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franchise rights acquired in business acquisitions prior to july 1 , 2001 , were recorded and amortized as part of goodwill and remain as part of goodwill at december 31 , 2014 and 2013 in the accompanying consolidated balance sheets . since july 1 , 2001 , intangible franchise rights acquired in business combinations have been recorded as distinctly separate intangible assets . in accordance with guidance primarily codified within accounting standards codification ( `` asc `` ) 350 , intangibles-goodwill and other , the company evaluates these franchise rights for impairment annually in the fourth quarter , based on the carrying values of the company 's individual dealerships as of october 31 st , or more frequently if events or circumstances indicate possible impairment has occurred . f-10 group 1 automotive , inc. and subsidiaries notes to consolidated financial statements — ( continued ) in performing its impairment assessments , the company tests the carrying value of each individual franchise right that was recorded by using a direct value method discounted cash flow story_separator_special_tag you should read the following discussion in conjunction with part i , including the matters set forth in “ item 1a . risk factors , ” and our consolidated financial statements and notes thereto included elsewhere in this form 10-k. overview we are a leading operator in the automotive retail industry . through our dealerships , we sell new and used cars and light trucks ; arrange related vehicle financing ; sell service and insurance contracts ; provide automotive maintenance and repair services ; and sell vehicle parts . we are aligned into four geographic regions : the east and west regions in the u.s. , the u.k. region , and the brazil region . consistent with how our chief operating decision maker evaluates performance and allocates resources , we treat each region as a separate operating segment . each u.s. region is managed by a regional vice president who reports directly to our chief executive officer and is responsible for the overall performance of their regions . the financial matters of each u.s. region are managed by a regional chief financial officer who reports directly to our chief financial officer . further , the east and west regions of the u.s. are economically similar in that they deliver the same products and services to a common customer group , their customers are generally individuals , they follow the same procedures and methods in managing their operations , and they operate in similar regulatory environments . as a result , we aggregate the east and west regions of the u.s. into one reportable segment . as such , our three reportable segments are the u.s. , which includes the activities of our corporate office , the u.k. and brazil . as of december 31 , 2014 , we owned and operated 149 franchises , representing 29 brands of automobiles , at 116 dealership locations and 28 collision service centers in the u.s. , 25 franchises at 17 dealerships and six collision centers in the u.k. , and 21 franchises at 17 dealerships and four collision centers in brazil . our operations are primarily located in major metropolitan areas in alabama , california , florida , georgia , kansas , louisiana , maryland , massachusetts , mississippi , new hampshire , new jersey , oklahoma , south carolina , and texas in the u.s. , in 16 towns of the u.k. and in key metropolitan markets in the states of sao paulo , parana and mato grosso do sul in brazil . we typically seek to acquire large , profitable , well-established and well-managed dealerships that are leaders in their respective market areas . from january 1 , 2010 through december 31 , 2014 , we have purchased 89 franchises with expected annual revenues , estimated at the time of acquisition , of $ 3.6 billion and been granted eight new franchises by our manufacturers , with expected annual revenues , estimated at the time of acquisition , of $ 140.2 million . in 2014 alone , we acquired seven dealerships and were granted two franchises in the u.s. the company also acquired one dealership and was granted one franchise in brazil and three dealerships in the u.k. these acquisitions have expected annual revenues , estimated at the time of acquisition , of $ 910.0 million . we make disposition decisions based principally on the rate of return on our capital investment , the location of the dealership , our ability to leverage our cost structure , the brand , future capital investments required and existing real estate obligations . from january 1 , 2010 through december 31 , 2014 , we disposed of or terminated 38 franchises with annual revenues of approximately $ 984.0 million . specifically , during 2014 , we disposed of seven dealerships and one franchise in the u.s. and three dealerships in brazil with annual revenues of approximately $ 450.0 million . in the following discussion and analysis , we report certain performance measures of our newly acquired and disposed dealerships separately from those of our existing dealerships . we account for our dealership acquisitions using the purchase method of accounting . as a result , we do not include in our financial statements the results of operations of these dealerships prior to the date we acquired them , which may impact the comparability