by $ 4.1 million primarily due to increased employee headcount and stock options granted to new and existing employees . general and administrative expense general and administrative expense increased by $ 7.4 million from $ 8.4 million for the year ended december 31 , 2019 to $ 15.7 million for the year ended december 31 , 2020. the increase was primarily attributable to an increase in personnel related and share-based compensation expense of $ 3.9 million primarily due to increased employee headcount and stock options granted to new and existing employees and board members . insurance expense increased by $ 2.3 million , and legal fees and other professional fees increased by $ 0.8 million ; these increases were primarily as a result of becoming a public company . interest income interest income decreased by $ 0.6 million from $ 1.8 million for the year ended december 31 , 2019 to $ 1.2 million for the year ended december 31 , 2020. the decrease was primarily due to lower interest rates on invested balances .
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in addition to the iconic valvoline-branded passenger car motor oils and other automotive lubricant products , valvoline provides a wide array of lubricants used in heavy duty equipment , as well as automotive chemicals and fluids designed to improve engine performance and lifespan . valvoline 's premium branded product offerings enhance its high-quality reputation and provide customers with solutions that address a wide variety of needs . in the united states and canada , valvoline 's products and services are sold to retailers with over 30,000 retail outlets , to installer customers with over 12,000 locations , and through 1,242 franchised and company-owned stores . valvoline also has a strong international presence with products sold in more than 140 countries . valvoline serves its customer base through its sales force and technical support organization , allowing valvoline to leverage its technology portfolio and customer relationships globally , while meeting customer demands locally . this combination of scale and strong local presence is critical to the company 's success . valvoline 's fiscal year ends on september 30 of each year , and valvoline has three reportable segments : core north america , quick lubes , and international , with certain corporate and non-operational items included in unallocated and other to reconcile to consolidated results . refer to item 1 included in part i of this annual report on form 10-k for a description of valvoline 's reportable segments . fiscal 2018 overview the following were the significant events for fiscal 2018 , each of which is discussed more fully in this annual report on form 10-k : growth in both sales and earnings in quick lubes was driven by organic same-store sales growth and an overall increase in the number of stores from both acquisitions , including quick lubes ' first international acquisition in canada and new store openings . during fiscal 2018 , quick lubes grew system-wide same-store sales by 8.3 % , marking the 12 th consecutive year of system-wide same-store sales growth . this growth was the result of a balanced contribution from both increased average ticket and number of transactions due to effective marketing and customer retention programs , excellent in-store execution , and favorable pricing and premium mix . additionally , the quick lubes system added 115 net new stores in fiscal 2018 , which included organic and inorganic growth in company-owned service center stores , as well as expansion in franchised service center stores . in international , volumes were up 2 % for the year and income from operations grew 11 % , which was driven by joint venture contributions , favorable currency exchange benefits , cost management , as well as the success of passing through raw material inflation . core north america faced significant raw material cost inflation and competitive pressure during fiscal 2018 , but grew premium mix and passed through price increases in response to higher costs . though the environment was challenging during 30 the fiscal year , the core north america business generated earnings that supported the company 's growth in both the quick lubes and international reportable segments . valvoline returned $ 383 million to its shareholders during the year through dividends and share repurchases . during fiscal 2018 , the company paid $ 58 million , or $ 0.298 per common share , in cash dividends and repurchased 15 million shares of valvoline common stock for $ 325 million . during fiscal 2018 , tax reform legislation was enacted in the u.s. and in kentucky , where valvoline is incorporated . while this legislation is expected to ultimately benefit valvoline with a lower effective tax rate and decreased cash taxes , the company recorded $ 78 million of additional income tax expense during the fiscal year primarily to remeasure net deferred tax assets at lower corporate tax rates and recognize deemed repatriation taxes as a result of the new tax legislation . business strategy valvoline 's key business and growth strategies include : accelerating quick lube unit growth through organic service center expansion and opportunistic acquisitions , while enhancing service center store-level performance ; improving execution and continuing to focus investment in key emerging markets where demand is growing ; strengthening and expanding valvoline 's existing business by improving distribution channels and increasing penetration of valvoline 's full product portfolio ; broadening electric vehicle ( “ ev ” ) capabilities by developing relationships with oems and leveraging innovation in the development of future ev products and light services in direct and adjacent markets ; and investing in talent and technology to develop valvoline 's global hands-on expert capabilities and culture to drive speed and efficiency in both customer-facing and back-office critical processes . use of non-gaap measures to aid in the understanding of valvoline 's ongoing business performance , certain items within this document are presented on an adjusted , non-gaap basis . these non-gaap measures are not defined within u.s. gaap and do not purport to be alternatives to net income/loss or cash flows from operating activities as measures of operating performance or cash flows . the following are the non-gaap measures management has included and how management defines them : ebitda , which management defines as net income/loss , plus income tax expense/benefit , net interest and other financing expenses , and depreciation and amortization ; adjusted ebitda , which management defines as ebitda adjusted for key items , as further described below , and net pension and other postretirement plan income ; and free cash flow , which management defines as operating cash flows less capital expenditures and certain other adjustments as applicable . these measures are not prepared in accordance with u.s. gaap , and management believes the use of non-gaap measures assists investors in understanding the ongoing operating performance of valvoline 's business by presenting comparable financial results between periods . story_separator_special_tag 32 results of operations story_separator_special_tag related to $ 75 million in new borrowings on the accounts receivable securitization facility entered into in the first fiscal quarter of 2017 and the issuance of notes in the aggregate principal amount of $ 400 million in the fourth fiscal quarter of 2017. income tax expense 2018 compared to 2017 income tax expense was $ 166 million for fiscal 2018 , or an effective tax rate of 50.0 % , compared to expense of $ 186 million , or an effective tax rate of 38.0 % for fiscal 2017. the increase in the effective tax rate is primarily due to the enactment of u.s. and kentucky tax reform legislation in fiscal 2018 , which resulted in a net increase in income tax expense of approximately $ 78 million 35 largely related to remeasurement of net deferred tax assets that more than offset benefits of the related reduction in the federal income tax rate for fiscal 2018 . 2017 compared to 2016 income tax expense for fiscal 2017 was $ 186 million , or an effective tax rate of 38.0 % , compared to an expense of $ 148 million , or an effective tax rate of 35.2 % for 2016. in fiscal 2017 , the effective tax rate was impacted by increased net pension and other postretirement plan income that generated income in higher tax rate jurisdictions , income tax expense resulting from the tax matters agreement activity with ashland , certain non-deductible separation costs , and the partial loss of certain tax deductions from the $ 394 million voluntary contribution to the u.s. qualified pension plan , partially offset by a benefit from a state valuation allowance release . ebitda and adjusted ebitda the following table reconciles net income to ebitda and adjusted ebitda for the years ended september 30 : replace_table_token_10_th ( a ) net pension and other postretirement plan income includes remeasurement gains and losses and recurring non-service pension and other postretirement net periodic income , which consists of interest cost , expected return on plan assets and amortization of prior service credit . refer to note 13 of the notes to consolidated financial statements included in item 8 of part ii of this annual report on form 10-k for further details . the increase in adjusted ebitda of $ 19 million in fiscal 2018 was primarily due to the performance of the quick lubes and international reportable segments that had favorable changes in volume , premium mix improvements in core north america and quick lubes , acquisitions in quick lubes , as well as the benefits from currency exchange and increased equity and other income , partially offset by higher planned investments in selling , general and administrative expense . the increase in adjusted ebitda of $ 7 million from fiscal 2016 to 2017 was primarily due to solid performance by the reportable segments , led by quick lubes , and offset by investments in the company 's stand-alone public company infrastructure . reportable segment review valvoline 's business is managed within the following three reportable segments : core north america - sells engine and automotive maintenance products in the united states and canada to retailers , installers and heavy-duty customers to service vehicles and equipment . quick lubes - services the passenger car and light truck quick lube market in the united states and canada through company-owned and independent franchised retail quick lube service center stores , as well as express care stores where independent operators service vehicles with valvoline products . international - sells engine and automotive maintenance products in approximately 140 countries outside of the united states and canada for the maintenance of consumer and commercial vehicles and equipment . results of valvoline 's reportable segments are presented based on how operations are managed internally , including how the results are reviewed by the chief operating decision maker . the structure and practices are specific to valvoline ; therefore , the financial results of its reportable segments are not necessarily comparable with similar information for other comparable companies . valvoline 's reportable segments are measured for profitability based on operating income ; therefore , valvoline does not generally allocate items to each reportable segment below operating income , such as net pension and other postretirement income , interest expense or income tax expense . valvoline allocates all items above operating income to its reportable segments except for certain significant corporate and 36 non-operational matters , including , but not limited to , company-wide restructuring activities and adjustments related to legacy businesses that valvoline no longer operates . due to the freeze of u.s. pension benefits effective september 30 , 2016 , continuing service costs are limited to certain international pension plans , and are reported in the reportable segment and caption of the consolidated statements of comprehensive income as the related employee payroll expenses . all remaining non-service and remeasurement components of pension and other postretirement benefits costs are recorded below operating income and attributed to unallocated and other . the following table presents sales , operating income and statistical operating information by reportable segment for the years ended september 30 : replace_table_token_11_th ( a ) gross profit is defined as sales , less cost of sales . ( b ) excludes volumes from unconsolidated subsidiaries . 37 core north america 2018 compared to 2017 core north america sales increased $ 31 million , or 3 % , to $ 1,035 million during fiscal 2018 , which was driven by higher product pricing as a result of the pass through of raw material cost increases . gross profit decreased approximately $ 25 million during fiscal 2018 compared to 2017. this decline was primarily related to higher raw material costs as compared to the prior year period and the lag between cost and price increases , which more than offset the benefits of pricing actions and premium product mix improvements .
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consolidated review the following table summarizes the results of the company 's operations for the years ended september 30 : replace_table_token_6_th sales fiscal 2018 sales increased $ 201 million , or 10 % compared to fiscal 2017 , and fiscal 2017 sales increased $ 155 million , or 8 % compared to fiscal 2016. the following table provides a reconciliation of the changes : replace_table_token_7_th 2018 compared to 2017 key drivers of the increase in sales from the prior year were increased product pricing , favorable premium mix , acquisitions of quick lubes service center stores , as well as overall increased volumes . during fiscal 2018 , lubricant gallons sold increased 1 % to 181.9 million . in addition , there were favorable changes in product mix , with increases in the percentage of premium lubricant sales within the core north america and quick lubes reportable segments , as well as favorable currency exchange . 2017 compared to 2016 the primary drivers of the increase in sales were higher volumes and increased product pricing . favorable changes in product mix with increases in the percentage of sales for premium lubricants in core north america and quick lubes and favorable currency exchange increased sales . during fiscal 2017 , lubricant gallons sold increased 3 % to 179.7 million . acquisitions within the quick lubes reportable segment also increased sales during fiscal 2017. the changes to reportable segment sales and the drivers thereof are discussed in further detail in “ reportable segment review ” below .
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factors that could cause or contribute to such differences include , but are not limited to , market prices for oil , natural gas and ngls , production volumes , estimates of proved , probable and possible reserves , mineral acquisition capital , economic and competitive conditions , regulatory changes and other uncertainties , as well as those factors discussed below and elsewhere in this annual report , particularly in “ item 1a—risk factors ” and “ cautionary statement regarding forward-looking statements , ” all of which are difficult to predict . in light of these risks , uncertainties and assumptions , the forward-looking events discussed may not occur . we do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law . overview brigham minerals was formed to acquire and actively manage a portfolio of mineral and royalty interests in the core of what we view as the most active , highly economic , liquids-rich resource plays across the continental united states . our primary business objective is to maximize risk-adjusted total return to our shareholders through ( i ) the growth of our free cash flow generated from our existing portfolio of approximately 86,285 net royalty acres , and ( ii ) the continued sourcing and execution of accretive mineral acquisitions in the core of highly economic , liquids-rich resource plays . as of december 31 , 2020 , we owned 86,285 net royalty acres across 37 counties within the permian basin in west texas and new mexico , the scoop/ 62 stack plays in the anadarko basin of oklahoma , the dj basin in colorado and wyoming and the williston basin in north dakota . financial and operational overview : our production volumes increased 28 % , to 9,483 boe/d ( 72 % liquids , 53 % oil ) , for the year ended december 31 , 2020 as compared to the prior year . our mineral and royalty revenues composed of crude oil , natural gas and ngl sales decreased 12 % , to $ 86.2 million , for the year ended december 31 , 2020 as compared to the prior year . our net loss for the year ended december 31 , 2020 was $ 58.0 million . adjusted net income was $ 7.1 million , excluding an after-tax impairment to oil and gas properties of $ 65.1 million . our net income for the twelve months ended december 31 , 2019 was $ 21.6 million , while adjusted net income was $ 27.8 million . adjusted ebitda and adjusted ebitda ex lease bonus decreased 17 % to $ 65.0 million , and 20 % to $ 59.6 million , respectively , for the year ended december 31 , 2020 as compared to the prior year . adjusted net income , adjusted ebitda and adjusted ebitda ex lease bonus are non-gaap financial measures . for a definition of adjusted net income , adjusted ebitda and adjusted ebitda ex lease bonus and a reconciliation to our most directly comparable measure calculated and presented in accordance with gaap , please read `` how we evaluate our operations—adjusted ebitda and adjusted ebitda ex lease bonus . '' on february 19 , 2021 , the board of directors of brigham minerals declared a dividend of $ 0.26 per share of class a common stock payable on march 26 , 2021 to shareholders of record at the close of business on march 19 , 2021.this brings the total capital returned to shareholders related to financial results from fiscal year 2020 to $ 1.01 per share . as of december 31 , 2020 , brigham minerals had a cash balance of $ 9.1 million and $ 115.0 million of capacity on our revolving credit facility , providing the company with total liquidity of $ 124.1 million . market environment and covid-19 the ongoing global spread of a novel strain of coronavirus ( sars-cov-2 ) , which causes covid-19 , has caused a continuing disruption to the oil and natural gas industry and to our business by , among other things , contributing to a significant decrease in demand for crude oil and the price for oil beginning in the first quarter of 2020 and continuing through the fourth quarter of 2020. additionally , in march 2020 , saudi arabia and russia failed to agree to and maintain oil price and production controls within opec and russia . subsequently , saudi arabia announced plans to increase production and reduce the prices at which they sell oil . while opec+ subsequently agreed to collectively decrease production , these events , combined with the macro-economic impact of the continued outbreak of the covid-19 pandemic and declining availability of hydrocarbon storage , exacerbated the decline in commodity prices , including the historic , record low price of negative ( $ 36.98 ) per barrel that occurred in april 2020. additionally , in july 2020 , opec+ agreed to begin easing production cuts starting in august 2020. market volatility has continued , and we expect it will continue for the foreseeable future . please see “ item 1a—risk factors ” for further discussion of these events . in response to the covid-19 pandemic , the potential risk to our workforce and in compliance with stay at home orders , we successfully implemented policies and the technological infrastructure for all of our employees to work from home in the first quarter of 2020 and ceased all business travel . in compliance with the requirements for the re-opening of the texas economy , we are currently operating our office at 75 % capacity while continuing to support working from home for our employees that are considered high-risk pursuant to the centers for disease control and prevention guidelines or have household members meeting the criteria of the guidelines . due to these efforts , we have not experienced material disruptions to our operations or the health of our workforce . story_separator_special_tag during the past five years , the posted price for wti has ranged from a historic , record low price of negative ( $ 36.98 ) per barrel in april 2020 to a high of $ 77.41 per barrel in june 2018. the henry hub spot market price for natural gas has ranged from a low of $ 1.33 per mmbtu in september 2020 to a high of $ 6.24 per mmbtu in january 2018. as of december 31 , 2020 , the posted price for oil was $ 48.35 per barrel and the henry hub spot market price of natural gas was $ 2.36 per mmbtu . lower prices may not only decrease our revenues , but also potentially the amount of oil , natural gas and ngls that our operators can produce economically . the prices we receive for oil , natural gas and ngls vary by geographical area . the relative prices of these products are determined by factors affecting global and regional supply and demand dynamics , such as economic and geopolitical conditions , production levels , availability of transportation , weather cycles and other factors . in addition , realized prices are influenced by product quality and proximity to consuming and refining markets . any differences between realized prices and nymex prices are referred to as differentials . all of our production is derived from properties located in the united states . oil . the substantial majority of our oil production is sold at prevailing market prices , which fluctuate in response to many factors that are outside of our control . nymex light sweet crude oil , commonly referred to as wti , is the prevailing domestic oil pricing index . the majority of our oil production is priced at the prevailing market price with the final realized price affected by both quality and location differentials . the chemical composition of crude oil plays an important role in its refining and subsequent sale as petroleum products . as a result , variations in chemical composition relative to the benchmark crude oil , usually wti , will result in price adjustments , which are often referred to as quality differentials . the characteristics that most significantly affect quality differentials include the density of the oil , as characterized by its api gravity , and the presence and concentration of impurities , such as sulfur . location differentials generally result from transportation costs based on the produced oil 's proximity to consuming and refining markets and major trading points . natural gas . the nymex price quoted at henry hub is a widely used benchmark for the pricing of natural gas in the united states . the actual volumetric prices realized from the sale of natural gas differ from the quoted nymex price as a result of quality and location differentials . quality differentials result from the heating value of natural gas measured in btus and the presence of impurities , such as hydrogen sulfide , carbon dioxide and nitrogen . natural gas containing ethane and heavier hydrocarbons has a higher btu value and will realize a higher volumetric price than natural gas that is predominantly methane , which has a lower btu value . natural gas with a higher concentration of impurities will realize a lower volumetric price due to the presence of the impurities in the natural gas when sold or the cost of treating the natural gas to meet pipeline quality specifications . natural gas , which currently has a limited global transportation system , is subject to price variances based on local supply and demand conditions and the cost to transport natural gas to end-user markets . ngls . ngl pricing is generally tied to the price of oil , but varies based on differences in liquid components and location . oil and gas properties 66 under the full cost method of accounting , total capitalized costs of oil and natural gas properties , net of accumulated depletion and related deferred income taxes , may not exceed an amount equal to the present value of future net revenues from proved reserves , discounted at 10 % per annum ( `` pv-10 '' ) , plus the cost of unevaluated properties , less related income tax effects ( full cost ceiling limitation ) . a write-down of the carrying value of the full cost pool ( `` impairment charge '' ) is a noncash charge that reduces earnings and impacts equity in the period of occurrence and typically results in lower depletion expense in future periods . a ceiling limitation is calculated at each reporting period . the ceiling limitation calculation is prepared using an unweighted arithmetic average of oil prices ( `` sec oil price '' ) and natural gas prices ( `` sec gas price '' ) as of the first day of each month for the trailing 12-month period ended , as required under the guidelines established by the sec . as of december 31 , 2020 , 2019 and 2018 , the sec oil prices were $ 39.57 , $ 55.65 , and $ 65.66 , respectively , per barrel for oil , adjusted by area for energy content , transportation fees and regional price differentials , and the sec gas prices were $ 2.00 , $ 2.60 , and $ 3.12 , respectively , per mmbtu for natural gas , adjusted by area for energy content , transportation fees and regional price differentials .
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results of operations year ended december 31 , 2020 compared to year ended december 31 , 2019 the following table provides the components of our revenues and expenses for the periods indicated , as well as each period 's respective average prices and production volumes : replace_table_token_16_th 70 ( 1 ) hedge prices reflect the effect of our commodity derivative transactions on our average sales prices . our calculation of such effects include realized gains and losses on cash settlements for commodity derivatives , which we do not designate for hedge accounting . * * * a percentage calculation is not meaningful due to change in signs , zero-value denominator or a change greater than 300. revenues total revenues for the year ended december 31 , 2020 decreased by 10 % , or $ 9.8 million , compared to the year ended december 31 , 2019. the decrease was attributable to a $ 11.6 million decrease in mineral and royalty revenues during the period , partially offset by a $ 1.8 million increase in lease bonus revenue . the decrease in mineral and royalty revenues was primarily the result of a decrease in realized commodity prices of 31 % resulting in a $ 39.3 million decrease in mineral and royalty revenues . this was partially offset by an increase in drilling and completion activity on our mineral and royalty interests , and to a lesser degree by acquisitions of proved developed producing reserves , which resulted in a 28 % increase in production volumes to 9,483 boe/d and a corresponding increase in mineral and royalty revenues of $ 27.7 million .