of the financial information presented . also , as a result of the effects of our acquisitions , dispositions , and other potential factors in the future , our historical financial information is not necessarily indicative of our results of operations and financial position in the future or the results of operations and financial position that would have resulted had such transactions occurred at the beginning of the periods presented . our operating results reflect the combined performance of each of our interrelated business activities , which include the sale of new vehicles , used vehicles , finance and insurance products , and parts , as well as service and collision repair services . story_separator_special_tag insurance deductibles and other related expenses caused by snow storms , windstorms , and hail damage , were recognized as sg & a expense for a total of $ 2.8 million . real estate and dealership disposition transactions : positively impacting our 2014 results was a pre-tax net gain on sale of dealerships of $ 13.3 million . foreign deductible goodwill : we recognized a $ 3.4 million tax benefit in 2014 , as a result of a restructuring in brazil that created tax deductible goodwill . year ended december 31 , 2013 : asset impairments : we determined that the fair value of indefinite-lived intangible franchise rights related to four of our franchises did not exceed their carrying value and an impairment charge was required . accordingly , we recorded a $ 5.4 million pretax non-cash impairment charge during the fourth quarter of 2013. we also recognized a total of $ 1.1 million in pretax non-cash asset impairment charges related to impairment of various long-lived assets . non-cash interest expense : our 2013 results were negatively impacted by $ 10.8 million of non-cash interest expense relative to the amortization of the discount associated with our 2.25 % notes and 3.00 % notes representing 37 the impact of the accounting for convertible debt as required by financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) 470 , debt ( “ asc 470 ” ) . catastrophic events : during the year , our 2013 results were negatively impacted by several catastrophic events . insurance deductibles and other related expenses caused by snow storms , windstorms , and hail damage , were recognized as sg & a expense for a total of $ 12.2 million . acquisition costs : primarily due to our acquisition of uab motors in february 2013 , we incurred a total of $ 6.2 million in acquisition costs for the year ended december 31 , 2013. net gain on real estate and dealership disposition transactions : positively impacting our 2013 results was a pre-tax net gain on sale of dealerships of $ 10.4 million . year ended december 31 , 2012 : asset impairments : we determined that the fair value of indefinite-lived intangible franchise rights related to three of our franchises did not exceed their carrying value and an impairment charge was required . accordingly , we recorded a $ 7.0 million pretax non-cash asset impairment charge during the fourth quarter of 2012. we also recognized a total of $ 0.3 million in pretax non-cash asset impairment charges related to impairment of various long-lived assets . non-cash interest expense : our 2012 results were negatively impacted by $ 9.9 million of non-cash interest expense relative to the amortization of the discount associated with our 2.25 % notes and 3.00 % notes representing the impact of the accounting for convertible debt as required by asc 470. catastrophic events : our 2012 results were negatively impacted by several catastrophic events . insurance deductibles and other related expenses caused by hail damage and hurricane sandy were recognized as sg & a expense for a total of $ 4.6 million . acquisition costs : during the fourth quarter of 2012 , we incurred a total of $ 1.8 million in acquisition costs , primarily related to our acquisition of uab motors at the beginning of 2013. these items , and other variances between the periods presented , are covered in the following discussion . key performance indicators the following table highlights certain of the key performance indicators we use to manage our business : consolidated statistical data replace_table_token_9_th the following discussion briefly highlights certain of the results and trends occurring within our business . throughout the following discussion , references may be made to same store results and variances which are discussed in more detail in the “ results of operations ” section that follows . 38 our results are impacted by changes in exchange rates relating to our u.k and brazil segments . as exchange rates fluctuate , our results of operations as reported in u.s. dollars fluctuate . for example , if the british pound were to strengthen against the u.s. dollar , our u.k. results of operations would translate into more u.s. dollar reported results . the british pound strengthened against the u.s. dollar as the average rate during the twelve months ended december 31 , 2014 increased 5.1 % , as compared to the same period in 2013. the brazilian real weakened against the u.s. dollar as the average rate during the twelve months ended december 31 , 2014 declined 8.5 % as compared to the same period in 2013 . 