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we believe that a wide range of diseases may potentially be treated or prevented with gene therapeutics . in addition to treating diseases for which there is no treatment , we believe that there is a significant opportunity to use gene therapeutics to more effectively treat diseases that are currently treated using other therapeutic classes of drugs such as protein-based drugs , monoclonal antibodies , or small molecule drugs . gene therapeutics consist of a delivery vehicle , called a vector , and genetic material . the role of the vector is to carry the genetic material into a target cell . once delivered into the cell , the gene can express or direct production of the specific proteins encoded by the gene . gene therapeutics may be used to treat disease by facilitating the normal protein production or gene regulation capabilities of cells . gene therapeutics may be used to enable cells to produce more of a certain protein or different proteins than they would normally produce thereby treating a disease state . vectors can also be used to deliver specific sequences that once delivered and expressed as rna interference , or rnai , can shut down or interfere with messenger rna , or mrna , production of disease specific genes . most of our expenses are related to the development of our research and development programs , the conduct of preclinical studies and clinical trials and general and administrative support for these activities . we have financed the company primarily through proceeds from public and private sales of our equity securities , through cash payments received from our collaborative partners for product development and manufacturing activities and through proceeds from the issuance of debt and loan funding under equipment financing arrangements . during 2007 , we completed two private placements of our common stock generating approximately $ 26.0 million to fund our programs and operations . on june 27 , 2007 , we sold 6.7 million shares of our common stock in a private placement at a price of $ 2.905 per share and received net proceeds of approximately $ 17.9 million . in addition , in connection with the financing , we issued warrants to purchase up to 6.7 million shares of our common stock . we also issued a warrant with the same terms as those issued pursuant to our private placement to purchase 334,989 shares of our common stock as compensation to the placement agent in this transaction . on january 11 , 2007 , we sold 2.2 million shares of our common stock in a private placement at a price of $ 4.00 per share and received net proceeds of approximately $ 8.1 million . in connection with this financing we issued warrants to purchase up to 763,000 shares of our common stock . we also issued a warrant to purchase 16,119 shares of our common stock as compensation to the placement agent in this transaction . as of december 31 , 2007 , our accumulated deficit totaled $ 300.2 million . we expect to generate substantial additional losses for the foreseeable future , primarily due to the costs associated with funding our inflammatory arthritis clinical development program , developing and maintaining our manufacturing capabilities and developing our intellectual property assets . we will require access to significantly higher amounts of capital than we currently have in order to successfully develop our lead inflammatory arthritis product candidate and our partnered product candidates . we may be unable to obtain required funding when needed or on acceptable terms , obtain or maintain corporate partnerships or complete acquisition transactions necessary or desirable to complete the development of our product candidates . critical accounting policies , estimates and assumptions our discussion and analysis of our financial condition and results of operations is based upon financial statements that we have prepared in accordance with accounting principles generally accepted in the united states . as we prepare our financial statements we are required to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosures . on an on-going basis , we evaluate these estimates , including those related to revenue , accrued restructure charges , goodwill and stock-based compensation . estimates are based 31 on historical experience , information received from third parties 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 . our actual results may differ from these estimates under different assumptions or conditions . note 1 of the notes to our consolidated financial statements , description of business and summary of significant accounting policies , summarizes our significant accounting policies that we believe are critical to the presentation of our consolidated financial statements . our most critical accounting policies , estimates and assumptions are : revenue recognition policy we generate revenue from technology licenses , collaborative research arrangements and agreements to provide research , development and manufacturing services . revenue under technology licenses and collaborative agreements typically consists of nonrefundable , up-front license fees , collaborative research funding , technology access fees and various other payments . we initially defer revenue from nonrefundable , up-front license fees and technology access payments and then recognize it systematically over the service period of the collaborative agreement , which is often the development period . we recognize revenue associated with performance milestones as earned , typically based upon the achievement of the specific milestones defined in the applicable agreements . we recognize revenue under research and development contracts as the related costs are incurred . when contracts include multiple elements we follow the emerging issues task force , or eitf , issue no . story_separator_special_tag as a result of an interim goodwill impairment test performed in 2006 , we recognized a non-cash loss on impairment of goodwill of $ 23.7 million based on an assessment that the implied value of goodwill was $ 7.9 million . since 2006 , based on our 2007 annual evaluation , we have had no further indications of impairment on our goodwill balance . the process of evaluating the potential impairment of goodwill is subjective and requires significant judgment . in estimating our fair value , we make estimates and judgments about our future revenues and cash flows , application of a discount rate , and the potential control premium relative to the market price of our stock at the valuation date . in estimating the fair value of our net assets , including intangible assets , we make estimates and judgments relating to the fair value of specific assets and liabilities . these estimates generally involve projections of the cash flows which may be provided by specific assets such as in process research and development , completed technology and trademarks and trade names , including assumptions as to the probability of bringing drug candidates to market , the timing of product development , the market size addressed by our potential products , and the application of discount rates . changes in these estimates could affect our conclusion as to whether an impairment has occurred and could significantly impact the amount of impairment recorded . 33 stock-based compensation prior to january 1 , 2006 , we had applied the intrinsic value method of accounting for stock awards granted to our employees and directors under the provisions of accounting principles board , or apb , opinion no . 25 , accounting for stock issued to employees , and related interpretations , as permitted by sfas no . 123 , accounting for stock-based compensation. accordingly , in 2005 we did not recognize any stock-based compensation expense for stock awards granted to employees or directors because we granted all options at fair market value on the date of grant . on january 1 , 2006 , we adopted sfas no . 123r , share-based payment , or sfas no . 123r . we have adopted the sfas no . 123r fair value recognition provisions using the modified prospective transition method . under the modified prospective method , compensation expense includes : ( a ) compensation cost for all share-based stock awards granted prior to , but not yet vested as of january 1 , 2006 , based on the grant-date fair value used for prior pro forma disclosures adjusted for forfeitures and ( b ) compensation cost for all stock awards granted subsequent to january 1 , 2006 , based on the grant-date fair value estimate in accordance with the provisions of sfas no . 123r . according to the guidelines of sfas no . 123r , we have not restated results for periods prior to january 1 , 2006. as a result of adopting sfas no . 123r , we recorded stock compensation expense of $ 966,000 for the year ended december 31 , 2007 and $ 861,000 for the year ended december 31 , 2006. this expense is classified as follows : replace_table_token_4_th determining the appropriate fair value model and calculating the fair value of stock awards requires the input of highly subjective assumptions , including the expected life of the share-based payment awards and stock price volatility . we based our volatility and expected life estimates on our historical data . the assumptions used in calculating the fair value of share-based payment awards represent our best estimates , but these estimates involve inherent uncertainties and the application of judgment . as a result , if factors change and we use different assumptions , our future stock-based compensation expense could be materially different from the amounts currently recorded in our financial statements . for example , in the fourth quarter of 2007 , we booked an additional $ 229,000 of stock-based compensation due to refinements to our estimates of forfeitures . in addition , we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest . if our actual forfeiture rate is materially different from our estimate , the stock-based compensation expense could be significantly different from what we have recorded in the current period . see note 1 of the notes to our consolidated financial statements for a further discussion on stock-based compensation . application of new accounting standards in september 2006 , the financial accounting standards board , or fasb , issued sfas no . 157 , fair value measurements , or sfas no . 157. sfas no . 157 provides guidance for using fair value to measure assets and liabilities and requires expanded information about the extent to which companies measure assets and liabilities at fair value , the information used to measure fair value , and the effect of fair value measurements on earnings . the standard applies whenever other standards require ( or permit ) assets or liabilities to be measured at fair value . the standard does not expand the use of fair value in any new circumstances . sfas no . 157 is effective for fiscal years beginning after november 15 , 2007. we are in the process of evaluating the effect of the adoption of sfas no . 157. in february 2007 , the fasb issued sfas no . 159 , the fair value option for financial assets and financial liabilities including an amendment of fasb statement no . 115 , or sfas no . 159. sfas no . 159 permits entities to choose to measure certain financial assets and liabilities at fair value . unrealized gains and losses on items for which the fair value option has been elected are reported in 34 earnings . sfas no .
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results of operations revenue replace_table_token_5_th revenue in 2007 was $ 10.3 million , compared to $ 9.9 million in 2006. revenue earned under the niaid-funded hiv/aids vaccine project in collaboration with chop and nch increased to $ 5.4 million in 2007 from $ 1.5 million in 2006 reflecting increased research and development activities , support of preclinical studies and initiation of vector manufacturing for clinical trials . revenue earned under our heart failure collaboration with celladon decreased slightly to $ 4.0 million in 2007 from $ 4.2 million in 2006. revenue from our iavi collaboration decreased to $ 309,000 in 2007 from $ 2.3 million in 2006 due to less development activity as the project was largely focused on clinical testing in 2007 which is managed , monitored and directly funded by iavi . we recognized $ 600,000 in licensing revenue in 2007 compared to $ 1.8 million in 2006 related to a non-exclusive license to certain of our aav1 vector gene 35 delivery system patent rights that we granted to amt . revenue in 2006 was $ 9.9 million , compared to $ 6.9 million in 2005. our revenue in 2006 consisted primarily of amounts we earned under our heart failure collaboration with celladon which increased to $ 4.2 million in 2006 from $ 777,000 in 2005. this increase in revenue reflects internal development efforts and the completion of two manufacturing campaigns during 2006. our revenue in 2006 also included $ 1.5 million from our niaid-funded hiv/aids vaccine collaboration with chop and nch .
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the agreement requires us to redeem the bonds in varying annual installments , ranging from $ 560 to $ 760 annually through 2017. we are also required to redeem the bonds in certain other circumstances story_separator_special_tag the following discussion and analysis should be read in conjunction with the consolidated financial statements and the notes to consolidated financial statements . our fiscal year ends on the final thursday of june each year , and typically consists of fifty-two weeks ( four thirteen week quarters ) . however , the year ended june 30 , 2011 consisted of fifty-three weeks , as our fourth quarter consisted of fourteen weeks . where applicable , we present material changes which result from the additional week in the fiscal 2011 period . references herein to fiscal 2013 are to the fiscal year ending june 27 , 2013. references herein to fiscal 2012 are to the fiscal year ended june 28 , 2012. references herein to fiscal 2011 are to the fiscal year ended june 30 , 2011. references herein to fiscal 2010 are to the fiscal year ended june 24 , 2010. as used herein , unless the context otherwise indicates , the terms we , us , our or the company refer collectively to john b. sanfilippo & son , inc. and its wholly-owned subsidiary , jbss properties , llc . our credit facility and mortgage facility , as defined below , are sometimes collectively referred to as our financing arrangements. we are one of the leading processors and distributors of peanuts , pecans , cashews , walnuts , almonds and other nuts in the united states . these nuts are sold under a variety of private labels and under the fisher , orchard valley harvest and sunshine country brand names . we also market and distribute , and in most cases manufacture or process , a diverse product line of food and snack products , including peanut butter , almond butter , candy and confections , natural snacks and trail mixes , sunflower seeds , dried fruit , corn snacks , sesame sticks and other sesame snack products under private labels and brand names . we distribute our products in the consumer , commercial ingredients , contract packaging and export distribution channels . 21 we developed a five-year strategic plan ( the strategic plan ) during fiscal 2009 to help us achieve long-term profitable growth . our long-term goals include ( i ) attaining recognition by global retailers , food service providers and consumers as a world class nut partner , ( ii ) attaining recognition as a high quality , well-run food business that utilizes our vast industry knowledge and innovation to achieve high growth and profitability , ( iii ) meeting the demands of nut consumers throughout the world , ( iv ) profitably increasing our market share in private label brands by using innovation valued by our customers , ( v ) substantially increasing our presence in the commercial ingredients distribution channel , ( vi ) providing the best total solution to retailers by increasing our presence beyond the traditional nut aisles of stores , ( vii ) utilizing our fisher brand name recognition as a foundation for targeted sustained growth via value-added snack and baking products , and ( viii ) utilizing acquisitions , joint ventures and or strategic alliances as they present themselves to grow our business and expand into new target markets . we have executed portions of this strategy throughout fiscal 2012 , including an increase in private label sales to a major customer , a renewed focus on our branded business , and continuing our integration of certain assets of orchard valley harvest , inc. into our existing operations which provides us with a significant presence in the produce section of retail supermarkets . additionally , recent data indicates that our fisher brand market share in baking nuts has increased significantly . we face a number of challenges in the future . specific challenges , among others , include : high tree nut commodity costs ( including as a result of increased demand for pecans and walnuts in china ) , intensified competition for market share from both private label and branded nut products and executing our strategic plan . we will continue to focus on seeking profitable business opportunities to further utilize our additional production capacity at our elgin site . we expect to continue to be able to devote more funds in fiscal 2013 and beyond to promote and advertise our fisher brand and to develop new products for our branded and private label businesses . however , these efforts have proved to be challenging because , among other things , consumer preferences in snack nuts have shifted towards lower-priced private label products from higher-priced branded products as a result of economic conditions . although such consumer preferences benefited our private label product sales , the profit margins for private label products are typically lower than they are for branded products . we are encouraged by the increase in market share for our fisher brand baking nuts , and we expect to continue to emphasize this portion of our branded business . additionally , the continued high costs of tree nuts may cause consumer preferences to switch to other food products . drought conditions experienced in much of the united states in 2012 did not have a significant effect on the production of tree nuts and peanuts . consequently , the cost increases anticipated for these other food products could potentially increase the demand for our nut products . we will continue to face the ongoing challenges specific to our business such as food safety and regulatory issues and the maintenance and growth of our customer base . see the information referenced in part i , item 1a risk factors of this report for additional information about our risks , challenges and uncertainties . story_separator_special_tag our net sales increased 20.0 % to $ 674.2 million for fiscal 2011 from $ 561.6 million for fiscal 2010. including sales volume associated with ovh products , sales volume for fiscal 2011 increased by 3.8 % in comparison to sales volume for fiscal 2010. the increase in net sales was attributable primarily to price increases implemented during fiscal 2011. the sales volume increase primarily was driven by volume increases in the consumer and contract packaging distribution channel . the increase in sales volume in the consumer channel was attributable to sales of ovh products . the increase in sales volume in the contract packaging distribution channel was attributable to higher sales of chocolate covered products and peanuts . 25 the following table shows a comparison of sales by distribution channel ( dollars in thousands ) : replace_table_token_7_th the following summarizes sales by product type as a percentage of total gross sales . the information is based upon gross sales , rather than net sales , because certain adjustments , such as promotional discounts , are not allocable to product type . replace_table_token_8_th for both fiscal 2011 and fiscal 2010 , the largest component of the other product type was trail and snack mixes which include nut products . net sales in the consumer distribution channel increased by 25.0 % in dollars and 7.5 % in volume in fiscal 2011 compared to fiscal 2010. excluding ovh sales , sales volume decreased by 2.0 % in fiscal 2011 compared to fiscal 2010. private label consumer sales volume increased by 8.2 % in fiscal 2011 compared to fiscal 2010 due to ovh business . fisher brand sales volume decreased by 7.4 % in fiscal 2011 compared to fiscal 2010 , primarily due to decreases in fisher snack nut and fisher peanut butter business . net sales in the commercial ingredients distribution channel increased by 13.7 % in dollars , but decreased 6.4 % in sales volume in fiscal 2011 compared fiscal 2010. the sales volume decrease was primarily due to lower pecan and walnut sales resulting mainly from a limited supply of pecans and walnuts available for the commercial ingredients distribution channel and lower peanut sales to other peanut processors . these decreases were partially offset by higher peanut butter sales . net sales in the contract packaging distribution channel increased by 22.3 % in dollars and 18.9 % in volume in fiscal 2011 compared to fiscal 2010. the sales volume increase was due to increased sales of chocolate covered products and peanuts to our major contract packaging customer . net sales in the export distribution channel decreased by 4.0 % in dollars and 10.4 % in volume in fiscal 2011 compared to fiscal 2010. the decrease in sales volume was due primarily to lost business at a major export retail customer . gross profit . gross profit decreased 11.2 % to $ 84.2 million in fiscal 2011 from $ 94.8 million in fiscal 2010. our gross profit margin , as a percentage of net sales , decreased to 12.5 % for fiscal 2011 from 16.9 % for fiscal 2010. the decrease in the gross profit margin was almost entirely attributable to significantly higher acquisition costs for tree nuts , beginning in the second quarter of fiscal 2011 , to the extent that they were not offset by price increases implemented 26 during those periods . price increases were not fully implemented until the third quarter of fiscal 2011. increased global demand for tree nuts was the primary driver for the increase in acquisition costs . the decrease in gross profit margin was also due to lower gross profit margins on sales of walnuts and pecans because of the need to purchase high cost shelled walnuts and pecans in the spot market during the first quarter of fiscal 2011. the prices for shelled walnuts and pecans during the first quarter of fiscal 2011 were unusually high due to low inventories in the industry . shelled walnut purchases were made during the first quarter of fiscal 2011 to supply an increase in sales volume with existing customers that in many cases exceeded forecasted volume by a considerable amount . shelled pecan purchases were made during the first quarter of fiscal 2011 to supply new pecan business that started shipping in the fourth quarter of fiscal 2010 and continued into fiscal 2011 , and to supplement a shortfall in inshell pecan purchases from the 2009 crop due to the unprecedented amount of inshell pecans that were exported to china . the purchase of shelled walnuts and shelled pecans described in the preceding two sentences were generally made at prices that exceeded or were almost equal to the price at which we sold the products to our customers , which negatively impacted our gross profit margins . gross profit margins also declined on sales of cashews because of significantly higher acquisition costs . we also incurred $ 0.8 million in moving expenses in relocating ovh 's operations to our locations in gustine , california and elgin , illinois . operating expenses . selling and administrative expenses for fiscal 2011 decreased to 10.1 % of net sales from 11.6 % of net sales for fiscal 2010. selling expenses for fiscal 2011 were $ 44.3 million , an increase of $ 3.9 million , or 9.5 % , over the amount recorded for fiscal 2010. increases in selling expenses related to ( i ) compensation expense of $ 0.7 million , ( ii ) freight costs of $ 3.9 million , and ( iii ) marketing and promotional expenses of $ 1.4 million , which were partially offset by a $ 3.0 million decrease in incentive compensation expense , $ 0.7 million of which relates to the estimated forfeiture in fiscal 2011 of amounts previously accrued for incentive compensation in fiscal 2010. administrative expenses for fiscal 2011 were $ 23.9 million , a decrease of $ 0.7 million , or 2.8 % , from the amount recorded for fiscal 2010. increases in administrative expenses included ( i ) a $ 1.7 million increase in the projected earn-out payments
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results of operations the following table sets forth the percentage relationship of certain items to net sales for the periods indicated and the percentage increase or decrease of such items from fiscal 2011 to fiscal 2012 and from fiscal 2010 to fiscal 2011. replace_table_token_4_th fiscal 2012 compared to fiscal 2011 net sales . our net sales increased 3.9 % to $ 700.6 million for fiscal 2012 from $ 674.2 million for fiscal 2011. sales volume ( measured as pounds sold to customers ) decreased by 8.7 % for fiscal 2012 in comparison to sales volume for fiscal 2011. the comparisons for both net sales and sales volume are affected by fiscal 2011 containing one extra week than fiscal 2012. approximately 21 % of the sales volume decrease in the yearly comparison was attributable to the additional week in fiscal 2011. the increase in net sales was primarily attributable to price increases implemented in response to rising tree nut and peanut acquisition costs . the decline in sales volume was mainly attributable to the unfavorable impact of high cashew , pecan , walnut , mixed nut and peanut prices on consumer demand . the following table shows a comparison of net sales by distribution channel ( dollars in thousands ) : replace_table_token_5_th effective the first quarter of fiscal 2012 , we are reporting net sales for the commercial ingredients distribution channel . previously , sales to this channel were reported separately in either the industrial or food service distribution channels . due to substantial similarities in these two channels , we combined these two channels and will 23 report these net sales in one channel called commercial ingredients . the similarities between the two channels include , among other things , sales of bulk products that are used to produce ingredients with nut products . all prior years ' amounts are reclassified to conform to the current presentation .