39 2014 compared to 2013 our consolidated revenues from new vehicle retail sales increased 9.9 % for the twelve months ended december 31 , 2014 , as compared to the same period in 2013. this growth was primarily a result of better industry conditions in the both the u.s. and u.k. , dealership acquisition activity , and the execution of initiatives made by our operating team . the u.s. industry sales has risen to 16.5 million units for the year ended 2014 as compared to 15.6 million units for the same period in 2013. our new vehicle revenue growth in the u.s. and u.k. was partially offset by weakening economic conditions in brazil due to decreased consumer confidence , disruptions from the 2014 fifa world cup activities and the effect of unfavorable changes in foreign exchange rates in 2014 relative to 2013. consolidated new vehicle retail gross margin declined 10 basis points to 5.4 % for the year ended december 31 , 2014 , as compared to the same period in 2013 , reflecting the competitive selling environment in the u.s. , as well as the weaker brazilian economy .
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results of operations the “ same store ” amounts presented below include the results of dealerships for the identical months in each period presented in the comparison , commencing with the first full month in which the dealership was owned by us and , in the case of dispositions , ending with the last full month it was owned by us . for example , for a dealership acquired in june 2013 , the results from this dealership will appear in our same store comparison beginning in 2014 for the period july 2014 through december 2014 , when comparing to july 2013 through december 2013 results . depending on the periods being compared , the dealerships included in same store will vary . for this reason , the 2013 same store results that are compared to 2014 differ from those used in the comparison to 2012 . same store results also include the activities of our corporate headquarters . the following table summarizes our combined same store results for the year ended december 31 , 2014 as compared to 2013 and for the year ended december 31 , 2013 compared to 2012 . total same store data ( dollars in thousands , except per unit amounts ) replace_table_token_10_th the discussion that follows provides explanation for the variances noted above . in addition , each table presents by primary income statement line item comparative financial and non-financial data of our same store locations , those locations acquired or disposed of ( “ transactions ” ) during the periods and the consolidated company for the years ended december 31 , 2014 , 2013 , and 2012 . our results are impacted by changes in exchange rates relating to our u.k and brazil segments . as exchange rates fluctuate , our results of operations as reported in u.s. dollars fluctuate .
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net loss per share - the company computes basic net loss per share by dividing net loss per share available to common stockholders by the weighted average number of common shares outstanding for the period and excludes the effects of any potentially dilutive securities . diluted earnings per share , if presented , would include the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into common stock using the “ treasury stock ” 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 the related notes thereto in item 8 , “ financial statements and supplementary data , ” in part ii of this annual report . this discussion contains forward-looking statements , which are based on our assumptions about the future of our business . our actual results will likely differ materially from those contained in the forward-looking statements . please read “ special note regarding forward-looking statements ” for additional information regarding forward-looking statements used in this annual report . overview the american economy is changing , and pdn is situated to profit from the opportunities associated with those changes . according to the pew research center , by the year 2050 the u.s. population is projected to grow by 142 million people , with 82 % of that growth represented by immigrants and their descendants , and america will have no single racial group constituting a majority . this means that diverse groups should , both individually and collectively under the banner of diversity , assume a more predominant role in the economy thereby driving support for pdn 's mission and demand for its products . perhaps more to the point , the rand corporation has explained how corporate america has recognized that a diverse workforce strengthens the bottom line , and its research suggests that “ diverse working groups can be more innovative , flexible , and productive ; can offer valuable perspectives on important issues ; and can better appeal to a consumer base likely to include a growing number ” of diverse groups. ” most recently , from washington to silicon valley , and from wall street to hollywood , the message has been made clear and we have adopted the following mandate : 28 if the american economy is to remain globally competitive , we must remove roadblocks and build economic on-ramps for the diverse small business owners , investors and job seekers who represent the future of economic growth . because our management team believes in the long-run efficiency of markets , we believe that a business built to serve