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our solutions enable manufacturers of digital display and projection devices , such as large-screen flat panel televisions and digital front projectors , to manufacture their products with a consistently high level of video quality , regardless of the content 's source or format . our core technology leverages unique proprietary techniques for intelligently processing video signals from a variety of sources to ensure that all resulting images are optimized . additionally , our products help our customers reduce costs and differentiate their display and projection devices , an important factor in industries that experience rapid innovation . our business also includes the license of technologies developed for our integrated circuit ( `` ic '' ) semiconductor products to non-competitive customers and partners , as well as co-development arrangements with current or prospective ic customers . pixelworks was founded in 1997 and is incorporated under the laws of the state of oregon . pixelworks ' flexible design architecture enables our technology to produce outstanding image quality in our customers ' products with a range of single-purpose integrated circuits ( `` ics '' ) , to system-on-chip ( `` soc '' ) ics that integrate microprocessor , memory and image processing functions . additionally , we provide full solutions , including a software development environment and operating system , which enable our customers to more quickly develop and customize their display products , thus reducing their time to market and allowing them to incorporate differentiated features and functions . our primary target markets are liquid crystal display ( `` lcd '' ) large-screen televisions and 3lcd and digital light processing ( `` dlp '' ) digital front projectors , however we also target other segments within the flat panel display market , including digital signage . we have adopted a product strategy that leverages our core competencies in video processing to address the evolving needs of the advanced flat panel display , digital projection and other markets that require superior image quality . we focus our product investments on developing video enhancement solutions for these markets , with particular focus on adding increased performance and functionality . additionally , we look for ways to leverage our research and development investment into products that address other high-value markets where our innovative proprietary technology provides differentiation for us and our customers . we continually seek to expand our technology portfolio through internal development , co-development with business partners and evaluation of acquisition opportunities . historically , significant portions of our revenue have been generated by sales to a relatively small number of end customers and distributors . we sell our products worldwide through a direct sales force , distributors and manufacturers ' representatives . we sell to distributors in japan , taiwan , china , korea , europe , southeast asia and the u.s , and our manufacturers ' representatives support some of our korean and european sales . our distributors typically provide engineering support to our end customers and often have valuable and established relationships with our end customers . in certain countries in which we operate , it is customary to sell to distributors . while distributor payment to us is not dependent upon the distributor 's ability to resell the product or to collect from the end customer , the distributors may provide longer payment terms to end customers than those we would offer . significant portions of our products are sold overseas . sales outside the u.s. accounted for approximately 90 % of revenue in 2012 and 96 % of revenue in 2011 and 2010 . our integrators , branded manufacturers and branded suppliers incorporate our products into systems that are sold worldwide . all of our revenue to date has been denominated in u.s. dollars . 30 story_separator_special_tag primarily due to customer transition to our new digital projector products and motionengine® co-processor ic products , which have higher material costs than earlier generation products ; this increase was partially offset by $ 1.0 million of ip license revenue recorded in 2011 for which there were no associated period costs . research and development research and development expense includes compensation and related costs for personnel , development-related expenses including non-recurring engineering and fees for outside services , depreciation and amortization , expensed equipment , facilities and information technology expense allocations and travel and related expenses . co-development agreement during the second quarter of 2012 , we entered into a best efforts co-development agreement ( the `` co-development agreement '' ) with a customer to defray a portion of the research and development expenses we expect to incur in connection with our development of an ic product to be sold exclusively to the customer . we expect our development costs to exceed the amounts received from the customer under the co-development agreement , and although we expect to sell units of the product to the customer , there is no commitment or agreement from the customer for such sales at this time . additionally , we retain ownership of any modifications or improvements to our pre-existing intellectual property and may use such improvements in products sold to other customers . 32 the initial $ 3.5 million due under the co-development agreement was received within sixty days of contract signing and two additional payments of $ 1.75 million are each payable upon completion of certain development milestones . as amounts become due and payable without recourse , they are offset against research and development expense up to the amount of related costs incurred . we recognized an offset to research and development expense of $ 3.5 million related to the co-development agreement during 2012. during 2013 , we expect to complete all of the milestones related to the co-development agreement and realize the remaining $ 3.5 million of reimbursement . story_separator_special_tag as of december 31 , 2012 , we have federal , state and foreign net operating loss carryforwards of approximately $ 187.0 million , $ 32.8 million and $ 1.1 million , respectively , which will expire between 2013 and 2032. as of december 31 , 2012 , we have available federal , state and foreign research and experimentation tax credit carryforwards of approximately $ 7.7 million , $ 2.9 million and $ 1.9 million , respectively , which begin expiring in 2019. we have a general foreign tax credit of $ 2.9 million which will begin expiring in 2016. our ability to utilize our federal net operating losses may be limited by section 382 of the internal revenue code of 1986 , as amended ( the `` code '' ) , which imposes an annual limit on the ability of a corporation that undergoes an `` ownership change '' to use its net operating loss carryforwards to reduce its tax liability . an ownership change is generally defined as a greater than 50 % point increase in equity ownership by 5 % shareholders in any three-year period . 34 liquidity and capital resources cash and short- and long-term marketable securities our cash and cash equivalent and short- and long-term marketable securities were as follows ( in thousands ) : replace_table_token_10_th total cash and marketable securities decreased $ 1.7 million from 2011 to 2012. the decrease resulted primarily from $ 1.8 million used for payments on property and equipment and $ 2.1 million in payments on other asset financing , partially offset by $ 1.8 million provided by operating activities due primarily to changes in working capital . total cash and marketable securities decreased $ 14.7 million from 2010 to 2011. the decrease resulted primarily from $ 15.8 million used to repurchase our outstanding debentures , $ 3.0 million used to repay the outstanding balance on our line of credit , $ 2.8 million in payments on other asset financing , $ 2.7 million for purchases of property and equipment and other assets and $ 0.7 million used in operations . these decreases were partially offset by $ 8.3 million in net proceeds from our equity offering and $ 1.6 million in proceeds from the sale of patents . as of december 31 , 2012 , our cash and cash equivalents balance of $ 13.4 million consisted of $ 0.3 million in cash and $ 13.1 million in u.s. denominated money market funds . although we did not hold short- or long-term investments as of december 31 , 2012 , our investment policy requires that our portfolio maintains a weighted average maturity of less than 12 months . additionally , no maturities can extend beyond 24 months and concentrations with individual securities are limited . investments must be rated at least a-1 / p-1 / f-1 by at least two nationally recognized statistical rating organizations , and our investment policy is reviewed at least annually by our audit committee . although cash balances held at our foreign subsidiaries would be subject to u.s. taxes if repatriated , we have sufficient u.s. net operating losses to eliminate the liability associated with any such repatriation and foreign taxes due upon repatriation would not be significant . accounts receivable , net accounts receivable , net decreased to $ 3.8 million at december 31 , 2012 from $ 4.6 million at december 31 , 2011 . average number of days sales outstanding increased to 25 days at december 31 , 2012 from 24 days at december 31 , 2011 . inventories inventories decreased to $ 2.7 million at december 31 , 2012 from $ 4.1 million at december 31 , 2011 . inventory turnover decreased to 7.3 at december 31 , 2012 from 8.0 at december 31 , 2011 , primarily due to decreased cost of goods sold during the fourth quarter of 2012 compared to the fourth quarter of 2011. inventory turnover is calculated based on annualized quarterly operating results and average inventory balances during the quarter . capital resources short-term line of credit on december 21 , 2010 , we entered into a loan and security agreement ( the `` revolving loan agreement '' ) with silicon valley bank ( the `` bank '' ) . on december 14 , 2012 , we and the bank entered into amendment no . 1 to the revolving loan agreement . the revolving loan agreement , as amended , provides a secured working capital-based revolving line of credit ( the `` revolving line '' ) in an aggregate amount of up to the lesser of ( i ) $ 10.0 million , or ( ii ) $ 1.0 million plus 80 % of eligible domestic accounts receivable and certain foreign accounts receivable . in addition , the revolving loan agreement , as amended , provides for non-formula advances of up to $ 10.0 million which may be made solely during the last five business days of any fiscal month or quarter and which must be repaid by the company on or before the fifth business day after the applicable fiscal month or quarter end . due to their repayment terms , non-formula advances do not provide the company with usable liquidity . 35 the revolving loan agreement , as amended , contains customary affirmative and negative covenants as well as customary events of default . the occurrence of an event of default could result in the acceleration of the company 's obligations under the revolving loan agreement , as amended , and an increase to the applicable interest rate , and would permit the bank to exercise remedies with respect to its security interest . as of december 31 , 2012 , we were in compliance with all of the terms of the revolving loan agreement , as amended .
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results of operations year ended december 31 , 2012 compared with year ended december 31 , 2011 , and year ended december 31 , 2011 compared with year ended december 31 , 2010. revenue , net net revenue was as follows ( in thousands ) : replace_table_token_4_th 2012 v. 2011 net revenue decreased $ 4.9 million , or 8 % , from 2011 to 2012. revenue related to ic product sales was $ 54.7 million and $ 63.6 million for 2012 and 2011 , respectively . revenue related to the license of intellectual property ( `` ip '' ) was $ 5.0 million and $ 1.0 million for 2012 and 2011 , respectively . the decrease in revenue related to ic product sales was primarily attributable to a 9 % decrease in average selling price ( `` asp '' ) and a 6 % decrease in units sold . the decrease in asp was primarily due to a greater proportion of unit sales of our latest generation motionengine® co-processor ics , which have lower price points than our other product lines . the decrease in asp was also attributable to reduced pricing on our earlier generation digital projector products . the decrease in units sold was primarily due to a decrease in sales of our earlier generation digital projector products due to competitive factors affecting customer transition to next generation digital projector solutions . we anticipate that an industry wide inventory correction and seasonality will contribute to reduced revenue for the first quarter of 2013 , compared to the fourth quarter of 2012. we have historically experienced higher revenue from the digital projector market during the third quarter of the year and lower revenue during the first quarter of the year , as our japanese customers reduce inventories in anticipation of their march 31 fiscal year end .
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there were no securities in a gross unrealized loss position at september 30 , 2020. in addition , the company does not intend to sell these securities and it is more likely than not that the company will not be required to sell the securities . as such , the company anticipates it will recover the entire amortized cost basis of the securities . story_separator_special_tag overview at september 30 , 2020 , we had total assets of $ 1.2 billion , including total net loans of $ 588.3 million , aggregate investment and mortgage-backed securities of $ 443.2 million , total deposits of $ 770.9 million and total stockholders ' equity of $ 129.1 million . the company conducts community banking activities by accepting deposits and making loans secured by properties located primarily in our market area . our lending products consist of residential mortgage loans , including loans for sale in the secondary market , along with commercial real estate , multi-family residential and construction loans . the company also originates commercial business and consumer loans in an effort to maintain strong customer relationships . the worldwide covid-19 pandemic has caused significant volatility and disruption in the financial markets both in the united states and globally . we are working with both residential and commercial borrowers to help them meet the unexpected financial challenges stemming from the covid-19 pandemic and will continue to do so . despite the challenging current market and economic conditions , the company continues to maintain capital substantially in excess of regulatory requirements . this management 's discussion and analysis section is intended to assist in understanding the financial condition and results of operations of prudential bancorp . the results of operations of prudential bancorp are primarily dependent on the results of the bank . the information contained in this section should be read in conjunction with our consolidated financial statements and the accompanying notes to the consolidated financial statements contained in item 8 of this annual report on form 10-k. critical accounting policies in reviewing and understanding financial information for prudential bancorp , you are encouraged to read and understand the significant accounting policies used in preparing our financial statements . these policies are described in note 2 of the notes to our consolidated financial statements included in item 8 hereof . the accounting and financial reporting policies of prudential bancorp conform to accounting principles generally accepted in the united states of america ( “ u.s . gaap ” ) and to general practices within the banking industry . accordingly , the financial statements require certain estimates , judgments and assumptions , which are believed to be reasonable , based upon the information available . these estimates and assumptions affect the reported amounts of assets and liabilities as well as contingent assets and contingent liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented . the following accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results . these policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods . allowance for loan losses . the allowance for loan losses is established through a provision for loan losses charged to expense . losses are charged against the allowance for loan losses when management believes that the collectability in full of the principal of a loan is unlikely . subsequent recoveries are added to the allowance . the allowance for loan losses is maintained at a level that management considers adequate to provide for estimated losses and impairments based upon an evaluation of known and inherent losses in the loan portfolio that are both probable and reasonable to estimate . loan impairment is evaluated based on the fair value of collateral or estimated net realizable value . it is the policy of management to provide for losses on unidentified loans in its portfolio in addition to criticized and classified loans . management monitors its allowance for loan losses at least quarterly and makes adjustments to the allowance through the provision for loan losses as economic conditions and other pertinent factors indicate . the quarterly review and adjustment of the qualitative factors employed in the allowance methodology and the updating of historic loss experience allow for timely reaction to emerging conditions and trends . in this context , a series of qualitative factors are used in a 53 methodology as a measurement of how current circumstances are affecting the loan portfolio . included in these qualitative factors are : ● levels of past due , classified , criticized and non-accrual loans , tdrs and loan modifications ; ● nature and volume of loans ; ● changes in lending policies and procedures , underwriting standards , collections , charge-offs and recoveries and for commercial loans , the level of loans being approved with exceptions to lending policy ; ● experience , ability and depth of management and staff ; ● national and local economic and business conditions , including various market segments , especially in light of the covid-19 pandemic on both the national and local economies ; ● quality of the company 's loan review system and degree of board oversight ; ● concentrations of credit and changes in levels of such concentrations ; and ● effect of external factors on the level of estimated credit losses in the current portfolio . in determining the allowance for loan losses , management has established both specific and general pooled allowances . values assigned to the qualitative factors and those developed from historic loss experience provide a dynamic basis for the calculation of reserve factors for both pass-rated loans ( general pooled allowance ) and for criticized and classified loans . the amount of the specific allowance is determined through a loan-by-loan analysis of certain large dollar commercial real estate loans . story_separator_special_tag in determining future taxable income , we make assumptions for the amount of taxable income , the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies . these assumptions require us to make judgments about our future taxable income and are consistent with the plans and estimates we use to manage our business . any reduction in estimated future taxable income may require us to record an additional valuation allowance against our deferred tax assets . an increase in the valuation allowance would result in additional income tax expense in the period and could have a significant impact on our future earnings . u.s. gaap prescribes a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized . the company recognizes , when applicable , interest and penalties related to unrecognized tax benefits in the provision for income taxes in the consolidated income statement . assessment of uncertain tax positions requires careful consideration of the technical merits of a position based on management 's analysis of tax regulations and interpretations . significant judgment may be involved in the assessment of the tax position . 55 recent accounting pronouncements information regarding recent accounting pronouncements is included in note 2 to the consolidated financial statements set forth in item 8 hereto . derivative financial instruments , contractual obligations and other off balance sheet arrangements derivative financial instruments include futures , forwards , interest rate swaps , option contracts , and other financial instruments with similar characteristics . to remain competitive in our local lending area and to support the company 's asset/liability positioning , on occasion the bank enters into interest rate swap contracts to control its funding costs . in addition , these instruments involve , to varying degrees , elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition . commitments to extend credit generally have fixed expiration dates and may require additional collateral from the borrower if deemed necessary . commitments to extend credit are not recorded as an asset or liability by us until the instrument is exercised . commitments the following table summarizes our outstanding commitments to originate loans and to advance additional amounts pursuant to outstanding letters of credit , lines of credit and undisbursed construction loans at september 30 , 2020 . replace_table_token_27_th contractual cash obligations the following table summarizes our contractual cash obligations at september 30 , 2020 . replace_table_token_28_th average balances , net interest income , and yields earned and rates paid . the following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields , as well as the interest expense on average interest-bearing liabilities , expressed both in dollars and rates , and the net 56 interest margin . all average balances are based on monthly balances . management does not believe that the monthly averages differ significantly from what the daily averages would be . replace_table_token_29_th ( 1 ) tax-exempt yields have been adjusted to a tax-equivalent basis . ( 2 ) includes nonaccrual loans during the respective periods . calculated net of deferred fees and discounts , loans in process and the allowance for loan losses . ( 3 ) equals net interest income divided by average interest-earning assets . rate/volume analysis . the following table shows the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities affected our interest income and expense during the periods indicated . for each category of interest-earning assets and interest-bearing liabilities , information is provided on changes attributable to ( 1 ) changes in rate , which is the change in rate multiplied by prior year volume , and ( 2 ) changes in 57 volume , which is the change in volume multiplied by prior year rate . the combined effect of changes in both rate and volume has been allocated proportionately to the change due to rate and the change due to volume . replace_table_token_30_th comparison of financial condition at september 30 , 2020 and september 30 , 2019 the company had total assets of $ 1.2 billion at september 30 , 2020 compared to $ 1.3 billion at september 30 , 2019. at september 30 , 2020 , the investment portfolio had decreased by $ 138.3 million to $ 443.2 million as compared to $ 581.5 million at september 30 , 2019 primarily as a result of investment securities sales , calls and paydowns of amortizing mortgage-backed securities . net loans receivable increased slightly by $ 2.8 million to $ 588.3 million at september 30 , 2020 from $ 585.5 million at september 30 , 2019 due primarily to the continued intense competition for quality loans combined with the uncertain economic climate created by the covid-19 pandemic . in addition , the company sold a $ 14.0 million package of long-term , fixed-rate mortgage loans as part of its strategy to address interest-rate margin compression as well as sold the ppp loans generated in the third quarter of fiscal 2020 as discussed below . total liabilities were $ 1.1 billion at both september 30 , 2020 and september 30 , 2019. deposits increased by $ 25.5 million to $ 770.9 million at september 30 , 2020 from $ 745.4 million at september 30 , 2019. the increase was primarily in demand deposit and money market products . fhlb borrowings decreased by $ 91.7 million to $ 285.3 million at september 30 , 2020 from $ 376.9 million at september 30 , 2020 as the company allowed higher costing fhlb borrowings to run-off as they mature in order to reduce its cost of funds . total stockholders ' equity decreased by $ 10.5 million to $ 129.1 million at september 30 , 2020 from $ 139.6 million at september 30 , 2019. the decrease was primarily due to treasury stock purchases , net of stock plan activity , totaling $ 9.5
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general . 2020 vs. 2019. for the fiscal year ended september 30 , 2020 , the company recognized net income of $ 9.6 million , or $ 1.12 per diluted share , as compared to net income of $ 9.5 million , or $ 1.07 per diluted share , for the fiscal year ended september 30 , 2019 . 2019 vs. 2018. for the fiscal year ended september 30 , 2019 , the company recognized net income of $ 9.5 million , or $ 1.07 per diluted share , as compared to net income of $ 7.1 million , or $ 0.78 per diluted share , for the fiscal year ended september 30 , 2018. fiscal year 2018 results reflected the effect of a $ 1.8 million non-cash charge in the first quarter of the fiscal year related to the revaluation of the company 's deferred tax assets due to the enactment of the tax cuts and jobs act in december 2017 which significantly reduced the corporate income tax rate applicable to the company . net interest income . 2020 vs. 2019. for the fiscal year ended september 30 , 2020 , net interest income was $ 22.8 million as compared to $ 24.8 million for fiscal 2019. the decrease primarily was due to a decrease of $ 1.6 million , or 6.0 % , in interest on loans combined with a $ 136,000 or 0.7 % increase in interest expense . the weighted average yield on interest-earning assets decreased by 38 basis points , to 3.54 % , for the fiscal year ended september 30 , 2020 from 3.92 % for fiscal 2019 primarily due to the reduction in market yields of interest which created downward pressure on our yields in all interest-earning asset categories , in particular commercial real estate and construction loans which generally bear adjustable rates .
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sterling provides general contracting services , including excavating , concrete and asphalt paving , installation of large-diameter water and wastewater distribution systems , construction of bridges and similar large structures , construction of light and commuter rail infrastructure , concrete and asphalt batch plant operations , concrete crushing and aggregate operations , primarily to public sector clients . we purchase the necessary materials for our contracts and perform the majority of the work required by our contracts with our own crews and equipment . our business was founded in 1955 and has a history of profitable growth , which we have achieved by expanding both our service profile and our market areas . this involves adding services , such as concrete operations , in order to capture a greater percentage of available work in current and potential markets . it also involves strategically expanding operations , either by establishing an office in a new market , often after having successfully bid on and completed a project in that market , or by acquiring a company that gives us an immediate entry into a market . on august 1 , 2011 , we expanded our operations into arizona and california with the acquisitions of jbc and myers , and on december 3 , 2009 , we expanded our operations into utah with the acquisition of an 80 % interest in rlw . critical accounting policies . on an ongoing basis , the company evaluates the critical accounting policies used to prepare its consolidated financial statements , including , but not limited to , those related to : · revenue recognition · contracts receivable , including retainage · valuation of property and equipment , goodwill and other long-lived assets · construction joint ventures · income taxes · segment reporting our significant accounting policies are described in note 1 , and conform to the fasb 's accounting standards codification ( or gaap or asc ) . use of estimates . 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 , the 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 . certain of the company 's accounting policies require higher degrees of judgment than others in their application . these include the recognition of revenue and earnings from construction contracts under the percentage-of-completion method , the valuation of long-term assets , and income taxes . management continually evaluates all of its estimates and judgments based on available information and experience ; however , actual amounts could differ from those estimates . revenue recognition the majority of our contracts with our customers are “ fixed unit price. ” under such contracts , we are committed to providing materials or services required by a contract at fixed unit prices ( for example , dollars per cubic yard of concrete poured or per cubic yard of earth excavated ) . to minimize increases in the material prices and subcontracting costs used in submitting bids , we obtain firm quotations from our suppliers and subcontractors . after we are advised that our bid is the winning bid , we enter into firm contracts with most of our materials suppliers and sub-contractors , thereby mitigating the risk of future price variations affecting those contract costs . such quotations do not include any quantity guarantees , and we therefore have no obligation for materials or subcontract services beyond those required to complete the respective contracts that we are awarded for which quotations have been provided . as a result , we have rarely been exposed to raw material price or availability risk on contracts in our contract backlog . assuming performance by our suppliers and subcontractors , the principal remaining risks under our fixed price contracts relate to labor and equipment costs and productivity levels . most of our state and municipal contracts provide for termination of the contract for the convenience of the owner , with provisions to pay us only for work performed through the date of termination . 29 credit risk is minimal with public owners since the company ascertains that funds have been appropriated by the governmental project owner prior to commencing work on such projects . while most public contracts are subject to termination at the election of the government entity , in the event of termination the company is entitled to receive the contract price for completed work and reimbursement of termination-related costs . credit risk with private owners is minimized because of statutory mechanics liens , which give the company high priority in the event of lien foreclosures following financial difficulties of private owners . we use the percentage of completion accounting method for construction contracts . revenue is recognized as costs are incurred in an amount equal to cost plus the related expected profit based on the percentage of completion method of accounting in the ratio of costs incurred to estimated final costs . our contracts generally take 12 to 36 months to complete . contract costs consist of direct costs on contracts , including labor , materials , amounts payable to subcontractors and those indirect costs related to contract performance , such as indirect salaries and wages , equipment maintenance , repairs , fuel and depreciation , insurance and payroll taxes . administrative and general expenses are charged to expense as incurred . contract cost is recorded as incurred , and revisions in contract revenue and cost estimates are reflected in the accounting period when known . provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined . changes in job performance , job conditions and estimated profitability , including those changes arising from contract penalty provisions and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined . story_separator_special_tag even if our local offices were to be considered separate components of our heavy civil construction operating segment , those components could be aggregated into a single reporting unit for purposes of testing goodwill for impairment under asc 280 and eitf d-101 because our local offices all have similar economic characteristics and are similar in all of the following areas : · the nature of the products and services — each of our local offices perform similar construction projects — they build , reconstruct and repair roads , highways , bridges , light and commuter rail and water , waste water and storm drainage systems . · the nature of the production processes — our heavy civil construction services rendered in the construction production process for each of our construction projects performed by each local office is the same — they excavate dirt , remove existing pavement and pipe , lay aggregate or concrete pavement , pipe and rail and build bridges and similar large structures in order to complete our projects . · the type or class of customer for products and services — substantially all of our customers are state departments of transportation , cities , counties , and regional water , rail and toll-road authorities . a substantial portion of the funding for the state departments of transportation to finance the projects we construct is furnished by the federal government . · the methods used to distribute products or provide services — the heavy civil construction services rendered on our projects are performed primarily with our own field work crews ( laborers , equipment operators and supervisors ) and equipment ( backhoes , loaders , dozers , graders , cranes , pug mills , crushers , and concrete and asphalt plants ) . · the nature of the regulatory environment — we perform substantially all of our projects for federal , state and municipal governmental agencies , and all of the projects that we perform are subject to substantially similar regulation under u.s. and state department of transportation rules , including prevailing wage and hour laws ; codes established by the federal government and municipalities regarding water and waste water systems installation ; and laws and regulations relating to workplace safety and worker health of the u.s. occupational safety and health administration and to the employment of immigrants of the u.s. department of homeland security . the economic characteristics of our local offices are similar . while profit margin objectives included in contract bids have some variability from contract to contract , our profit margin objectives are not differentiated by our chief operating decision maker or our office management based on local office location . instead , the projects undertaken by each local office are primarily competitively-bid , fixed-unit or negotiated lump-sum price contracts , all of which are bid based on achieving gross margin objectives that reflect the relevant skills required , the contract size and duration , the availability of our personnel and equipment , the makeup and level of our existing backlog , our competitive advantages and disadvantages , prior experience , the contracting agency or customer , the source of contract funding , anticipated start and completion dates , construction risks , penalties or incentives and general economic conditions . 31 story_separator_special_tag text-indent : 18pt ; display : block ; margin-left : 0pt ; margin-right : 0pt '' > · delays in quickly identifying and taking measures to address issues which arose during production . at december 31 , 2011 , we had approximately 83 contracts-in-progress which were less than 90 % complete of various sizes , of different expected profitability and in various stages of completion . the nearer a contract progresses toward completion , the more visibility we have in refining our estimate of total revenues ( including incentives , delay penalties and change orders ) , costs and gross profit . thus gross profit as a percent of revenues can increase or decrease from comparable and sequential quarters due to variations among contracts and depending upon the stage of completion of contracts . general and administrative expenses , net of other income . general and administrative expenses for 2011 included $ 0.7 million related to litigation and acquisition related costs which are shown separately in the table above . in addition , 2011 included the general and administrative expenses of the two companies we acquired on august 1 , 2011 as well as an increase in salaries , wages and related benefits primarily resulting from added positions . offsetting these increases was a decrease in bonus compensation resulting from lower earnings for the period . as a percent of revenues , general and administrative expenses decreased to 5.1 % in 2011 compared with 5.4 % in 2010. goodwill impairment . during the fourth quarter of 2011 , the company completed an evaluation of the carrying value of goodwill resulting in an impairment charge of $ 67.0 million . this charge had an impact of $ 41.8 million on the net loss attributable to sterling common stockholders ( net of the related tax benefits and reduced for the amount attributable to noncontrolling interest owners ) or $ 2.55 per diluted share . see note 8. income taxes . our effective income tax rates for 2011 and 2010 were 32.9 % and 28.1 % , respectively , and varied from the statutory rate primarily as a result of net income attributable to noncontrolling interest owners which is taxed to those owners rather than sterling . in addition , the effective tax rate for 2011 was impacted by the portion of the goodwill impairment attributable to goodwill that is not deductible for tax purposes . net income attributable to noncontrolling interests . net income attributable to noncontrolling interest owners decreased in 2011 compared with 2010 as a result of the $ 6.7 million impact for the impairment of goodwill attributable to noncontrolling interest owners .
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results of operations . backlog at december 31 , 2011. at december 31 , 2011 , our backlog of construction projects was $ 741 million , as compared to $ 660 million at december 31 , 2010. our company was awarded or was the apparent low bidder on $ 582 million of new contracts in 2011 , compared to $ 473 million of new contracts in 2010. our contracts are typically completed in 12 to 36 months . at december 31 , 2011 , there was approximately $ 125 million of our consolidated backlog where we were the apparent low bidder , but had not yet been formally awarded the contract or the contract price had not been finalized . historically , subsequent non-awards of low bids or finalization of contract prices have not materially affected our backlog or financial condition . backlog includes $ 127 million attributable to our share of estimated revenues related to joint ventures where we are a noncontrolling joint venture partner . as discussed further in “ item 1. business―recent developments―financial results for 2011 , operational issues and outlook for 2012 financial results , ” based on our current estimates , the gross margin in our backlog is lower than the gross margin of 8.0 % realized in 2011 as a result of operational issues and lower infrastructure capital expenditures by federal and state governments . we do , however , expect that our markets will ultimately recover from the conditions described above and that our backlog and revenues will grow and gross margins , net income and earnings per share will return to levels more consistent with historical rates of return . however , we can not predict the timing of such a return to historical normalcy in our markets .
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current and potential litigation in accordance story_separator_special_tag you should read the following discussion and analysis together with `` item 6. selected consolidated financial data '' and our consolidated financial statements and related notes included in this report . the discussion in this report contains forward-looking statements that involve risks and uncertainties , such as statements of our plans , objectives , expectations and intentions . the cautionary statements made in this report should be read as applying to all related forward-looking statements wherever they appear in this report . factors that could cause or contribute to these differences include those discussed in `` item 1a . risk factors , '' as well as those discussed elsewhere . you should read `` item 1a . risk factors '' and `` special note regarding forward-looking statements . '' our actual results could differ materially from those discussed here . factors that could cause or contribute to these differences include , but are not limited to : future economic instability in the global economy , which could affect spending on internet services ; the impact of changing foreign exchange rates ( in particular the euro to us dollar and canadian dollar to us dollar exchange rates ) on the translation of our non-us dollar denominated revenues , expenses , assets and liabilities ; legal and operational difficulties in new markets ; the imposition of a requirement that we contribute to the us universal service fund ; changes in government policy and or regulation , including rules regarding data protection and cyber security ; increasing competition leading to lower prices for our services ; our ability to attract new customers and to increase and maintain the volume of traffic on our network ; the ability to maintain our internet peering arrangements on favorable terms ; our reliance on an equipment vendor , cisco systems inc. , and the potential for hardware or software problems associated with such equipment ; the dependence of our network on the quality and dependability of third-party fiber providers ; our ability to retain certain customers that comprise a significant portion of our revenue base ; the management of network failures and or disruptions ; and outcomes in litigation as well as other risks discussed from time to time in our filings with the securities and exchange commission , including , without limitation , this annual report on form 10-k for the fiscal year ended december 31 , 2013. general overview we are a leading facilities-based provider of low-cost , high-speed internet access and ip communications services . our network is specifically designed and optimized to transmit data using ip . we deliver our services primarily to small and medium-sized businesses , communications service providers and other bandwidth-intensive organizations in north america , europe and in japan . our on-net service consists of high-speed internet access and ip connectivity ranging from 100 megabits per second to 10 gigabits per second of bandwidth . we offer our on-net services to customers located in buildings that are physically connected to our network . we provide on-net internet access to net-centric and corporate customers . our net-centric customers include bandwidth-intensive users such as universities , other internet service providers , telephone companies , cable television companies , web hosting companies , content delivery networks and commercial content and application providers . these net-centric customers generally receive our service in colocation facilities and in our data centers . our corporate customers are located in multi-tenant office buildings and typically include law firms , financial services firms , advertising and marketing firms and other professional services businesses . our off-net services are sold to businesses that are connected to our network primarily by means of `` last mile '' access service lines obtained from other carriers , primarily in the form of point-to-point , carrier ethernet , tdm , pos , and or sdh circuits . our non-core services , which consist primarily of legacy services of companies whose assets or businesses we have acquired , primarily include voice services ( only provided in toronto , canada ) . we do not actively market these non-core services and expect the service revenue associated with them to continue to decline . 27 our network is comprised of in-building riser facilities , metropolitan optical fiber networks , metropolitan traffic aggregation points and inter-city transport facilities . our network is physically connected entirely through our facilities to 1,990 buildings in which we provide our on-net services , including 1,381 multi-tenant office buildings . we also provide on-net services in carrier-neutral colocation facilities , cogent controlled data centers and single-tenant office buildings . because of our integrated network architecture , we are not dependent on local telephone companies to serve our on-net customers . we emphasize the sale of our on-net services because we believe we have a competitive advantage in providing these services and these services generate gross profit margins that are greater than the gross profit margins of our off-net services . we believe our key growth opportunity is provided by our high-capacity network , which provides us with the ability to add a significant number of customers to our network with minimal direct incremental costs . our focus is to add customers to our network in a way that maximizes its use and at the same time provides us with a profitable customer mix . we are responding to this opportunity by increasing our sales and marketing efforts including increasing our number of sales representatives and expanding our network to locations that we believe can be economically integrated and represent significant concentrations of internet traffic . one of our keys to developing a profitable business will be to carefully match the cost of extending our network to reach new customers with the revenue expected to be generated by those customers . in addition , we may add customers to our network through strategic acquisitions . story_separator_special_tag year ended december 31 , 2012 compared to the year ended december 31 , 2011 our management reviews and analyzes several key financial measures in order to manage our business and assess the quality of and variability of our service revenue , operating results and cash flows . the following summary tables present a comparison of our results of operations for the years 31 ended december 31 , 2012 and 2011 with respect to certain key financial measures . the comparisons illustrated in the tables are discussed in greater detail below . replace_table_token_7_th nmnot meaningful ( 1 ) includes non-cash equity-based compensation expense of $ 529 and $ 510 for 2012 and 2011 , respectively , which , if excluded would have resulted in a period-to-period change of 8.7 % . ( 2 ) includes non-cash equity-based compensation expense of $ 7,794 and $ 7,185 for 2012 and 2011 , respectively , which , if excluded would have resulted in a period-to-period change of 3.3 % . replace_table_token_8_th service revenue . our service revenue increased 3.8 % from $ 305.5 million for 2011 to $ 317.0 million for 2012. exchange rates negatively impacted the increase in service revenue by approximately $ 5.4 million . all foreign currency comparisons herein reflect results for 2012 translated at the average foreign currency exchange rates for 2011. for 2012 and 2011 , on-net , off-net and non-core revenues represented 73.4 % , 25.8 % and 0.8 % and 76.3 % , 22.8 % and 0.9 % of our service revenue , respectively . in january 2012 , our largest ( net-centric ) customer , who represented approximately 5.5 % of our 2011 service revenue , was indicted by the us government and as a result our on-net service to this customer and the associated revenue terminated in january 2012. the loss of this on-net net-centric customer negatively impacted our revenue growth rate in 2012. revenue from our corporate and net-centric customers represented 51.5 % and 48.5 % of our service revenue , respectively , for 2012 , and represented 48.9 % and 51.1 % of our service revenue , 32 respectively , for 2012. revenue from corporate customers increased 9.2 % from $ 149.4 million for 2011 to $ 163.1 million for 2012. revenue from our net-centric customers decreased 1.4 % from $ 156.1 million for 2011 to $ 153.8 million for 2012. the decrease in net-centric revenue is attributed to the loss of our largest net-centric customer noted above . our on-net revenue decreased 0.2 % from $ 233.0 million for 2011 to $ 232.6 million for 2012. we increased the number of our on-net customer connections by 17.1 % to 29,875 at december 31 , 2012 from 25,518 at december 31 , 2011. the loss of our largest on-net customer in january 2012 and the negative impact of foreign exchange negatively impacted our on-net revenue growth rate from 2011 to 2012. additionally , our on-net customer connections increased at a greater rate than our on-net revenue due to a 16.4 % decline in our on-net arpu , resulting primarily from an arpu reduction for our net-centric customers . arpu is determined by dividing revenue for the period by the average customer connections for that period . our average price per megabit for our installed base of customers is determined by dividing the aggregate monthly recurring fixed charges for those customers by the aggregate committed data rate for those customers . the decline in on-net arpu is partly attributed to volume and term based pricing discounts . further , our on-net customers who cancel their service from our installed base of customers , in general , have an arpu that is greater than the arpu from our new on-net customers primarily due to declining prices for our on-net services sold to our net-centric customers . these trends and events resulted in a 16.4 % reduction to our on-net arpu and a 6.4 % decline in our average price per megabit . our off-net revenue increased 17.6 % from $ 69.6 million for 2011 to $ 81.9 million for 2012. our off-net customer connections increased 14.0 % from 3,915 at december 31 , 2011 to 4,465 at december 31 , 2012. our off-net revenue increased at a greater rate than our off-net customer connections due to a 4.5 % increase in our off-net arpu . during 2012 , our off-net customers who canceled their service with us , in general , had an arpu that was lower than our new off-net customers who generally purchased higher-bandwidth connections which carry a higher arpu . our non-core revenue decreased 13.7 % from $ 2.8 million for 2011 to $ 2.5 million for 2012. the number of our non-core customer connections decreased 16.6 % from 565 at december 31 , 2011 to 471 at december 31 , 2012. we do not actively market these acquired non-core services and expect that the service revenue associated with them will continue to decline . network operations expenses . network operations expenses include the costs of personnel associated with service delivery , network management , and customer support , network facilities costs , fiber and equipment maintenance fees , leased circuit costs , and access and facilities fees paid to building owners . non-cash equity-based compensation expense is included in network operations expenses consistent with the classification of the employee 's salary and other compensation . our network operations expenses , including non-cash equity-based compensation expense , increased 8.7 % from $ 132.2 million for 2011 to $ 143.6 million for 2012. the increase is primarily attributable to an increase in costs related to our network and facilities expansion activities and the increase in our off-net revenue . when we provide our off-net services we also assume the cost of the associated tail-circuits . the impact of exchange rates resulted in a decrease of network operations expenses for 2012 of approximately $ 2.4 million . selling , general , and administrative expenses ( `` sg & a '' ) .
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results of operations year ended december 31 , 2013 compared to the year ended december 31 , 2012 our management reviews and analyzes several key financial measures in order to manage our business and assess the quality of and variability of our service revenue , operating results and cash flows . the following summary tables present a comparison of our results of operations for the years ended december 31 , 2013 and 2012 with respect to certain key financial measures . the comparisons illustrated in the tables are discussed in greater detail below . replace_table_token_5_th nmnot meaningful ( 1 ) includes non-cash equity-based compensation expense of $ 507 and $ 529 for 2013 and 2012 , respectively , which , if excluded would have resulted in a period-to-period change of 4.6 % . ( 2 ) includes non-cash equity-based compensation expense of $ 8,212 and $ 7,794 for 2013 and 2012 , respectively , which , if excluded would have resulted in a period-to-period change of 9.6 % . replace_table_token_6_th 29 service revenue . our service revenue increased 9.8 % from $ 317.0 million for 2012 to $ 348.0 million for 2013. exchange rates positively impacted the increase in service revenue by approximately $ 1.8 million . all foreign currency comparisons herein reflect results for 2013 translated at the average foreign currency exchange rates for 2012. for 2013 and 2012 , on-net , off-net and non-core revenues represented 73.3 % , 26.2 % and 0.5 % and 73.4 % , 25.8 % and 0.8 % of our service revenue , respectively . revenue from our corporate and net-centric customers represented 51.6 % and 48.4 % of our service revenue , respectively , for 2013 , and represented 51.5 % and 48.5 % of our service revenue , respectively , for 2012. revenue from corporate customers increased 10.1 % from $ 163.1 million for 2012 to $ 179.6 million for 2013. revenue from our net-centric customers increased 9.4 % from $ 153.8 million for 2012 to $ 168.4
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if the risk story_separator_special_tag results of operations the following management 's discussion and analysis is intended to provide a summary of the principal factors affecting the results of operations , liquidity and capital resources , contractual obligations , and the critical accounting policies of franklin covey co. ( also referred to as we , us , our , the company , and franklincovey ) and subsidiaries . this discussion and analysis should be read together with the accompanying consolidated financial statements and related notes contained in item 8 of this annual report on form 10-k ( form 10-k ) and the risk factors discussed in item 1a of this form 10-k. forward-looking statements in this discussion are qualified by the cautionary statement under the heading `` safe harbor statement under the private securities litigation reform act of 1995 '' contained later in item 7 of this form 10-k. executive summary general overview franklin covey co. is a global company focused on individual and organizational performance improvement . our mission is to `` enable greatness in people and organizations everywhere , '' and our worldwide resources are organized to help individuals and organizations achieve sustained superior performance through changes in human behavior . we believe that our content and services create the connection between capabilities and results . we believe that our clients are able to utilize our content to create cultures whose hallmarks are high-performing , collaborative individuals , led by effective , trust-building leaders who execute with excellence and deliver measurably improved results for all of their key stakeholders . in the training and consulting marketplace , we believe there are four important characteristics that distinguish us from our competitors . 1. world class content – our content is principle-centered and based on natural laws of human behavior and effectiveness . when our content is applied consistently in an organization , we believe the culture of that organization will change to enable the organization to achieve their own great purposes . our offerings are designed to build new skillsets , establish new mindsets , and provide enabling toolsets . 2. transformational impact and reach – we hold ourselves responsible for and measure ourselves by our clients ' achievement of transformational results . our commitment to achieving lasting impact extends to all of our clients—from ceos to elementary school students , and from senior management to front-line workers in corporations , governmental , and educational environments . 3. breadth and scalability of delivery options – we have a wide range of content delivery options , including : the all access pass and other intellectual property licenses , on-site training , training led through certified facilitators , on-line learning , blended learning , and organization-wide transformational processes , including consulting and coaching . 4. global capability – we have sales professionals in the united states and canada who serve clients in the private sector , in government , and in educational organizations ; wholly owned subsidiaries in australia , china , japan , and the united kingdom ; and we contract with independent licensee partners who deliver our content and provide services in over 150 other countries and territories around the world . we have some of the best-known offerings in the training industry , including a suite of individual-effectiveness and leadership-development training content based on the best-selling books , the 7 habits of highly effective people , the speed of trust , and the 4 disciplines of execution , and proprietary content 25 in the areas of execution , sales performance , productivity , customer loyalty , and education . we believe that our offerings help individuals , teams , and entire organizations transform their results through achieving systematic , sustainable , and measurable changes in human behavior . our offerings are described in further detail at www.franklincovey.com . the information contained in , or that can be accessed through , our website does not constitute a part of this annual report , and the descriptions found therein should not be viewed as a warranty or guarantee of results . our fiscal year ends on august 31 , and unless otherwise indicated , fiscal 2018 , fiscal 2017 , and fiscal 2016 refer to the twelve-month periods ended august 31 , 2018 , 2017 , 2016 , and so forth . fiscal 2018 business development development of the subscription-based business at its core , franklin covey co. is a content and solutions company . during our history , we have created and developed world-class offerings designed to help our clients solve challenges which require significant and lasting changes in human behavior . several years ago , we began moving from simply selling training courses to providing fully-integrated solutions and practices which were focused on helping organizational clients successfully execute on their strategic priorities , develop their leaders , and build winning cultures . three years ago , we determined that we could better serve our clients and substantially expand the breadth and depth of our client impact if we moved from selling content on a course-by-course basis , to a subscription basis , such as through the all access pass in our enterprise division , which includes our direct office and international licensee segments , and the leader in me online service offered through our education division . we believe the all access pass provides our clients with a compelling value proposition under which they receive : ( 1 ) unlimited access to our current and continually-expanding assemblage of world-class content and solutions ; ( 2 ) the ability to assemble , integrate and deliver these solutions through an almost limitless combination of delivery options , in 16 languages worldwide ; ( 3 ) the services of an implementation specialist to help curate and organize the content and solutions into `` impact journeys '' that exactly meet their needs ; ( 4 ) at a cost per population trained which is less than or equal to that offered by other providers for just a single course through a single delivery modality ; and with ( 5 ) an array of story_separator_special_tag our loss from operations in fiscal 2018 was $ ( 3.4 ) million , compared with a loss of $ ( 8.9 ) million in fiscal 2017. pre-tax loss for fiscal 2018 decreased to $ ( 5.5 ) million compared with a $ ( 10.9 ) million loss in the prior year . for fiscal 2018 , we recognized net tax expense on our pre-tax loss compared with a net benefit in fiscal 2017. our consolidated income tax provision was unfavorably affected by a $ 3.0 million valuation allowance against our fiscal 2011 foreign tax credit carryforward . sales of the all access pass and other subscription services have generated , and will likely to continue to generate , substantial amounts of deferred revenue for both book and tax purposes . this situation has produced taxable losses for the past two fiscal years and a more-likely-than-not presumption that insufficient taxable income will be available to realize the fiscal 2011 foreign tax carryforward , which expires at the end of fiscal 2021. net loss for the year ended august 31 , 2018 was $ ( 5.9 ) million , or $ ( .43 ) per share , compared with a loss of $ ( 7.2 ) million , or $ ( .52 ) per share , in the prior year . further details regarding these items can be found in the comparative analysis of fiscal 2018 with fiscal 2017 as discussed within this management 's discussion and analysis . during fiscal 2018 , we invested our available cash and proceeds from our secured credit facility to make substantial and significant investments in our business that we believe will drive results and provide benefits in future periods . we invested $ 6.5 million of cash to purchase property and equipment , which was primarily comprised of software for a significant upgrade to our aap portal and the completion of our new erp system , which successfully launched in fiscal 2018. we also invested $ 3.0 million during fiscal 2018 for curriculum development and additional new offerings . our liquidity position remained healthy during fiscal 2018 and we had $ 10.2 million of cash at august 31 , 2018 , with $ 18.7 million of available credit on our revolving credit facility , compared with $ 8.9 million of cash at august 31 , 2017. at august 31 , 2018 , we had $ 12.8 million of term loans payable to the lender on our secured credit facility . for further information regarding our liquidity and cash flows refer to the liquidity and capital resources discussion found later in this management 's discussion and analysis . key growth objectives we believe that our best-in-class offerings , combined with flexible delivery modalities and worldwide sales and distribution capabilities are the foundation for future growth at franklin covey . building on this foundation , we have identified the following key drivers of growth in fiscal 2019 and beyond : 28 · new subscription service sales and the renewal of existing client contracts – we are focused on sales of subscription service contracts , such as the all access pass , and have restructured our domestic sales force and sales support functions to more effectively sell and support these services . we believe we are well positioned to expand our subscription service revenues in the united states and canada and reach new clients . we have translated aap content into 15 new languages and expect this new feature will attract additional clients in future years both from large multinational entities and smaller clients that are served by our international direct offices and international licensee partners . · education segment – our education segment has consistently grown over the past several years . we intend to continue to invest in new content and additional sales personnel to reach out to new educational institutions while retaining existing the leader in me schools . we believe there are significant growth opportunities , both domestically and internationally , for our education segment and its well-known the leader in me offering . · growth of our direct office and international licensee segments – we are actively focused on growing the size and productivity of our direct office segment through expansion of our sales force to reach potential clients . in addition , we believe the acquisition of robert gregory partners , llc in fiscal 2017 will open new opportunities as we seek to expand our coaching business . we are also actively seeking to expand the size and productivity of our international licensee partners through the development of additional content , such as the translated aap offerings , and additional licensee support activities . another of our underlying strategic objectives is to consistently deliver quality results to our clients . this concept is focused on ensuring that our content and offerings are best-in-class , and that they have a measurable , lasting impact on our clients ' results . we believe that measurable improvement in our clients ' organizations is key to retaining current clients and to obtaining new sales opportunities . other key factors that influence our operating results include : the size and productivity of our sales force ; the number and productivity of our international licensee operations ; the number of organizations that are active customers ; the number of people trained within those organizations ; the continuation or renewal of existing services contracts , especially all access pass renewals ; the availability of budgeted training spending at our clients and prospective clients , which , in certain content categories , can be significantly influenced by general economic conditions ; and our ability to manage operating costs necessary to develop and provide meaningful training and related services and products to our clients . results of operations the following table sets forth , for the fiscal years indicated , the percentage of total sales represented by the line items through income or loss before income taxes in our consolidated statements of operations .