america 's new population and meet corporate america 's rising demand for diverse talent is a business built to prosper throughout this economic evolution . to that end , we have created a blueprint built for growth by focusing on accretive acquisitions that help drive internal growth and position us to supply corporate america 's demand for diverse talent while providing education , access and opportunity for diverse job-seekers across all major affinities . our management team is focused on helping our shareholders profit from the evolving economy . by the close of 2014 we put our blueprint to work and successfully began to integrate our three divisions : professional diversity network , with its seven distinct affinity groups ; national association of professional women , with its over 700,000 members and nearly 300 local chapters ; and noble voice , with its offline career consultations , online sales and technology that have allowed us to significantly increase all properties ' web traffic in a scalable manner and exceed our initial targets for matching qualified candidates to jobs available from our strategic partners . as we rolled out our hireadvantedge product , described below , we internally set a goal of 100 job matches per day by april 1. we exceeded that number in mid-march . 2014 acquisitions and integration in 2014 we acquired napw and noble voice , based on our theory that if these specific companies were combined we could build platforms to capture synergies that would allow us to own the technology and methods to drive pdn to a leadership position in the field of diversity recruiting . we believe that pdn and napw complemented one another because pdn 's products and services would benefit and help grow the napw membership revenue stream and napw 's membership database would be an accretive addition to pdn 's affinities . we believe that noble voice complemented pdn and napw because its technology would allow outreach to members in new and efficient ways , thereby scaling previous methods and helping to efficiently grow revenue . we believe that pdn and napw complemented noble voice because the customers , members and affinities in both companies provided new , scalable sources of revenue for noble voice . we therefore believe that all three companies , combined , mutually benefit one another and provide a scalable growth environment for all . as we close 2014 and move into 2015 , we are already seeing the fruits of our investment theory in real time . we have already integrated significant portions of all three companies in terms of underlying support technology , human resources and payroll policy , and company mission and culture . we believe that we have successfully begun to build a unified operation on a timetable ahead of our initial , internal expectations , and our successes to-date include the following key highlights : · increased cost savings by eliminating redundancies in systems and personnel across all divisions · increased efficiency of personnel management by harmonizing policies across all divisions · decreased risk and increased employee enrichment by creating our employee resource program which brings tangible new benefits to our employees and provides enhanced communication channels so that we can capture ideas and synergies identified by our employees · employed combined resources to introduce a new napw website , bringing more value to members and more data to company story_separator_special_tag these costs are primarily for sales personnel and to support the sales team with tools such as client relationship management systems , personal computers and travel expenses . the sales expenses are variable and can be adjusted to meet market conditions . revenue from our recruitment sector will be impacted positively and negatively by certain general macroeconomic conditions , such as the national unemployment rate . an increase in demand for employees should create market conditions favorable to recruitment companies like pdn . conversely , a weak employment environment should have a negative impact . we believe that our focus on diverse professionals mitigates this risk because of the social and political environment in the united states . we believe recent trends indicate an increased focus by companies on hiring diverse americans for both compliance and business reasons . for example , as the hispanic population grows and companies seek to conduct business with this population , we expect companies will hire aggressively within the hispanic community , resulting in a robust demand for bilingual english/spanish speakers and writers . because of our specialization and focus in diversity recruitment , as opposed to general recruitment , we have not yet experienced negative pricing pressure associated with product commoditization ( which is the act of making a product or service easy to obtain by making it as uniform , plentiful and affordable as possible ) . pdn – hireadvantedge today , the recruitment market is highly data-driven . employers who previously spent blindly in pursuit of qualified candidates now demand accountability and data about the process and how effectively they are spending . pdn is solving this with its hireadvantedge product , which allows us to deliver to recruiters qualified candidates in an efficient manner with very little lag in time