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quarterly results the following tables set forth selected unaudited quarterly consolidated financial data for the fiscal years ended august 31 , 2018 and 2017. the quarterly consolidated financial data reflects , in the opinion of management , all normal and recurring adjustments necessary to fairly present the results of operations for such periods . results of any one or more quarters are not necessarily indicative of continuing trends ( in thousands , except for per-share amounts ) . replace_table_token_7_th our fourth quarter of each fiscal year typically has higher sales and operating income than other fiscal quarters primarily due to increased revenues in our education practice ( when school administrators and faculty have professional development days ) and to increased aap and facilitator sales that typically occur during that quarter resulting from year-end incentive programs . overall , training sales are moderately seasonal because of the timing of corporate training , which is not typically scheduled as heavily during holiday and certain vacation periods . quarterly fluctuations may also be affected by other factors including the introduction of new offerings , business acquisitions , the addition of new organizational customers , and the elimination of underperforming offerings . for more information on our quarterly results of operations , refer to our quarterly reports on form 10-q as filed with the sec . our quarterly reports for the periods indicated are available free of charge at www.sec.gov . 36 liquidity and capital resources introduction our cash balance at august 31 , 2018 totaled $ 10.2 million , with $ 18.7 million of available credit remaining on our $ 30.0 million revolving credit facility , compared with $ 8.9 million of cash at august 31 , 2017. of our $ 10.2 million in cash at august 31 , 2018 , $ 8.9 million was held outside the u.s. by our foreign subsidiaries . we routinely repatriate cash from our foreign subsidiaries and consider cash generated from foreign activities a key component of our overall liquidity position .
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on september 9 , 2015 , our stockholders approved an amendment to the inspiremd , inc. 2013 long-term incentive plan to increase the number of story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. overview we are a medical device company focusing on the development and commercialization of our proprietary micronet stent platform technology for the treatment of complex vascular and coronary disease . a stent is an expandable “ scaffold-like ” device , usually constructed of a metallic material , that is inserted into an artery to expand the inside passage and improve blood flow . our micronet , a micron mesh sleeve , is wrapped over a stent to provide embolic protection in stenting procedures . our cguard carotid embolic prevention system ( “ cguard eps ” ) combines micronet and a self-expandable nitinol stent in a single device for use in carotid artery applications . our cguard eps received ce mark approval in the european union in march 2013 and was fully launched in europe in september 2015. subsequently , we launched cguard eps in russia and certain countries in latin america and asia , including india . in september 2020 , we launched cguard eps in brazil after receiving regulatory approval in july 2020 and , as discussed below , on february 3 , 2021 we executed a distribution agreement with chinese partners for the purpose of expanding our presence in china . currently , we are seeking strategic partners for a potential launch of cguard eps in japan . on september 8 , 2020 , we received approval from the fda of our investigation device exemption ( “ ide ” ) , thereby allowing us to proceed with a pivotal study of our cguard carotid stent system , carenet-iii , for prevention of stroke in patients in the united states . carenet-lll is a prospective , multicenter , single-arm , pivotal study to evaluate the safety and efficacy of the cguard carotid stent system when used to treat symptomatic and asymptomatic carotid artery stenosis in patients undergoing carotid artery stenting . the trial will enroll approximately 315 subjects in a maximum of 40 study sites located in the united states . additional sites in europe may also participate in the study , contributing a maximum of ~50 % of the total enrollees . the primary endpoint of the study will be the composite of the following : incidence of the following major adverse events : death ( all- cause mortality ) , all stroke , and myocardial infarction ( dsmi ) through 30-days post-index procedure , based on the clinical events committee ( cec ) adjudication or ipsilateral stroke from 31-365 day follow-up , based on clinical events committee ( cec ) adjudication . additionally , we intend to continue to invest in current and future potential product and manufacturing enhancements for cguard eps that are expected to reduce cost of goods and or provide the best-in-class performing delivery system . in furtherance of our strategy that focuses on establishing cguard eps as a viable alternative to vascular surgery , we are exploring adding new delivery systems and accessory solutions for procedural protection to our portfolio . we consider the addressable market for our cguard eps to be individuals with diagnosed , symptomatic high-grade carotid artery stenosis ( hgcs , ≥70 % occlusion ) for whom intervention is preferable to medical ( drug ) therapy . this group includes not only carotid artery stenting patients but also individuals undergoing carotid endarterectomy , as the two approaches compete for the same patient population . assuming full penetration of the intervention caseload by cguard eps , we estimate that the addressable market for cguard eps was approximately $ 1.0 billion in 2017 ( source : health research international 2017 results of update report on global carotid stenting procedures and markets by major geography and addressable markets ) . - 55 - our mguard prime embolic protection system ( “ mguard prime eps ” ) is marketed for use in patients with acute coronary syndromes , notably acute myocardial infarction ( heart attack ) and saphenous vein graft coronary interventions ( bypass surgery ) . mguard prime eps combines micronet with a bare-metal cobalt-chromium based stent . mguard prime eps received ce mark approval in the european union in october 2010 for improving luminal diameter and providing embolic protection . however , as a result of a shift in industry preferences away from bare-metal stents in favor of drug-eluting ( drug-coated ) stents , in 2014 we decided to curtail further development of this product in order to focus on the development of a drug-eluting stent product , mguard des . due to limited resources , however , our efforts have been limited to testing drug-eluting stents manufactured by potential partners for compatibility with micronet and seeking to incorporate micronet onto a drug-eluting stent manufactured by a potential partner . the fda has clarified that the primary mode of action for drug-eluting cardiovascular stents , which are regulated as combination products , is that of the device component and has assigned the fda center for devices and radiological health ( cdrh ) primary responsibility for premarket review and regulation , providing some clarity about what to expect regarding the regulatory framework related to the development of mguard des . we also intend to develop a pipeline of other products and additional applications by leveraging our micronet technology to new applications to improve peripheral vascular and neurovascular procedures , such as the treatment of the superficial femoral artery disease , vascular disease below the knee and neurovascular stenting to seal aneurysms in the brain . presently , none of our products may be sold or marketed in the united states . critical accounting policies we prepared our consolidated financial statements in accordance with u.s. generally accepted accounting principles ( “ u.s . gaap ” ) . story_separator_special_tag revenues are recorded in the amount of consideration to which we expect to be entitled in exchange for performance obligations upon transfer of control to the customer , excluding sales taxes . revenue from sales of goods , including sales to distributors , is recognized when the customer obtains control of the product , once we have a present right to payment , legal title , and risk and rewards of ownership are obtained by the customer . this occurs when products are shipped . we recognize the incremental costs of obtaining contracts as an expense since the amortization period of the assets that we otherwise would have recognized is one year or less . the costs are recorded under selling and marketing expenses . we recognize revenue net of value added tax ( vat ) . research and development costs research and development costs are charged to the statement of operations as incurred . share-based compensation employee option awards are classified as equity awards and accounted for using the grant-date fair value method . the fair value of share-based awards is estimated using the black-scholes valuation model and expensed over the requisite service period , net of estimated forfeitures . we elected to account for forfeitures as they occur . we elected to recognize compensation expenses for awards with only service conditions that have graded vesting schedules using the accelerated multiple option approach . fair value measurement we measure fair value and disclose fair value measurements for financial assets and liabilities . fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date . the accounting standard establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels , which are described below : level 1 : quoted prices ( unadjusted ) in active markets that are accessible at the measurement date for assets or liabilities . the fair value hierarchy gives the highest priority to level 1 inputs . - 58 - level 2 : observable prices that are based on inputs not quoted on active markets , but corroborated by market data . level 3 : unobservable inputs are used when little or no market data is available . the fair value hierarchy gives the lowest priority to level 3 inputs . in determining fair value , we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and consider counterparty credit risk in our assessment of fair value . story_separator_special_tag font-size : 10pt '' > tax expenses ( income ) . for the twelve months ended december 31 , 2020 , tax expenses decreased by $ 20,000 compared to the twelve months ended december 31 , 2019. net loss . our net loss increased by $ 504,000 , or 5.0 % , to $ 10,544,000 , for the twelve months ended december 31 , 2020 , from $ 10,040,000 during the twelve months ended december 31 , 2019. the increase in net loss resulted primarily from a decrease of $ 673,000 in gross profit , offset , in part , by a decrease of $ 109,000 in operating expenses , a decrease of $ 40,000 in financial expenses and a decrease of $ 20,000 in tax expenses . liquidity and capital resources as of the date of issuance of the consolidated financial statements , we have the ability to fund our planned operations for at least the next 12 months . however , we expect to continue incurring losses and negative cash flows from operations until our products ( primarily cguard eps ) reach commercial profitability . therefore , in order to fund our operations until such time that we can generate substantial revenues , we may need to raise additional funds . equity financings on april 8 , 2019 , we closed an underwritten public offering of 486,957 shares of our common stock at a price to the public of $ 5.00 per share . we received net proceeds of approximately $ 2.0 million from the offering , after deducting underwriter discounts and commissions and offering expenses payable by us . as a result of such offering , the conversion price for each of our series b preferred stock and series c preferred was reduced to $ 5.00 per share . in connection with this public offering , on april 12 , 2019 , the underwriter partially exercised its over-allotment option and purchased an additional 12,393 shares of our common stock at a price to the public of $ 5.00 per share . we received net proceeds of approximately $ 47,000 from the exercise of the over-allotment option . on september 24 , 2019 , we closed an underwritten public offering of ( i ) 539,000 common units , with each common unit being comprised of one share of our common stock and one series e warrant to purchase one share of common stock and ( ii ) 2,238,777 pre-funded units , with each pre-funded unit being comprised of one pre-funded warrant to purchase one share of common stock and one series e warrant . in connection with this public offering , the underwriter partially exercised its over-allotment option and purchased an additional 194,444 series e warrants to purchase 194,444 shares of common stock . the offering price to the public was $ 1.80 per common unit and $ 1.79 per pre-funded unit . the net proceeds to us from the offering of common units and pre-funded units and the exercise of the underwriter 's option to purchase 194,444 additional series e warrants to purchase an aggregate of 194,444 shares of common stock was approximately $ 4.2 million , excluding the proceeds , if any , from the exercise of the series e warrants and the pre-funded warrants sold in the offering , and after deducting underwriting discounts and commissions and payment of other estimated expenses associated with the offering that were payable by us .
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results of operations twelve months ended december 31 , 2020 compared to the twelve months ended december 31 , 2019 revenues . for the twelve months ended december 31 , 2020 , revenue decreased by $ 1,236,000 , or 33.2 % , to $ 2,485,000 , from $ 3,721,000 during the twelve months ended december 31 , 2019. revenues were negatively impacted by 15.6 % due to a settlement of litigation with a former distributor in 2014 ( see part i , item 3 . “ legal proceedings ” ) under which we agreed to pay them $ 580,000. under us gaap we were required to charge that amount against revenues . in addition , there was a 15.3 % decrease in sales volume of cguard eps from $ 3,265,000 during the twelve months ended december 31 , 2019 , to $ 2,764,000 during the twelve months ended december 31 , 2020 , mainly due to the postponement of procedures with cguard eps , which are generally scheduled or nonemergency procedures , as hospitals shifted resources to patients affected by covid-19 . there was a 34.0 % decrease in sales volume of mguard prime eps from $ 456,000 during the twelve months ended december 31 , 2019 , to $ 301,000 during the twelve months ended december 31 , 2020 , mainly due to the postponement of procedures with mguard prime eps , which are generally scheduled or nonemergency procedures , as hospitals shifted resources to patients affected by covid-19 .
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in the course of operating our business , we routinely make decisions as to the timing of the payment of invoices , the collection of receivables , the manufacturing and shipment of products , the fulfillment of orders , the purchase of supplies , and the building of inventory and spare parts , among other matters . each of these decisions has some impact on the financial results for any given period . in making these decisions , we consider various factors including contractual obligations , customer satisfaction , competition , internal and external financial targets and expectations , and financial planning objectives . for further information about our critical accounting policies and estimates , see “ critical accounting policies and estimates ” section included in this “ management 's discussion and analysis of financial condition and results of operations. ” to aid in understanding our operating results for the periods covered by this report , we have provided an executive overview and a summary of the business and market environment . these sections should be read in conjunction with the more detailed discussion and analysis of our consolidated financial condition and results of operations in this item 7 , our “ risk factors ” section included in item 1a of part i , and our consolidated financial statements and notes thereto included in item 8 of part ii of this report . business and market environment at juniper networks , we design , develop , and sell products and services for high-performance networks to enable customers to build highly scalable , reliable , secure and cost-effective networks for their businesses , while achieving agility , efficiency and value through automation . we focus on customers and partners across our key verticals who view these network attributes as fundamental to their business ; including global service providers , enterprises , financial services , cloud hosting providers , governments , research , and public sector organizations . product and solution differentiation , with a relentless customer focus , will allow us to achieve our primary goal of growing revenue faster than the market . we sell our products in more than 100 countries in three geographic regions : americas ; europe , middle east , and africa ( `` emea '' ) ; and asia pacific ( `` apac '' ) . we sell our high-performance routing , switching , and security network products and service offerings to service provider and enterprise markets . our silicon , systems , and software represent innovations that transform the economics and experience of networking , helping customers achieve superior performance , greater choice , and flexibility , while reducing overall total cost of ownership . in addition to our products , we offer technical support and professional services , as well as education and training programs to our customers . together , our high-performance product and service offerings help our customers convert legacy networks that provide commoditized services into more valuable assets that provide differentiation , value , and increased performance , reliability , and security to end-users . during 2014 , we saw a slight decline in net revenues year-over-year , primarily due to reduced spending by u.s. carriers , however the diversity in our business across verticals such as cloud and cable providers helped to partially offset the decline . we expect the overall revenue environment to be challenging over the next several quarters , as market dynamics , including consolidation , are impacting demand from our largest u.s. service provider customers . we believe our product gross margins may continue to vary in the future due to competitive pricing pressures , which may be offset by additional operational efficiencies . nevertheless , we are focused on executing our strategy that is focused on designing , developing and selling products and services for high-performance networks . we believe our product portfolio continues to be strong , and we remain focused on operational excellence , cost discipline and targeted growth initiatives . in 2014 , we continued to invest in innovation and strengthening our product portfolio , which resulted in new product offerings across routing , switching , and security . in routing , we announced a virtualized version of our flagship mx series 3d universal edge routing platform , the vmx 3d universal edge router , to deliver the industry 's first full-featured , carrier-grade virtualized router , giving service providers and enterprises the ability to seamlessly leverage the benefits of both virtual and physical networking . in switching , to address the networking requirements of large cloud providers and enterprise customers who build large and massive scale data centers , we announced ocx1100 , the first switch to combine open compute project ( ocp ) hardware design with a carrier-class network operating system , junos os . we also announced a new line of ex4600 ethernet switches to fulfill the increasing demands for highly available access to cloud services and applications across enterprise campus networks . additionally , we expanded our sdn portfolio with new software and hardware , including the northstar controller , a new traffic-engineering controller leveraging open , industry-standard protocols built to optimize service providers ' transport networks , as well as the junos fusion software that controls thousands of independent network elements from a single management plane . 34 key strategic technology partnerships also delivered new solutions to address the high-performance network requirements of our service provider and enterprise customers . through integration with gainspeed 's technology and our mx series 3d universal edge routers and ex series switches , we announced the virtual converged cable access platform , allowing cable operators to better automate and scale their edge/access infrastructure while creating a platform for new cloud-based services . additionally , we partnered with nokia to advance the telco cloud for mobile broadband and accelerate service creation by bringing together nokia 's leading liquid core solution and the juniper networks metafabric data center architecture , including contrail . story_separator_special_tag operating ( loss ) income : during 2014 , compared to 2013 , we experienced a decline in operating ( loss ) income as a percentage of net revenues , primarily due to an $ 850.0 million goodwill impairment charge related to the security reporting 36 unit recorded in the fourth quarter of 2014 , restructuring and other charges of $ 207.7 million , related to severance , facility consolidations and closures , asset-write-offs , and contract terminations in connection with our 2014 restructuring plan , as well as a component remediation charge of $ 20.7 million relating to the memory product quality defect . our operating income as a percentage of revenues increased in 2013 , compared to 2012 , primarily due to growth in net revenues . also contributing to the increase in operating income were lower restructuring and other charges of $ 52.2 million compared to 2012. cash dividends declared per common stock : during 2014 , we declared two quarterly cash dividends of $ 0.10 per share , payable on september 23 , 2014 and on december 23 , 2014 to stockholders of record as of the close of business on september 2 , 2014 and december 2 , 2014 , respectively , in the aggregate amount of $ 86.0 million . we had not previously paid cash dividends . stock repurchase plan activity : under our stock repurchase program , we repurchased approximately 96.1 million shares of our common stock in the open market at an average price of $ 23.41 per share for an aggregate purchase of $ 2,250.0 million during the year ended december 31 , 2014 . operating cash flows : operating cash flows decreased in 2014 , compared to 2013 , primarily due to lower cash collections from customers , higher payments primarily related to our 2014 restructuring plans , higher taxes paid , and lower prepayments compared to prior year . operating cash flows increased in 2013 , compared to 2012 , primarily due to the timing of payments to our vendors , higher deferred revenue , and lower taxes paid , partially offset by the timing of payments for incentive compensation to our employees and the timing of receipts from our customers . dso : dso is calculated as the ratio of ending accounts receivable , net of allowances , divided by average daily net sales for the preceding 90 days . dso for the quarter ended december 31 , 2014 increased by 8 days , or 20 % compared to the quarter ended december 31 , 2013. during 2014 , we transitioned certain distribution partners from a third party financing program to juniper 's commercial payment terms . going forward , we expect dso to be in the range of 45 to 55 days . dso increased by 6 days or 17 % for the quarter ended december 31 , 2013 compared to the quarter ended december 31 , 2012. the increase was primarily due to large multi-year service renewals at the end of the period which increased our outstanding receivables compared to the same period in 2012. book-to-bill : book-to-bill represents the ratio of product orders booked divided by product revenues during the respective period . book-to-bill was greater than one for the quarters ended december 31 , 2014 , 2013 and 2012 , indicating strong product demand . deferred revenue : total deferred revenue increased slightly by $ 6.4 million to $ 1,075.7 million as of december 31 , 2014 , compared to $ 1,069.3 million as of december 31 , 2013 , primarily due to an increase in deferred service revenue of $ 25.8 million , primarily driven by the execution of several multi-year support agreements and annual agreement renewals . the increase in deferred service revenue was partially offset by a decrease in deferred product revenue of $ 19.4 million as a result of lower distributor inventory and multiple revenue releases in relation to previously deferred product revenue . as of december 31 , 2013 compared to december 31 , 2012 , total deferred revenue increased by $ 145.9 million , primarily due to an increase in deferred service revenue driven by the execution of several multi-year support agreements , and to a lesser extent an increase in annual agreement renewals , slightly offset by a decrease in deferred product revenue . critical accounting policies and estimates the preparation of the financial statements and related disclosures in conformity with u.s. gaap requires us to make judgments , assumptions , and estimates that affect the amounts reported in the consolidated financial statements and the accompanying notes . on an ongoing basis , we evaluate our estimates , including those related to sales returns , pricing credits , warranty costs , allowance for doubtful accounts , impairment of long-term assets , especially goodwill and intangible assets , contract manufacturer exposures for carrying and obsolete material charges , assumptions used in the valuation of share-based compensation , and litigation . we base our estimates and assumptions on current facts , historical experience , and various other factors that we believe are 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 . for further information about our significant accounting policies , see note 2 , 37 significant accounting policies , in notes to consolidated financial statements in item 8 of part ii of this report , which describes the significant accounting policies and methods used in the preparation of the consolidated financial statements . the accounting policies described below are significantly affected by critical accounting estimates . such accounting policies require significant judgments , assumptions , and estimates used in the preparation of the consolidated financial statements and actual results could differ materially from the amounts reported based on these policies . to the extent there are material differences between our estimates and the actual results , our future consolidated results of operations may be affected . goodwill .