to hire , which is one of the recruiting world 's most important metrics . our newest recruitment product is made possible by the combination of noble voice 's current interaction with job seekers , its technology and our relationship with employers who desire to recruit qualified diverse talent . we believe our scale , with 4.5 million opted-in job seekers ( those who have agreed to allow us to present opportunities to them ) , our web to text to web communications path and our relationship with large employers presents a formidable opportunity for the growth of this product . furthermore , the benefit of the hireadvantedge product to paid napw members has already demonstrated engagement and importance to further the membership value proposition . helping members secure a new desired job is very important to over 1,000 members of napw who have already opted into the program . 31 we developed hireadvantedge through the 4 th quarter of 2014 and implemented it in the 1 st quarter of 2015. to-date , we have already exceeded internally-communicated goals for daily matches of job seekers to jobs . we believe that the success of hireadvantedge could be transformational for the industry and , therefore , highly beneficial to pdn and its shareholders . pdn – recruitment advertising . diversity recruitment advertising enables recruiters to communicate their career opportunities to diverse candidates using internet banner ads and email marketing . in the past year we have provided diversity recruitment advertising services to numerous employers . we use sophisticated technology to deliver advertising targeted by geography and occupation . our targeting is based upon data that we have accumulated relevant to our audiences ' job searches on our sites and vast profiles based upon those user experiences . we believe that pdn stands apart from the industry in this arena because we are able to promote our clients ' brands in a manner that reflects each client 's commitment to diversity . in addition to delivering job seekers through our recruiter marketing , it is critical that we deliver to those job seekers jobs with employers they feel good about and who they feel understand them . our recruitment advertising solutions provide job seekers with information that we believe allows them to look beyond a brand and deeper into an employer 's core values . both we and our clients believe that this is critical to hiring success , and our recruitment advertising is expected to be a growing part of our business . in addition to selling advertising packages and assisting our clients with their branding in this regard , we sell advertising packages which include access to develop “ talent communities ” within our affinities ' online properties , automated job feeds , access to our database for email marketing , banners within our network and affiliate networks ( which reach 28 million job seekers ) , and re-targeting of directed advertisements . pdn – events we generate revenue through our events division by selling employers access to and placement in or advertising around our diversity job fairs . in the 4 th quarter of 2014 we were able to combine our pdn events division with resources from napw to deliver our first combined diversity job fair followed by a networking summit for professional women . in 2015 we plan to deliver 24 events nationwide , including 5 regional network summits and 1 national summit for napw . the value of these events is multi-fold . we derive revenue from employers to whom we sell the events ; we derive new members to both our pdn affinities and napw membership roll from participation in the events ; and we derive goodwill and positive publicity for our corporate brands as well as our overall message of diversity and inclusion , which further drives demand for our products and services . napw – membership subscriptions we believe that professionals attain success , in large part , based upon the value of their personal and professional networks . napw was built upon the premise that women have been historically disadvantaged in terms of building financially valuable networks , and that there exists a gap in the market for professional women to successfully network .
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results of operations comparison of the year ended december 31 , 2014 with the year ended december 31 , 2013 the following tables set forth our results of operations for the periods presented as a percentage of revenue for those periods ( certain items may not foot due to rounding ) . the period to period comparison of financial results is not necessarily indicative of future results . 33 replace_table_token_2_th replace_table_token_3_th during the fiscal years ended december 31 , 2014 and 2013 , we recognized $ 2,921,000 and $ 2,468,000 , respectively , of revenues related to direct sales of our recruitment services . this increase in direct sales is primarily attributable to the successful execution by our sales and marketing team of its sales plan to bring on numerous new direct relationships with employers who seek to recruit diverse talent . we have also experienced early adoption of our ofcpp compliance product services by a number of customers . additionally , direct sales of our recruitment services were positively impacted as a result of the termination of our agreement with linkedin , since we no longer have post termination restrictions on our ability to sell any employers our diversity recruitment services and we are not restricted from entering into direct recruitment relationships with those companies that are using our products and services via the linkedin reseller agreement . contributing to this increase was $ 784,000 of revenues generated from our events division in 2014. at the end of the third quarter of 2013 , we completed the purchase of specific assets from psi and realized $ 167,000 of revenue in that year . psi had been operating diversity focused job fairs throughout the country for over 20 years .