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summary of cash flows as of december 31 , 2014 , our cash and cash equivalents decreased by $ 644.4 million from december 31 , 2013 primarily due to purchases and retirement of our common stock in connection with our stock repurchase program , capital expenditures , federal estimated tax payment , dividend payout and higher payments related to all restructuring plans , partially offset by the issuance of the 2024 notes in february 2014 , cash received from the sale of certain equity investments , cash received from the patent litigation settlement , and proceeds from the sale of junos pulse . the following table summarizes cash flows from our consolidated statements of cash flows ( in millions , except percentages ) : replace_table_token_15_th 49 operating activities 2014 compared to 2013 cash flow from operations decreased by $ 82.5 million in 2014 , compared to 2013 , primarily due to lower cash collections from customers , higher payments related to our restructuring plans , higher taxes paid , and lower prepayments compared to prior year . 2013 compared to 2012 cash flows from operations increased by $ 208.2 million in 2013 , compared to 2012 , primarily due to higher net income , the timing of payments to our vendors , higher deferred revenue , and lower taxes paid , partially offset by the timing of payments for incentive compensation to our employees and the timing of collections on our outstanding receivables . investing activities 2014 compared to 2013 net cash provided by investing was $ 434.0 million in 2014 , compared to net cash used in investing of $ 561.0 million in 2013. the increase in net cash provided by investing activities was primarily due to higher proceeds from sale of investments and fewer purchases of investments , as well as proceeds received from the sale of junos pulse .
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readers are cautioned that such forward-looking statements should be read in conjunction with the company 's disclosures under the heading : “ cautionary statement for the purposes of the ‘ safe harbor ' provisions of the private securities litigation reform act of 1995. ” the terms “ earnings ” and “ loss ” as used in management 's discussion and analysis refer to net income ( loss ) attributable to phillips 66. business environment and executive overview phillips 66 is an energy manufacturing and logistics company with midstream , chemicals , refining , and marketing and specialties businesses . at december 31 , 2015 , we had total assets of $ 48.6 billion . executive overview we reported earnings of $ 4.2 billion in 2015 and generated $ 5.7 billion in cash from operating activities . phillips 66 partners lp issued $ 1.1 billion of debt and $ 384 million of its common units to the public . we used available cash primarily to fund capital expenditures and investments of $ 5.8 billion , pay dividends of $ 1.2 billion , repurchase $ 1.5 billion of our common stock , and repay $ 800 million of senior notes that came due in 2015. we ended 2015 with $ 3.1 billion of cash and cash equivalents and approximately $ 4.9 billion of total capacity under our available liquidity facilities . our financial performance in 2015 demonstrated the benefit of a diversified portfolio of businesses in a low commodity price environment . we continue to focus on the following strategic priorities : operating excellence . our commitment to operating excellence guides everything we do . we are committed to protecting the health and safety of everyone who has a role in our operations and the communities in which we operate . continuous improvement in safety , environmental stewardship , reliability and cost efficiency is a fundamental requirement for our company and employees . we employ rigorous training and audit programs to drive ongoing improvement in both personal and process safety as we strive for zero incidents . since we can not control commodity prices , controlling operating expenses and overhead costs , within the context of our commitment to safety and environmental stewardship , is a high priority . we actively monitor these costs using various methodologies that are reported to senior management . we are committed to protecting the environment and strive to reduce our environmental footprint throughout our operations . optimizing utilization rates at our refineries through reliable and safe operations enables us to capture the value available in the market in terms of prices and margins . during 2015 , our worldwide refining crude oil capacity utilization rate was 91 percent . growth . we have budgeted $ 3.9 billion in capital expenditures and investments in 2016 , including $ 0.3 billion for phillips 66 partners . including our share of expected capital spending by joint ventures dcp midstream , llc ( dcp midstream ) , chevron phillips chemical company llc ( cpchem ) and wrb refining lp ( wrb ) , our total 2016 capital program is expected to be $ 5.3 billion . this program is designed primarily to grow our midstream and chemicals segments , which have planned expansions for manufacturing and logistics capacity . the need for additional new gathering and processing , pipeline , storage and distribution infrastructure–driven by domestic unconventional crude oil , natural gas liquids ( ngl ) and natural gas production–is creating capital investment opportunities in our midstream business . over the next few years , cpchem plans significant 32 index to financial statements reinvestment of its earnings to build additional manufacturing capacity benefiting from cost-advantaged ngl feedstocks . we continue to focus on funding the most attractive growth opportunities across our portfolio . in 2013 , we formed phillips 66 partners , a master limited partnership , to own , operate , develop and acquire primarily fee-based crude oil , refined petroleum product and ngl pipelines and terminals , as well as other transportation and midstream assets . phillips 66 partners provides a cost-efficient vehicle to fund midstream growth . returns . we plan to improve refining returns by increasing throughput of advantaged feedstocks , disciplined capital allocation and portfolio optimization . a disciplined capital allocation process ensures that we focus investments in projects that generate competitive returns throughout the business cycle . during 2015 , 93 percent of the company 's u.s. crude slate was advantaged . distributions . we believe shareholder value is enhanced through , among other things , consistent and ongoing growth of regular dividends , supplemented by share repurchases . we increased our quarterly dividend rate by 12 percent during 2015 , and have increased it 180 percent since our separation from conocophillips in 2012 ( the separation ) . regular dividends demonstrate the confidence our management has in our capital structure and operation 's capability to generate free cash flow throughout the business cycle . through december 31 , 2015 , we have cumulatively repurchased $ 6.4 billion , or approximately 92.5 million shares , of our common stock . at the discretion of our board of directors , we plan to increase dividends annually and fund our share repurchase program while continuing to invest in the growth of our business . in october 2015 , our board of directors increased our current share repurchase authorization by $ 2 billion resulting in a total authorization of $ 4 billion . since july 2012 , our board of directors has authorized repurchases of our outstanding common stock totaling up to $ 9 billion . high-performing organization . we strive to attract , train , develop and retain individuals with the knowledge and skills to implement our business strategy and who support our values and culture . throughout the company , we focus on getting results in the right way and believe success is both what we do and how we do it . we encourage collaboration throughout our company , while valuing differences , respecting diversity of thought , and creating a great place to work . story_separator_special_tag transportation earnings increased $ 55 million in 2015 , compared with 2014. this increase reflects the startup of our bayway and ferndale crude oil rail unloading facilities in the second half of 2014 , as well as a full year of operations from the beaumont terminal acquired in 2014. increased railcar fleet activities , higher terminal revenues , and improved earnings from equity affiliates also benefited earnings in 2015. these benefits were partially offset by higher earnings attributable to noncontrolling interests . 38 index to financial statements earnings associated with our investment in dcp midstream decreased $ 459 million in 2015 , compared with 2014. the decrease in 2015 mainly resulted from lower ngl , crude oil , and natural gas prices , partially offset by increased volumes due to asset growth , and lower operating costs as a result of cost saving initiatives . in addition , goodwill and other asset impairments recorded by dcp midstream in 2015 contributed to the loss recognized from our investment in dcp midstream . dcp midstream performed a goodwill impairment assessment and other asset impairment assessments based on internal discounted cash flow models taking into account various observable and non-observable factors , such as prices , volumes , expenses and discount rates . the impairment tests resulted in dcp midstream 's recognition of a $ 460 million goodwill impairment and $ 342 million in other asset impairments , net of tax impacts . together , these impairments reduced our equity earnings from dcp midstream by $ 232 million after-tax . dcp midstream partners , lp ( dcp partners ) , a master limited partnership formed by dcp midstream , periodically issues limited partner units to the public . these issuances benefited our equity in earnings from dcp midstream , on an after-tax basis , by approximately $ 1 million in 2015 , compared with approximately $ 45 million in 2014. the earnings from our ngl business decreased $ 90 million in 2015 , compared with 2014. the decrease was primarily driven by lower realized margins and higher earnings attributable to noncontrolling interests . we also incurred higher tax expense in 2015 , driven by a lower manufacturing deduction resulting from bonus depreciation associated with the start-up of sweeny fractionator one . these decreases were partially offset by higher earnings from equity affiliates . see the “ business environment and executive overview ” section for information on market factors impacting this year 's results . as previously disclosed , in early 2015 we and our co-venturer in dcp midstream agreed to forgo cash distributions from dcp midstream due to the significant decrease in commodity prices since mid-2014 . the sustained weak commodity price environment during 2015 caused dcp midstream to impair its goodwill in 2015 by $ 460 million , and impair certain assets and in-process capital projects in the fourth quarter of 2015 by an additional $ 342 million . to strengthen its balance sheet , during the fourth quarter of 2015 we contributed $ 1.5 billion of cash to dcp midstream , while our co-venturer contributed its interests in certain operating assets held as equity investments . at december 31 , 2015 , the carrying value of our investment in dcp midstream was approximately $ 2.3 billion . we will continue to monitor dcp midstream 's operations and the continued weak commodity price environment for any further impacts on dcp midstream or the carrying value of our investment . 2014 vs. 2013 earnings from the midstream segment increased $ 38 million in 2014 , compared with 2013. the improvement was primarily driven by higher earnings from our transportation and ngl businesses , partially offset by lower earnings from dcp midstream . transportation earnings increased $ 34 million in 2014 , compared with 2013. this increase primarily resulted from increased throughput fees , as well as higher earnings associated with railcar activity in 2014. these increases were partially offset by higher earnings attributable to noncontrolling interests , reflecting the contribution of previously wholly owned assets to phillips 66 partners . the $ 75 million decrease in earnings of dcp midstream in 2014 primarily resulted from a decrease in ngl and crude prices in the latter part of 2014. ngl and crude prices have continued to decline in the early part of 2015. in addition , earnings decreased as costs associated with asset growth and maintenance increased in 2014 , compared with 2013. earnings further declined due to dcp midstream 's contribution of assets to dcp partners . following the contribution , a percentage of the earnings from these assets are attributable to public unitholders , thus decreasing income attributable to dcp midstream and , thereby , phillips 66. see the “ business environment and executive overview ” section for additional information on market factors impacting dcp midstream 's results . dcp partners unit issuances benefited our equity in earnings from dcp midstream , on an after-tax basis , by approximately $ 45 million in 2014 , compared with approximately $ 62 million in 2013 . 39 index to financial statements earnings from the ngl business increased $ 79 million , compared with 2013. the increase was primarily due to improved margins driven by strong propane prices in early 2014. additionally , 2014 earnings benefited from gains related to seasonal propane and butane storage activity . also , earnings improved due to higher equity earnings from dcp sand hills , llc ( sand hills ) and dcp southern hills , llc ( southern hills ) . these increases were partially offset by an increase in costs associated with growth projects . chemicals replace_table_token_12_th the chemicals segment consists of our 50 percent interest in cpchem , which we account for under the equity method . cpchem uses ngl and other feedstocks to produce petrochemicals . these products are then marketed and sold or used as feedstocks to produce plastics and other chemicals . we structure our reporting of cpchem 's operations around two primary business segments : olefins and polyolefins ( o & p ) and specialties , aromatics and styrenics ( sa & s ) .
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results of operations consolidated results a summary of the company 's earnings follows : replace_table_token_9_th 2015 vs. 2014 our earnings from continuing operations increased $ 171 million , or 4 percent , in 2015 , primarily resulting from : improved realized refining margins as a result of increased gasoline crack spreads and improved secondary product margins . recognition of $ 242 million after-tax in 2015 , compared with $ 126 million after-tax in 2014 , of the deferred gain related to the sale in 2013 of the immingham combined heat and power plant ( ichp ) . these increases were partially offset by : lower equity earnings from dcp midstream , primarily as a result of goodwill and other asset impairments and lower commodity prices . lower ethylene margins in our chemicals segment . 2014 vs. 2013 our earnings from continuing operations increased $ 391 million , or 11 percent , in 2014 , primarily resulting from : a gain on disposition and related deferred tax adjustment associated with the sale of malaysian refining company sdn . bdh . ( mrc ) , together totaling $ 369 million after-tax . improved ethylene and polyethylene margins in our chemicals segment . improved worldwide marketing margins . recognition in 2014 of $ 126 million , after-tax , of the previously deferred gain related to the sale in 2013 of the ichp . improved secondary products margins in our refining segment . 35 index to financial statements these increases were partially offset by : a $ 131 million after-tax impairment related to the whitegate refinery in cork , ireland . lower realized gasoline and distillate margins as a result of decreased market crack spreads and lower feedstock advantage .
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the acquisitions were recorded at fair value , which was determined using both the market and income approaches , and level 3 inputs were used to determine fair value . see note 1 for a description of the level 3 inputs . 2011 acquisitions — revenue , net income and pro forma financial information — unaudited the opal properties and the fairway properties were not included in our consolidated results until their respective close dates . for the period of may 11 , 2011 to december 31 , 2011 for the opal properties and the period of story_separator_special_tag the following discussion and analysis should be read in conjunction with financial statements under part ii , item 8 of this form 10-k. the following discussion includes forward-looking statements that reflect our plans , estimates and beliefs . our actual results could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those discussed below and elsewhere in this form 10-k. overview we are an independent oil and natural gas producer focused primarily in the gulf of mexico and texas . we have grown through exploration , development and acquisitions and currently hold working interests in approximately 67 offshore fields ( 62 producing and five capable of producing ) in federal and state waters . our onshore activities have been primarily in the permian basin of west texas , where we acquired most of our leasehold interest in connection with an acquisition in 2011as described below . we also have had limited activity in east texas , where we acquired leasehold interests in 2011 , and have been evaluating this area through selective exploration and development efforts . we have interests in offshore leases covering approximately 1.1 million gross acres ( 0.7 million net acres ) spanning primarily across the outer continental shelf off the coasts of louisiana , texas , mississippi and alabama and approximately 0.2 million gross acres ( 0.2 million net acres ) onshore substantially all in texas . we operate wells accounting for approximately 86 % of our average daily production . we own interests in approximately 210 offshore structures , 142 of which are located in fields that we operate . our interest in fields , leases , structures and equipment are primarily owned by the parent company , w & t offshore , inc. and our wholly-own subsidiary , w & t energy vi , llc . in managing our business , we are concerned primarily with maximizing return on shareholders ' equity . to accomplish this primary goal , we focus on increasing production and reserves at a profit . we strive to grow our reserves and production through acquisitions and our drilling programs . we have focused on acquiring properties where we can develop an inventory of drilling prospects that will enable us to continue to add reserves post-acquisition . in november and december 2013 , we acquired from callon certain oil and gas leasehold interests in the gulf of mexico . the callon properties consist of a 15 % working interest in the medusa field ( deepwater mississippi canyon blocks 582 and 583 ) , interest in associated production facilities and various interests in other non-operated fields . internal estimates of proved reserves associated with the callon properties as of the acquisition dates were approximately 2.1 mmboe ( 12.7 bcfe ) , comprised of approximately 67 % oil and 33 % natural gas , all of which were classified as proved developed . including adjustments from an effective date of july 1 , 2013 , the adjusted purchase price was $ 82.4 million and we assumed the aro associated with the callon properties , which we have estimated to be $ 4.2 million . the acquisition was funded from borrowings under our revolving bank credit facility and cash on hand . in october 2012 , we acquired from newfield certain oil and gas leasehold interests . the properties consisted of leases covering 78 federal offshore blocks on approximately 416,000 gross acres ( 268,000 net acres ) . internal estimates of proved reserves associated with the newfield properties as of the acquisition date were approximately 7.0 mmboe ( 42.0 bcfe ) , comprised of approximately 61 % natural gas , 36 % oil and 3 % ngls , all of which were classified as proved developed . including adjustments from an effective date of july 1 , 2012 , the adjusted purchase price was $ 205.8 million and we assumed the aro associated with the newfield properties , which we have estimated to be $ 31.7 million . the acquisition was initially funded from borrowings under our revolving bank credit facility and cash on hand . subsequently in the same month , the amounts borrowed under our revolving bank credit facility were paid down with funds provided from the issuance of an additional $ 300.0 million of 8.50 % senior notes . during 2011 , we closed two acquisition transactions . in may 2011 , we acquired from opal approximately 24,500 gross acres ( 21,900 net acres ) of certain oil and gas leasehold interests in the permian basin of west texas , which we refer to as the opal properties . internal estimates of proved reserves associated with the opal properties as of the acquisition date were approximately 30.1 mmboe ( 180.4 bcfe ) , comprised of approximately 69 % oil , 22 % ngls and 9 % natural gas , and approximately 70 % of which were classified as proved undeveloped . including adjustments from an effective date of january 1 , 2011 , the adjusted purchase price was $ 394.4 million , and we assumed the aro associated with the opal properties , which we have estimated to be $ 0.4 million , and recorded a long-term liability of $ 2.1 million . the acquisition was funded from cash on hand and borrowings under our revolving bank credit facility . story_separator_special_tag spreads are expected to remain volatile and certain u.s. gulf coast crudes are selling at a discount to wti due to excess supplies of certain crudes . oil prices are affected by world events , such as political unrest in the middle east , the threat of hostilities , demand changes in various countries and world economic growth . thus , crude oil prices will likely continue to be volatile . for 2013 , wti crude oil prices ranged from $ 87.00 to $ 111.00 per barrel and brent crude oil prices ranged from $ 97.00 to $ 119.00 per barrel . the u.s. energy information administration ( “ eia ” ) estimates that the average wti crude spot price was $ 98.00 per barrel in 2013 and will be $ 93.00 per barrel in 2014 and $ 90.00 per barrel in 2015. eia estimates the average brent crude oil spot price was $ 109.00 per barrel in 2013 and projects the average price to be $ 105.00 and $ 102.00 per barrel in 2014 and 2015 , respectively . eia expects world-wide supply and consumption for oil and liquids fuels to be fairly equal for 2014 and 2015 , resulting in minor inventory withdrawals or builds . 50 our average realized ngls sales prices decreased 11.8 % during 2013 compared to 2012. according to industry sources , domestic ngls production significantly increased over 2012 levels which affected price realizations . the two major components of our ngls are ethane and propane , which typically make up over 70 % of a ngl barrel . during 2013 , prices for domestic ethane decreased 25 % and domestic propane prices were flat compared to 2012 prices . price changes for other domestic ngls ranged from flat to a 21 % increase . as long as ethane inventories and production continue to be high , we would expect prices for ethane to be weak . in addition , as long as the crude to natural gas price ratio remains wide ( as measured on a six to one energy equivalency ) , the production of ngls may continue to be high relative to historical norms and would , in turn , suggest downward price pressure on the price of ethane . many natural gas processing facilities are re-injecting ethane back into the natural gas stream after processing due to excess ethane supplies . this in turn has increased natural gas supplies and negatively impacted natural gas pricing . propane is used as a heating fuel and , during the winter of early 2014 , propane inventories declined significantly and propane prices strengthened during the january to february 2014 timeframe . the remainder of the ngl barrel ( iso butane , normal butane and pentane ) has also shown price strength in the early winter months . ngls inventories and prices are expected to be volatile in the short term with weather being the major influencing factor on a portion of the ngl barrel . over the longer term , overall ngls prices are expected to be weak to moderate until more infrastructure is built and demand increases from construction of petrochemical plants that consume ngls and from exports . prices for natural gas in the u.s. improved during 2013 compared to 2012 largely due to above-average storage withdrawals in response to the colder winter weather , which was primarily in march 2013 , lower net imports from canada and higher industrial demand . the cold weather in december 2013 and january 2014 also has had significant effects on demand , supply and prices across the country , with one week in december having the largest storage withdrawal since record keeping began in 1994. natural gas prices are more affected by domestic issues ( as compared to crude oil prices ) , such as weather ( particularly extreme heat or cold ) , supply , local demand issues , other fuel competition ( coal ) and domestic economic conditions , and they have historically been subject to substantial fluctuation . during 2013 , the average realized sales price for our natural gas production increased 20.7 % from 2012 to $ 3.55 per mcf . a comparable benchmark is the henry hub unweighted average daily posted spot price , which increased 35.3 % from the comparable period . although the price of natural gas has increased significantly on a percentage basis , it is still weak from an overall economic standpoint and we expect continued weakness in natural gas prices for a number of reasons , including ( i ) producers continuing to drill in order to secure and to hold large lease positions before expiration , particularly in shale and similar resource plays , ( ii ) natural gas storage levels building during the injection season , ( iii ) natural gas continuing to be produced as a by-product in conjunction with the high level of oil drilling , ( iv ) increasing availability of liquefied natural gas , ( v ) production efficiency gains being achieved in the shale gas areas resulting from better hydraulic fracturing , horizontal drilling and production techniques and ( vi ) re-injecting ethane into the natural gas stream as indicated above , which increases the natural gas supply . per eia , natural gas working inventories at the end of 2013 were estimated at 2,876 billion cubic feet , which is 16 % below 2012 's level and 12 % below last quarter 's projected level for year-end 2013. eia estimates the henry hub natural gas spot price , which averaged $ 2.75 per mmbtu in 2012 , was $ 3.73 per mmbtu in 2013 and forecasts $ 3.89 per mmbtu in 2014 and $ 4.11 per mmbtu in 2015. eia projects u.s. supply to be higher than consumption for both 2014 and 2015. according to baker hughes , the u.s. natural gas rig count decreased from 809 rigs at the beginning of 2012 to 431 by the end of 2012. the rig count continued to decrease further and by the end of 2013 had decreased to 372
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results of operations year ended december 31 , 2013 compared to year ended december 31 , 2012 revenues . total revenues increased $ 109.6 million , or 12.5 % , to $ 984.1 million in 2013 compared to 2012. oil revenues increased $ 89.4 million , ngls revenues decreased $ 11.3 million , natural gas revenues increased $ 30.9 million and other revenues increased $ 0.6 million . the oil revenue increase was attributable to a 16.3 % increase in sales volumes , partially offset by a $ 1.91 per bbl decrease in the average realized sales price to $ 102.44 per bbl . the ngls revenue decrease was attributable to a 11.8 % decrease in the average realized sales price to $ 35.07 per bbl in 2013 from $ 39.75 per bbl in 2012 and a slight decrease of 1.8 % in sales volumes . the natural gas revenue increase was attributable to a 20.7 % increase in the average realized natural gas sales price to $ 3.55 per mcf from $ 2.94 per mcf for 2012 , with sales volumes decreasing slightly by 1.1 % . production for all commodities was positively impacted by production increases at ship shoal 349 and the onshore properties in west texas . in addition , production was positively impacted by the newfield properties acquired in the fourth quarter 2012 , the callon properties acquired in the fourth quarter of 2013 and the volume adjustments described above in the overview section . production was negatively impacted for all commodities from natural production declines and from production deferrals affecting various fields . the production deferrals were attributable to third-party pipeline outages , platform maintenance , tropical storm karen and various operational issues . we estimate production deferrals were 13.0 bcfe during 2013 for all these issues .
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( 4 ) on february 15 , 2017 , in connection with his appointment to our board of directors , we granted mr. rice 5,231 shares of common stock of the company , under the 2013 equity incentive plan , with such shares to vest in four equal , successive quarterly installments . ( 5 ) under mr. cola 's employment agreement ( “ mr . cola 's employment agreement ” ) , effective as of july 24 , 2017 , during each 12-month period during the term of mr. cola 's employment , mr. cola is entitled to a nondiscretionary annual founder 's bonus in the total amount of $ 40,000 , payable and earned in 24 equal bi-monthly installments . ( 6 ) on february 21 , 2017 , an option to purchase up to 123,750 shares of the company 's common stock at an exercise price per share equal to $ 3.48 ( the “ original option ” ) , was granted to mr. cola under his then employment agreement . the option had an aggregate grant date fair value of $ 445,352 , calculated in accordance with fasb asc topic 718. the amount recognized for this award was calculated using the black scholes option-pricing model . under mr. cola 's employment agreement , the original option was amended such that ( a ) any unvested portion of the original option will immediately and automatically vest if mr. cola 's employment is terminated as a result of a termination event ( as defined in mr. cola 's employment agreement ) , and ( b ) upon the occurrence of a corporate transaction ( as defined in the 2013 equity incentive plan of the company ) , the original option , if outstanding as of the date of such applicable corporate transaction , will remain outstanding and exercisable in accordance with its terms , except as provided in mr. cola 's employment agreement . ( 7 ) in 2016 , an option to purchase up to 5,000 shares of common stock of the company , subject to vesting restrictions , at an exercise price equal to $ 5.28 per share was granted to mr. fisher under his employment with the company . the option had an aggregate grant date fair value of 25,497 , calculated in accordance with fasb asc topic 718. the amount recognized for this award was calculated using the black scholes option-pricing model . 36 ( 8 ) an option to purchase up to 20,000 shares of common stock of the company , subject to vesting restrictions , at an exercise price of $ 3.27 per share was granted to ms. cola on april 19 , 2017. the option had an aggregate grant date fair value of $ 63,686 , calculated in accordance with fasb asc topic 718. the amount recognized for this award was calculated using the black scholes option-pricing model . ( 9 ) ms. cola separated from our company on october 2 , 2017. the amount shown was paid to ms. cola as severance in connection with her separation from the company . ( 10 ) on july 14 , 2016 , ms. cola was awarded a bonus in the amount of $ 10,000 in recognition of ms. cola 's services during 2016 and the various milestones that she helped the company achieve , including in relation to a company-wide dcaa government audit , along with implementing state-funded programs which in turn provides cash payments to the company . ( 11 ) an option to purchase up to 15,000 shares of common stock of the company , subject to vesting restrictions , at an exercise price of $ 5.92 per share was granted to ms. cola on july 22 , 2016. the option had an aggregate grant date fair value of $ 85,824 , calculated in accordance with fasb asc topic 718. the amount recognized for this award was calculated using the black scholes option-pricing model . ( 12 ) under mr. williams employment agreement , he was granted effective as of july 22 , 2016 , under our 2013 plan , 15,500 shares of restricted common stock of the company , which shares vested on the one-year anniversary of the effective date of mr. williams ' employment ( the “ first anniversary date ” ) , provided , however , that vesting as to 50 % of the shares accelerated effective as of the closing of our underwritten public offering ( i.e . , february 21 , 2017 ) . ( 13 ) effective july 22 , 2016 , an option to purchase up to 31,500 shares of common stock of the company , subject to vesting restrictions , at an exercise price equal to $ 5.92 per share , was granted to mr. williams under his employment agreement with the company , with 10,500 shares vesting and becoming exercisable on the first anniversary date , and the balance of the shares underlying the option are to vest and become exercisable in eight equal installments of 2,625 shares each on a quarterly basis following the first anniversary date . the option had an aggregate grant date fair value of $ 148,012 , calculated in accordance with fasb asc topic 718. the amount recognized for this award was calculated using the black scholes option-pricing model . executive officer employment agreements john rice on august 8 , 2017 , we entered into an “ at will ” unwritten employment arrangement with mr. rice , effective as of august 1 , 2017 , pursuant to which mr. rice serves as our interim chief executive officer and interim principal executive officer . story_separator_special_tag under his employment arrangement , mr. rice is entitled to receive a monthly salary of $ 9,000 , and he is eligible to receive medical and dental benefits , life insurance , and long term and short term disability coverage . further , mr. rice is eligible under his employment arrangement to participate in the company 's 2013 equity incentive plan , with equity compensation to mr. rice to be determined by our compensation committee at a later date . effective story_separator_special_tag critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions that affect the reported assets , liabilities , sales and expenses in the accompanying financial statements . critical accounting policies are those that require the most subjective and complex judgments , often employing the use of estimates about the effect of matters that are inherently uncertain . such critical accounting policies , including the assumptions and judgments underlying them , are disclosed in note 1 to the financial statements included in this annual report . however , we do not believe that there are any alternative methods of accounting for our operations that would have a material effect on our financial statements . story_separator_special_tag as a result of february 2017 public offering , the restructuring of debt in october 2017 , and the december 2017 conversions by two debt instrument holders . this compares to a $ 354,644 positive contribution from revaluation of derivatives in 2016. offsetting these noncash adjustments was positive contribution in 2017 from an $ 102,865 increase in the amount of cash incentives received from the state of new mexico and $ 40,107 of interest income earned on loans we made . these were largely offset by a $ 121,624 increase in interest expense on the $ 1,000,000 note originated in october of 2016. sigma 's net loss for fiscal 2017 increased $ 2,380,682 overall and totaled $ 4,577,516 , as compared to $ 2,196,834 for fiscal 2016. the 2017 net operating loss component of the overall loss being $ 1,578,252 higher than in 2016 and the other income and expenses component being a $ 802,430 higher loss . liquidity and capital resources as of december 31 , 2017 , we had $ 1,515,674 in cash and a working capital surplus of $ 2,273,801 , as compared to $ 398,391 in cash and a working capital surplus of $ 110,799 as of december 31 , 2016. on march 28 , 2018 , sigma received $ 535,000 in full payment of the outstanding morf3d note receivable and accrued interest . on april 6 , 2018 , the company closed a private placement of equity securities resulting in net proceeds of approximately $ 840,000 , after deducting commissions and other offering expenses payable by the company . during the remainder of 2018 , we expect to further ramp up our operations and our commercialization and marketing efforts , which will increase the amount of cash we will use in our operations . we expect that our continued development of our ipqa®-enabled printrite3d® technology will enable us to further commercialize this technology for the am metal market in 2018. however , until commercialization of our full suite of printrite3d® technologies , we plan to continue funding our development activities and operating expenses by licensing our printrite3d® systems and supporting field services , as applicable , and providing printrite3d®-enabled engineering consulting services concerning our areas of expertise ( materials and manufacturing quality assurance and process control technologies ) and contract manufacturing for metal am , and through the use of proceeds from sales of our securities . 26 cash used in operating activities in 2017 increased to $ 2,791,406 from $ 1,962,314 in 2016 due primarily to increases in payroll , and in outside services costs related to both the $ 5,250,000 capital raise and increased research and development activities in 2017. the company anticipates fewer losses in 2018 , due to expected increased revenues , offset by increased salaries and related expenses in connection with additional employees and potential acquisitions ( although there are no agreements with respect to the acquisition by the company of any third party , and there can be no assurance that any agreements will be entered into or , if entered into , that any acquisition or other transaction will be consummated ) . cash flows used in investing activities increased from $ 79,104 in 2016 to $ 928,960 in 2017 primarily due to the layout of $ 788,500 in exchange for notes receivable issued to two customers in 2017. cash flows provided by financing activities in 2017 were $ 4,837,649 compared to $ 900,000 in 2016. the increase resulted from the issuance of shares of common stock and warrants in february 2017 that raised net proceeds of $ 5,250,000 and the exercise of warrants in december 2017 that raised an additional $ 112,000 in proceeds , offset by $ 500,000 principal payments on debt securities in october 2017 as opposed to net proceeds of $ 900,000 raised in october 2016 through a private offering of debt securities . we have no credit lines as of april 10 , 2018 , nor have we ever had a credit line since our inception . based on the funds we have as of april 10 , 2018 , and the proceeds we expect to receive under our printrite3d®-enabled engineering consulting agreements , from selling or licensing our printrite3d® systems and software , sales of contract am manufacturing for metal am parts and the payment of loans made by sigma , we believe that we will have sufficient funds to pay our administrative and other operating expenses through 2018. until we are able to generate significant revenues and royalties from licensing our printrite3d®-enabled technologies and our contact am manufacturing services , our ability to continue to fund our liquidity and working capital needs will be dependent upon revenues from existing
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results of operations year ended december 31 , 2017 compared to the year ended december 31 , 2016. we expect to generate revenue primarily by selling and licensing our ipqa technologies , selling technical support services and contract manufacturing and selling specialty parts and studies to businesses that seek to improve their manufacturing production processes and production-run quality yields . our ability to generate revenues in the future will depend on our ability to further commercialize and increase market presence of our printrite3d® technologies , and it will depend on if key prospective customers continue to move from am metal prototyping to production . during the fiscal year ended december 31 , 2017 ( “ fiscal 2017 ” ) , we generated an aggregate of $ 641,049 in revenues , as compared to an aggregate of $ 966,422 in revenues generated by us in the fiscal year ended december 31 , 2016 ( “ fiscal 2016 ” ) . the decrease in revenue was primarily due to the strategic reorganization of the company 's priorities and personnel over the second six months of 2017. the company determined that it was essential to transform sigma from being an r & d company into being a technology development and commercialization company . this imperative and the many changes required to implement it derived from the observation that the r & d culture could not meet the demonstrated needs of both new and prospective customers for practical solutions to problems they have now and for technical product introduction processes to support and educate on how to take advantage of the company 's technology . commencing in the summer of 2017 , the company began a rapid shift away from selling and supporting single printrite3d® units to customers who currently focus on r & d and have no material production of am parts ( and thus , have no near term need to buy more printrite3d® units ) .
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in many of our projects , in addition to building homes , we are responsible for the entitlement and development of the underlying land . we build and sell an extensive range of home types across a variety of price points . our emphasis is on acquiring well located land positions and offering quality homes with innovative design elements . results of operations december 31 , 2016 and 2015 during the year ended december 31 , 2016 , we experienced moderate improvement in the homebuilding market throughout most of our operating segments . the current homebuilding market enjoys a stable macro-economic environment , which includ e s stable employment growth as well as growth in median household incomes . these factors along with low levels of existing housing inventory resulted in an environment in which we were able to achieve increases in net new home contracts , home deliveries , and average sales price for the year ended december 31 , 2016 of 21.4 % , 17.7 % , and 14.7 % , respectively , as compared to the year ended december 31 , 2015. the increases in net new home contracts , home deliveries and average sales price , along with our continued focus on cost control and investing in our infrastructure prudently as we expand , resulted in total revenue and net income of $ 994.4 million and $ 49.5 million , respectively for the year ended december 31 , 2016 , which represented a 35.4 % and 24.2 % increase , respectively , over the year ended december 31 , 2015 . during 2016 , we also invested for future growth through ( i ) our entrance into the utah and north carolina markets , ( ii ) commencing our wholly owned financing operations , parkway financial group , and ( iii ) acquiring a 50 % ownership in wade jurney homes . we also continued to expand our future pipeline of land positions as we increased our total lots owned and under control from 13,160 as of december 31 , 2015 to 18,296 as of december 31 , 2016 . we believe our operations are well positioned for future growth as a result of the strong markets in which we operate , our product offerings which span the home buying segment , as well as current and future inventories of attractive land positions . as we have grown , we have continued to focus on maintaining prudent leverage , and as a result we believe we are well positioned to execute on our growth strategy in order to optimize our shareholder returns . we anticipate the homebuilding market in each of our operating segments to continue to be tied to the local economy , and to a lesser degree the macro-economic environment . accordingly , our net sales , home deliveries , and average sales price in future years could be negatively affected by economic conditions such as decreases in employment and median household incomes , as well as decreases in household formations and increasing supply of inventories . additionally , our results could be impacted by a decrease in home affordability as a result of price appreciation or significant increases in mortgage interest rates or tightening of mortgage lending standards . strategy our strategy is focused on increasing the returns on our inventory while generating strong profitability . in general , we are focused on the following initiatives : · maintaining a strong balance sheet and prudent use of leverage as we grow ; · offering products that appeal to a broad range of entry-level , move-up , and luxury homebuyers based on each local market in which we operate ; · maintaining a strong pipeline of future land holdings including utilizing lot option contracts to manage our risk to land holdings ; · expand into new markets that meet our underwriting criteria either through organic start -up operations or through acquisitions of existing homebuilders ; and · controlling costs , including costs of home sales revenue and selling and general administrative expenses , to achieve increased profitability . 33 our operating strategy has resulted in growth in revenue and income before income taxes over the last five years , and we believe it will continue to produce positive results . our operating strategy will continue to evolve to market changes , and we can not provide any assurances that our strategies will continue to be successful . 34 the following table summarizes our results of operation for the years ended december 31 , 2016 and 2015 . replace_table_token_6_th 35 story_separator_special_tag for share based payments , ( 2 ) an increase of $ 1.6 million in legal and insurance costs , ( 4 ) and an increase of $ 1.0 million in information technology related expenses homebuilding gross margin homebuilding gross margin represents home sales revenue less cost of home sales revenues . our homebuilding gross margin percentage , which represents homebuilding gross margin divided by home sales revenues , decreased for the year ended december 31 , 2016 to 19.7 % , as compared to 20.2 % for the year ended december 31 , 2015. the decrease is primarily driven by higher interest expense in cost of sales as a result of higher debt balances outstanding in 2016 as compared to 2015. in the following table , we calculate our gross margins adjusting for interest in cost of sales , and purchase price accounting for acquired work in process inventory . see “ critical accounting policies ” below and footnote 3 – business combinations of our consolidated financial statements for additional discussion regarding our methodology for estimating the fair value of acquired work in process inventory . ( dollars in thousands ) replace_table_token_8_th ( 1 ) this non-gaap financial measure should not be used as a substitute for the company 's operating results in accordance with gaap . an analysis of any non-gaap financial measure should be used in conjunction with results presented in accordance with gaap . story_separator_special_tag t he increase in average sales price of homes in backlog is driven by increases acro ss all of our operating segments except houston , as a result of pricing strength due to positive market trends as well as product mix towards higher priced communities . 40 results of operations december 31 , 2015 and 2014 during the year ended december 31 , 2015 , we delivered 2,401 homes , with an average sales price of $ 302.1 thousand . during the same period , we generated approximately $ 725.4 million in home sales revenue , approximately $ 60.3 million in income before tax expense , and approximately $ 39.9 million in net income . for the year ended december 31 , 2015 , our net new home contracts totaled 2,356 homes , a 126.1 % increase over the same period in 2014. on december 31 , 2015 , we had a backlog of 714 sold but unclosed homes , consisting of approximately $ 271.1 million in sales value , a 10.1 % increase over the same period in 2014. our results of operations are significantly impacted by our acquisitions of peachtree communities group , inc. and its affiliates and subsidiaries ( which we refer to as “ peachtree ” ) in november 2014 , grand view builders ( which we refer to as “ grand view ” ) in august 2014 , and las vegas land holdings , llc ( which we refer to as “ lvlh ” ) in april 2014. subsequent to our acquisition , these operations became our atlanta , houston and nevada operating segments , respectively . the following table summarizes our results of operation for the years ended december 31 , 2015 and 2014. replace_table_token_16_th 41 results of operations by operating segment ( dollars in thousands ) replace_table_token_17_th atlanta in our atlanta operating segment , our income before income tax increased by $ 22.7 million to $ 23.6 million for the year ended december 31 , 2015 , as compared to $ 0.9 million for the same period in 2014. this increase is related to our acquisition of peachtree in 2014. we had an additional 1,001 home deliveries in 2015 coupled with an increase of $ 17.0 thousand in the average selling price during the year ended december 31 , 2015 , as compared to the same period in 2014 . central texas in our central texas operating segment , our income before income tax remained relatively unchanged for the year ended december 31 , 2015 , as compared to 2014. our revenue from home sales increased to $ 74.6 million during the year ended december 31 , 2015 , as compared to $ 55.8 million for the same period in 2014. this increase is related to an additional 28 home deliveries , as well as an increase of $ 43.6 thousand in the average selling price during the year ended december 31 , 2015 , as compared to the same period in 2014 . colorado in our colorado operating segment , our income before income tax increased by $ 7.2 million to $ 37.1 million for the year ended december 31 , 2015 , as compared to $ 29.9 million for the same period in 2015. this increase is related an additional 187 home deliveries , as well as an increase of $ 13.8 thousand in the average selling price during the year ended december 31 , 2015 , as compared to the same period in 2014 . houston in our houston operating segment , our loss before income tax remained relatively unchanged for the year ended december 31 , 2015 , as compared 2014. our revenue from home sales increased to $ 38.2 million during the year ended december 31 , 2015 , as compared to $ 17.5 million for the same period in 2014. this increase is related to our acquisition of grand v iew in 2014. we had an additional 86 home deliveries , with an increase of $ 13.4 thousand in the average selling price during the year ended december 31 , 2015 , as compared to the same period in 2014 . nevada in our nevada operating segment , our income before income tax increased by $ 3.8 million to $ 12.4 million for the year ended december 31 , 2015 , as compared to $ 8.6 million for the same period in 2014. the increase is related to our acquisition of lvlh in 2014. we had an additional 53 home deliveries with an increase of $ 10.3 thousand in the average selling price during the year ended december 31 , 2015 , as compared to the same period in 2014. additionally , we generated approximately $ 5.6 million in golf course and other revenue during the year ended december 31 , 2015 , which were partially offset by costs associated with the golf courses of $ 5.0 million . corporate our corporate operating segment generated $ 17.0 million in loss during the year ended december 31 , 2015 , as compared to a loss of $ 12.7 million for the same period in 2014. as our business has grown year over year , the corporate expenses have grown accordingly . 42 homebuilding gross margin homebuilding gross margin represents home sales revenue less cost of home sales revenues . our homebuilding gross margin percentage , which represents homebuilding gross margin divided by home sales revenues , decreased for the year ended december 31 , 2015 to 20.2 % as compared to 21.4 % for the year ended december 31 , 2014. the decrease is primarily driven by our entry into the atlanta and houston markets , which have lower average sales prices and lower average homebuilding gross margins than our existing markets , and the impact of an increase of previously capitalized interest costs in cost of sales as a result of higher outstanding debt balances .
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results of operations by operating segment ( dollars in thousands ) replace_table_token_7_th atlanta in our atlanta operating segment , our income before income tax increased by $ 7.6 million to $ 31.1 million for the year ended december 31 , 2016 , as compared to $ 23.6 million for the same period in 2015. this increase is related to an additional 91 home deliveries with an increase of $ 42.0 thousand in the average selling price during the year ended december 31 , 2016 , as compared to the same period in 2015 . central texas in our central texas operating segment , our income before income tax increased by $ 0.5 million to $ 5.5 million for the year ended december 31 , 2016 , as compared to $ 5.0 million for the same period in 2015. this increase is related to an additional 56 home deliveries , partially offset by a decrease in the average selling price of $ 16 .4 thousand during the year ended december 31 , 2016 , as compared to the same period in 2015. additionally , during the years ended december 31 , 2016 and 2015 , we disposed of land for $ 10.6 million and $ 3.4 million , respectively , which had carrying basis of $ 9.6 million and $ 3.4 million , respectively . these sales are primarily from one community in our central texas operating segment for which we are the master developer and are developing a portion of the community 's lots for sale to third party homebuilders .
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md & a is provided as a supplement to—and should be read in conjunction with—our consolidated financial statements and the accompanying notes . overview we are primarily a hotel franchisor with franchise agreements representing 6,627 hotels open and 923 hotels under construction , awaiting conversion or approved for development as of december 31 , 2017 , with 525,573 rooms and 72,917 rooms , respectively , in 50 states , the district of columbia and more than 40 countries and territories outside the united states . our brand names include comfort inn ® , comfort suites ® , quality ® , clarion ® , ascend hotel collection ® , sleep inn ® , econo lodge ® , rodeway inn ® , mainstay suites ® , suburban extended stay hotel ® and cambria ® hotels & suites ( collectively , the `` choice brands '' ) . on december 18 , 2017 , we announced that we had reached a definitive agreement to acquire the brand and franchise business of woodspring suites for approximately $ 231 million . the acquisition closed on february 1 , 2018 and added 239 new extended-stay hotels in 35 states to our portfolio . data for the woodspring suites ® brand is not included in tables and text that provide information as of december 31 , 2017. the company 's domestic franchising operations are conducted through direct franchising relationships while its international franchise operations are conducted through a combination of direct franchising and master franchising relationships . master franchising relationships are governed by master franchising agreements which generally provide the master franchisee with the right to use our brands and sub-license the use of our brands in a specific geographic region , usually for a fee . our business strategy is to conduct direct franchising in those international markets where both franchising is an accepted business model and we believe our brands can achieve significant scale . we typically elect to enter into master franchise agreements in those markets where direct franchising is currently not a prevalent or viable business model . when entering into master franchising relationships , we strive to select partners that have professional hotel and asset management capabilities together with the financial capacity to invest in building the choice brands in their respective markets . master franchising relationships typically provide lower revenues to the company as the master franchisees are responsible for managing certain necessary services ( such as training , quality assurance , reservations and marketing ) to support the franchised hotels in the master franchise area and therefore , retain a larger percentage of the hotel franchise fees to cover their expenses . in certain circumstances , the company has and may continue to make equity investments in our master franchisees . as a result of master 38 franchise relationships and international market conditions , our revenues are primarily concentrated in the united states . therefore , our description of the franchise system is primarily focused on the domestic operations . our company generates revenues , income and cash flows primarily from initial , relicensing and continuing royalty fees attributable to our franchise agreements . revenues are also generated from qualified vendor arrangements and other sources . the hotel industry is seasonal in nature . for most hotels , demand is lower in november through february than during the remainder of the year . our principal source of revenues is franchise fees based on the gross room revenues of our franchised properties . the company 's franchise fee revenues reflect the industry 's seasonality and historically have been lower in the first and fourth quarters than in the second and third quarters . with a focus on hotel franchising instead of ownership , we benefit from the economies of scale inherent in the franchising business . the fee and cost structure of our business provides opportunities to improve operating results by increasing the number of franchised hotel rooms and effective royalty rates of our franchise contracts resulting in increased initial and relicensing fee revenue ; ongoing royalty fees and procurement services revenues . in addition , our operating results can also be improved through our company-wide efforts related to improving property level performance . the company currently estimates , based on its current domestic portfolio of hotels under franchise , that a 1 % change in revenue per available room ( `` revpar '' ) or rooms under franchise would increase or decrease royalty revenues by approximately $ 3.2 million and a 1 basis point change in the company 's effective royalty rate would increase or decrease domestic royalties by approximately $ 0.7 million . in addition to these revenues , we also collect marketing and reservation system fees to support centralized marketing and reservation activities for the franchise system . the principal factors that affect the company 's franchising results are : the number and relative mix of franchised hotel rooms in the various hotel lodging price categories ; growth in the number of hotel rooms under franchise ; occupancy and room rates achieved by the hotels under franchise ; the effective royalty rate achieved ; the level of franchise sales and relicensing activity ; and our ability to manage costs . the number of rooms at franchised properties and occupancy and room rates at those properties significantly affect the company 's results because our fees are based upon room revenues or the number of rooms at franchised hotels . the key industry standard for measuring hotel-operating performance is revpar , which is calculated by multiplying the percentage of occupied rooms by the average daily room rate realized . our variable overhead costs associated with franchise system growth of our established brands have historically been less than incremental royalty fees generated from new franchises . accordingly , continued growth of our franchise business should enable us to realize benefits from the operating leverage in place and improve operating results . we are required by our franchise agreements to use the marketing and reservation system fees we collect for system-wide marketing and reservation activities . story_separator_special_tag in march 2013 , the company announced the launch of a new division , skytouch technology ( `` skytouch '' ) , which develops and markets cloud-based technology products for the hotel industry . from inception through 2016 , the company made significant investments in product development and sales efforts to expand its customer base . as a result , the division incurred significant costs in excess of revenues . beginning in 2017 , the same level of investment in product development and sale efforts was no longer required . as a result , the losses from the skytouch division have been significantly reduced . in august 2015 , the company completed the acquisition of a company that provides software as a service solution for vacation rental management companies . this business provides central reservations systems , property management systems and integrated software applications including point-of-sale . the transaction has been accounted for using the acquisition method of accounting and accordingly , assets acquired and liabilities assumed were recorded at their fair values as of the acquisition date . the results of this business have been consolidated with the company since august 2015. notwithstanding investments in skytouch and other alternative growth strategies , the company expects to continue to return value to its shareholders over time through a combination of share repurchases and dividends . we believe these investments and strategic priorities , when properly implemented , will enhance our profitability , maximize our financial returns and continue to generate value for our shareholders . the ultimate measure of our success will be reflected in the items below . results of operation : royalty fees , operating income , net income and diluted earnings per share ( `` eps '' ) represent key measurements of these value drivers . these measurements are primarily driven by the operations of our hotel franchise system and therefore , our analysis of the company 's operations is primarily focused on the size , performance and potential growth of the franchise system as well as our variable overhead costs . since our hotel franchising activities represent approximately 99 % of total revenues , our discussion of our results from operations primarily relate to our hotel franchising activities . 40 refer to md & a heading `` operations review '' for additional analysis of our results . liquidity and capital resources : historically , the company has generated significant cash flows from operations . since our business has not historically required significant reinvestment of capital , we typically utilize cash in ways that management believes provide the greatest returns to our shareholders which include share repurchases and dividends . however , we may determine to utilize cash for acquisitions and other investments in the future . we believe the company 's cash flow from operations and available financing capacity is sufficient to meet the expected future operating , investing and financing needs of the business . refer to md & a heading `` liquidity and capital resources '' for additional analysis . inflation : inflation has been moderate in recent years and has not had a significant impact on our business . non-gaap financial statement measurements the company utilizes certain measures which do not conform to generally accepted accounting principles accepted in the united states ( `` gaap '' ) when analyzing and discussing its results with the investment community . this information should not be considered as an alternative to any measure of performance as promulgated under gaap . the company 's calculation of these measurements may be different from the calculations used by other companies and therefore , comparability may be limited . we have included a reconciliation of these measures to the comparable gaap measurement below as well as our reasons for reporting these non-gaap measures . hotel franchising revenues : the company utilizes franchising revenues , which exclude revenues from marketing and reservation system activities , the skytouch technology division , vacation rental activities including operations that provides software as a service technology solutions to vacation rental management companies , and revenue generated from the ownership of an office building that is leased to a third-party , rather than total revenues when analyzing the performance of the business . marketing and reservation activities are excluded from franchising revenues since the company is contractually required by its franchise agreements to use the fees collected for marketing and reservation activities ; as such , no income or loss to the company is generated . cumulative marketing and reservation system fees not expended are recorded as a liability in the company 's financial statements and are carried over to the next fiscal year and expended in accordance with the franchise agreements . cumulative marketing and reservation expenditures incurred in excess of fees collected for marketing and reservation activities are deferred and recorded as an asset in the company 's financial statements and recovered in future periods . skytouch is a division of the company that develops and markets cloud-based technology products , including inventory management , pricing and connectivity to third party channels , to hoteliers not under franchise agreements with the company . skytouch and our vacation rental technology solutions provider operations are excluded from hotel franchising revenues since those operations do not reflect the company 's core hotel franchising business but represent adjacent , complimentary lines of business . this non-gaap measure is a commonly used measure of performance in our industry and facilitates comparisons between the company and its competitors . calculation of hotel franchising revenues replace_table_token_15_th 41 operations review comparison of 2017 and 2016 operating results summarized financial results for the years ended december 31 , 2017 and 2016 are as follows : replace_table_token_16_th results of operations the company recorded income before income taxes of $ 224.0 million for the year ended december 31 , 2017 , a $ 24.0 million or 12 % increase from the same period of the prior year .
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results of operations the company recorded income before income taxes of $ 200.0 million for the year ended december 31 , 2016 , a $ 16.0 million or 9 % increase from the same period of the prior year . the increase in income before income taxes primarily reflects a $ 13.6 million increase in operating income , a $ 2.0 million increase in interest income , an increase of $ 0.7 million in other gains , a $ 1.4 million increase in equity in net ( income ) loss of affiliates , partially offset by an increase in interest expense of $ 1.6 million . operating income increased $ 13.6 million primarily due to a $ 23.4 million or 6 % increase in the company 's hotel franchising revenues , a $ 0.4 million gain on sale of assets , and an increase of $ 4.4 million in non-hotel franchising revenues , offset by a $ 14.5 million or 11 % increase in sg & a expenses . hotel franchising revenues : hotel franchising revenues were $ 390.1 million for the year ended december 31 , 2016 compared to $ 366.7 million for the year ended december 31 , 2015 , a 6 % increase . the increase in franchising revenues is primarily due to a $ 19 million or 6 % increase in royalty revenues , a $ 4.2 million or 15 % increase in procurement services fees and a $ 5.3 million increase in other revenues . royalty fees domestic royalty fees for the year ended december 31 , 2016 increased $ 19.3 million to $ 300.7 million from $ 281.3 million in 2015 , an increase of 7 % . the increase in domestic royalties is attributable to a 3.9 % increase in domestic revpar , a 1.0 % increase in the number of domestic franchised hotel rooms and an increase in the effective royalty rate .
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executive overview business combinations on august 16 , 2016 , huntington completed its acquisition of firstmerit corporation in a stock and cash transaction valued at approximately $ 3.7 billion . firstmerit corporation was a diversified financial services company headquartered in akron , ohio , with operations in ohio , michigan , wisconsin , illinois and pennsylvania . post acquisition , huntington now operates across an eight-state midwestern footprint . the acquisition resulted in a combined company with a larger market presence and more diversified loan portfolio , as well as a larger core deposit funding base and economies of scale associated with a larger financial institution . for further discussion , see note 3 of the notes to consolidated financial statements . 2016 story_separator_special_tag during 2015 , $ 9 million of noninterest expense was recorded related to the acquisition of macquarie equipment finance , which was rebranded huntington technology finance . also during 2015 , $ 4 million of noninterest expense and $ 3 million of noninterest income was recorded related to the sale of haa , hasi , and unified . this resulted in a negative impact of $ 0.01 per common share in 2015. during 2014 , $ 16 million of net noninterest expense was recorded related to the acquisition of 24 bank of america branches and camco financial . this resulted in a net negative impact of $ 0.01 per common share in 2014 . 2. litigation reserve . significant events relating to our litigation reserve , and the impacts of those events on our reported results , were as follows : during 2016 , a $ 42 million reduction to litigation reserves was recorded as other noninterest expense . this resulted in a positive impact of $ 0.03 per common share in 2016. during 2015 and 2014 , $ 38 million and $ 21 million of net additions to litigation reserves were recorded as other noninterest expense , respectively . this resulted in a negative impact of $ 0.03 and $ 0.02 per common share in 2015 and 2014 , respectively . 3. franchise repositioning related expense . significant events relating to franchise repositioning , and the impacts of those events on our reported results , were as follows : during 2015 , $ 8 million of franchise repositioning related expense was recorded . this resulted in a negative impact of $ 0.01 per common share in 2015. during 2014 , $ 28 million of franchise repositioning related expense was recorded . this resulted in a negative impact of $ 0.02 per common share in 2014 . 33 the following table reflects the earnings impact of the above-mentioned significant items for periods affected by this results of operations discussion : replace_table_token_8_th ( 1 ) based upon the annual average outstanding diluted common shares . net interest income / average balance sheet our primary source of revenue is net interest income , which is the difference between interest income from earning assets ( primarily loans , securities , and direct financing leases ) , and interest expense of funding sources ( primarily interest-bearing deposits and borrowings ) . earning asset balances and related funding sources , as well as changes in the levels of interest rates , impact net interest income . the difference between the average yield on earning assets and the average rate paid for interest-bearing liabilities is the net interest spread . noninterest-bearing sources of funds , such as demand deposits and shareholders ' equity , also support earning assets . the impact of the noninterest-bearing sources of funds , often referred to as “ free ” funds , is captured in the net interest margin , which is calculated as net interest income divided by average earning assets . both the net interest margin and net interest spread are presented on a fully-taxable equivalent basis , which means that tax-free interest income has been adjusted to a pretax equivalent income , assuming a 35 % tax rate . 34 the following table shows changes in fully-taxable equivalent interest income , interest expense , and net interest income due to volume and rate variances for major categories of earning assets and interest-bearing liabilities : replace_table_token_9_th ( 1 ) the change in interest rates due to both rate and volume has been allocated between the factors in proportion to the relationship of the absolute dollar amounts of the change in each . ( 2 ) calculated assuming a 35 % tax rate . replace_table_token_10_th 35 replace_table_token_11_th ( 3 ) yield/rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories . replace_table_token_12_th 36 replace_table_token_13_th 37 ( 1 ) fte yields are calculated assuming a 35 % tax rate . ( 2 ) for purposes of this analysis , nonaccrual loans are reflected in the average balances of loans . ( 3 ) yield/rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories . 2016 vs. 2015 fully-taxable equivalent net interest income for 2016 increased $ 429 million , or 22 % , from 2015 . this reflected the impact of 21 % earning asset growth , a 1 basis point increase in the nim to 3.16 % , partially offset by 22 % interest-bearing liability growth . average earning assets increased $ 13.3 billion , or 21 % , from the prior year , driven by : $ 4.1 billion , or 30 % , increase in average securities , primarily reflecting the firstmerit acquisition , as well as the reinvestment of cash flows and additional investment in lcr level 1 qualifying securities . the 2016 average balance also included $ 2.1 billion of direct purchase municipal instruments in our commercial segment , up from $ 1.7 billion in the year-ago period . $ 4.0 billion , or 20 % , increase in average c & i loans and leases was impacted by the firstmerit acquisition . story_separator_special_tag 39 noninterest income the following table reflects noninterest income for the past three years : replace_table_token_14_th 2016 vs. 2015 noninterest income increased $ 111 million , or 11 % , from the prior year , primarily reflecting : $ 44 million , or 16 % , increase in service charges on deposit accounts , reflecting the benefit of continued new customer acquisition . $ 26 million , or 18 % , increase in cards and payment processing income , due to higher card related income and underlying customer growth . $ 16 million , or 15 % , increase in mortgage banking income , reflecting a 24 % increase in mortgage origination volume . $ 14 million , or 43 % , increase in gain on sale of loans primarily reflecting an increase of $ 6 million in sba loan sales gains . in addition , there was a $ 7 million gain on non-relationship c & i and cre loan sales , which was related to the balance sheet optimization strategy completed in the 2016 fourth quarter . 2015 vs. 2014 noninterest income increased $ 60 million , or 6 % , from the prior year , primarily reflecting : $ 37 million , or 35 % , increase in cards and payment processing income due to higher card related income and underlying customer growth . $ 27 million , or 32 % , increase in mortgage banking income primarily driven by a $ 33 million , or 58 % , increase in origination and secondary marketing revenue . $ 12 million , or 57 % , increase in gain on sale of loans primarily reflecting an increase of $ 7 million in sba loan sales gains and the $ 5 million automobile loan securitization gain during the 2015 second quarter . $ 10 million , or 23 % , increase in capital market fees primarily related to customer foreign exchange and commodities derivatives products . partially offset by : $ 17 million , or 96 % decrease in securities gains as we adjusted the mix of our securities portfolio to prepare for the lcr requirements during the 2014 first quarter . 40 $ 10 million , or 9 % , decrease in trust services primarily related to our fiduciary trust businesses moving to a more open architecture platform and a decline in assets under management in proprietary mutual funds . during the 2015 fourth quarter , huntington sold haa , hasi , and unified . replace_table_token_15_th replace_table_token_16_th 41 replace_table_token_17_th 2016 vs. 2015 noninterest expense increased $ 433 million , or 22 % , from 2015 : $ 227 million , or 20 % , increase in personnel costs , primarily reflecting a 31 % increase in the number of average full-time equivalent employees largely related to the in-store branch expansion and the addition of colleagues from firstmerit . $ 73 million , or 32 % , increase in outside data processing and other services , primarily reflecting $ 46 million of acquisition-related expense and ongoing technology investments . $ 55 million , or 109 % , increase in professional services , primarily reflecting $ 58 million of acquisition-related expense . $ 40 million , or 32 % , increase in equipment expense , primarily reflecting $ 25 million of acquisition-related expense . $ 31 million , or 26 % , increase in net occupancy expense , primarily reflecting $ 15 million of acquisition-related expense . partially offset by : $ 17 million , or 8 % , decrease in other expense , primarily reflecting a $ 42 million reduction to litigation reserves which was mostly offset by a $ 40 million contribution in the 2016 fourth quarter to achieve the philanthropic plans related to firstmerit . 2015 vs. 2014 noninterest expense increased $ 94 million , or 5 % , from 2014 : $ 73 million , or 7 % , increase in personnel costs . excluding the impact of significant items , personnel costs increased $ 88 million , or 9 % , reflecting a $ 79 million increase in salaries related to the 2015 second quarter implementation of annual merit increases , the addition of huntington technology finance , and a 3 % increase in the number of average full-time equivalent employees , largely related to the build-out of the in-store strategy . $ 26 million , or 15 % , increase in other noninterest expense . excluding the impact of significant items , other noninterest expense increased $ 10 million , or 7 % , due to an increase in operating lease expense related to huntington technology finance . $ 19 million , or 9 % , increase in outside data processing and other services . excluding the impact of significant items , outside data processing and other services increased $ 20 million , or 10 % , primarily reflecting higher debit and credit card processing costs and increased other technology investment expense , as we continue to invest in technology supporting our products , services , and our continuous improvement initiatives . partially offset by : $ 11 million , or 29 % , decrease in amortization of intangibles reflecting the full amortization of the core deposit intangible at the end of the 2015 second quarter from the sky financial acquisition . 42 $ 9 million , or 16 % , decrease in professional services . excluding the impact of significant items , professional services decreased $ 12 million , or 21 % , reflecting a decrease in outside consultant expenses related to strategic planning . $ 6 million , or 5 % , decrease in net occupancy . excluding the impact of significant items , net occupancy remained relatively unchanged . provision for income taxes ( this section should be read in conjunction with note 17 of the notes to consolidated financial statements . ) 2016 versus 2015 the provision for income taxes was $ 208 million for 2016 compared with a provision for income taxes of $ 221 million in 2015 .
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financial performance review in 2016 , we reported net income of $ 712 million , a 3 % increase from the prior year . earnings per common share on a diluted basis for the year was $ 0.70 , down 14 % from the prior year . reported net income was impacted by firstmerit acquisition related expenses totaling $ 282 million pre-tax , or $ 0.20 per common share and a reduction to the litigation reserve totaling $ 42 million pre-tax , or $ 0.03 per common share . fully-taxable equivalent net interest income was $ 2.4 billion , up $ 0.4 billion , or 22 % . this reflected the impact of 21 % earning asset growth , 22 % interest-bearing liability growth , and a 1 basis point increase in the nim to 3.16 % . the average earning asset growth included an $ 8.8 billion , or 18 % , increase in average loans and leases and a $ 4.1 billion , or 30 % , increase in average securities , both of which were impacted by the firstmerit acquisition . the net interest margin expansion reflected a 9 basis point positive impact from the mix and yield on earning assets , a 3 basis point increase in the benefit from noninterest-bearing funds , partially offset by an 11 basis point increase in funding costs . the provision for credit losses was $ 191 million , up $ 91 million , or 91 % . the higher provision expense was due to several factors , including the migration of the acquired portfolio to the originated portfolio , and the corresponding reserve build , portfolio growth and transitioning the firstmerit portfolio to huntington 's reserving methodology . net charge-offs represented an annualized 0.19 % of average loans and leases , which remains below our long-term target of 35 to 55 basis points . noninterest income was $ 1.1 billion , up $ 111 million , or 11 % .
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