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ernst & young llp los angeles , ca february 17 , 2021 f-2 report of independent registered public accounting firm to the shareholders and the board of directors of ares commercial real estate corporation opinion on the financial statements we have audited the accompanying consolidated balance sheets of ares commercial real estate corporation and subsidiaries ( the company ) as of december 31 , 2020 and 2019 , and the related consolidated statements of operations , stockholders ' equity and cash flows for each of the three years in the period ended december 31 , 2020 , and the related notes ( collectively referred to as the “ consolidated financial statements ” ) . in our opinion , the consolidated financial statements present fairly , in all material respects , the financial position of the company at december 31 , 2020 and 2019 , and the results of its operations and its cash flows for each of the three years in the period ended december 31 , 2020 , in conformity with u.s. generally accepted accounting principles . we also have audited , in accordance with the standards of the public company accounting oversight board ( united states ) ( pcaob ) , the company 's internal control over financial reporting as of december 31 , 2020 , based on criteria established in internal control-integrated story_separator_special_tag we are a specialty finance company primarily engaged in originating and investing in cre loans and related investments . we are externally managed by acrem , a subsidiary of ares management , a publicly traded , leading global alternative asset manager , pursuant to the terms of the management agreement . from the commencement of our operations in late 2011 , we have been primarily focused on directly originating and managing a diversified portfolio of cre debt-related investments for our own account . we were formed and commenced operations in late 2011. we are a maryland corporation and completed our initial public offering in may 2012. we have elected and qualified to be taxed as a reit for united states federal income tax purposes under the internal revenue code of 1986 , as amended , commencing with our taxable year ended december 31 , 2012. we generally will not be subject to united states federal income taxes on our reit taxable income as long as we annually distribute to stockholders an amount at least equal to our reit taxable income prior to the deduction for dividends paid and comply with various other requirements as a reit . we also operate our business in a manner that is intended to permit us to maintain our exemption from registration under the 1940 act . below are significant developments during the year ended december 31 , 2020 presented by quarter : developments during the first quarter of 2020 : acre purchased a $ 132.6 million senior mortgage loan on a portfolio of office properties located across multiple states from the $ 200 million real estate debt warehouse investment vehicle maintained by an affiliate of the company 's manager ( the “ ares warehouse vehicle ” ) . acre originated a $ 29.6 million senior mortgage loan on a multifamily property located in texas . acre originated a $ 56.5 million senior mortgage loan on an industrial property located in new york . acre originated a $ 19.0 million senior mortgage loan on a multifamily property located in washington . acre originated a $ 39.6 million senior mortgage loan on a mixed-use property located in california . acre originated a $ 37.6 million mezzanine loan on an office property located in illinois . acre originated a $ 41.0 million senior mortgage loan on a multifamily property located in new jersey . acre closed the $ 150.0 million morgan stanley facility ( as defined below ) . the initial maturity date of the morgan stanley facility is january 16 , 2023 , subject to two 12-month extensions , each of which may be exercised at acre 's option , subject to the satisfaction of certain conditions , including payment of an extension fee , which , if both were exercised , would extend the maturity date of the morgan stanley facility to january 16 , 2025. advances under the morgan stanley facility generally accrue interest at a per annum rate equal to the sum of one-month libor plus a spread ranging from 1.75 % to 2.25 % , determined by morgan stanley , depending upon the mortgage loan sold to morgan stanley in the applicable transaction . acre entered into an underwriting agreement ( the “ underwriting agreement ” ) in which acre agreed to sell an aggregate of 4,600,000 shares of acre 's common stock , par value $ 0.01 per share . the public offering generated net proceeds of approximately $ 72.9 million , after deducting transaction expenses . acre transferred its interest in a $ 24.4 million senior mortgage loan on an office property located in north carolina to a third party and retained a $ 6.1 million mezzanine loan on the same property . acre determined that the transfer did not qualify as a sale and therefore treated it as a financing transaction . as such , acre did not derecognize the $ 24.4 million senior mortgage loan asset and recorded a secured borrowing liability in its consolidated balance sheets . the initial maturity date of the $ 24.4 million secured borrowing is may 5 , 2023 , subject to one 12-month extension , which may be exercised at the transferee 's option , which , if exercised , would extend the maturity date to may 5 , 2024. advances under the $ 24.4 million secured borrowing accrue interest at a per annum rate equal to the sum of one-month libor plus a spread of 2.50 % . developments during the second quarter of 2020 : acre originated a $ 91.8 million senior mortgage loan on a multifamily property located in florida . subsequent to the origination date , we bifurcated the senior mortgage loan between a $ 66.9 million senior participation and a $ 24.9 million subordinated participation . story_separator_special_tag factors impacting our operating results the results of our operations are affected by a number of factors and primarily depend on , among other things , the level of our net interest income , the market value of our assets and the supply of , and demand for , commercial mortgage loans , cre debt and other financial assets in the marketplace . our net interest income , which reflects the amortization of origination fees and direct costs , is recognized based on the contractual rate and the outstanding principal balance of the loans we originate . interest rates will vary according to the type of investment , conditions in the financial markets , creditworthiness of our 57 borrowers , competition and other factors , none of which can be predicted with any certainty . our operating results may also be impacted by credit losses in excess of initial anticipations or unanticipated credit events experienced by borrowers . changes in fair value of our assets . we originate cre debt and related instruments generally to be held for investment . loans that are held for investment are carried at cost , net of unamortized loan fees and origination costs ( the “ carrying value ” ) . loans are generally collateralized by real estate . the extent of any credit deterioration associated with the performance and or value of the underlying collateral property and the financial and operating capability of the borrower could impact the expected amounts received . we monitor the performance of our loans held for investment portfolio under the following methodology : ( 1 ) borrower review , which analyzes the borrower 's ability to execute on its original business plan , reviews its financial condition , assesses pending litigation and considers its general level of responsiveness and cooperation ; ( 2 ) economic review , which considers underlying collateral ( i.e . leasing performance , unit sales and cash flow of the collateral and its ability to cover debt service , as well as the residual loan balance at maturity ) ; ( 3 ) property review , which considers current environmental risks , changes in insurance costs or coverage , current site visibility , capital expenditures and market perception ; and ( 4 ) market review , which analyzes the collateral from a supply and demand perspective of similar property types , as well as from a capital markets perspective . such analyses are completed and reviewed by asset management and finance personnel who utilize various data sources , including periodic financial data such as property occupancy , tenant profile , rental rates , operating expenses , and the borrower 's exit plan , among other factors . loans are generally placed on non-accrual status when principal or interest payments are past due 30 days or more or when there is reasonable doubt that principal or interest will be collected in full . accrued and unpaid interest is generally reversed against interest income in the period the loan is placed on non-accrual status . interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management 's judgment regarding the borrower 's ability to make pending principal and interest payments . non-accrual loans are restored to accrual status when past due principal and interest are paid and , in management 's judgment , are likely to remain current . we may make exceptions to placing a loan on non-accrual status if the loan has sufficient collateral value and is in the process of collection . as of december 31 , 2020 and 2019 , all loans were paying in accordance with their contractual terms . as of december 31 , 2020 , the company had three loans held for investment on non-accrual status due to the impact of the covid-19 pandemic with a carrying value of $ 67.1 million . there were no loans held for investment on non-accrual status as of december 31 , 2019. loan balances that are deemed to be uncollectible are written off as a realized loss and are deducted from the current expected credit loss reserve . the write-offs are recorded in the period in which the loan balance is deemed uncollectible based on management 's judgment . there were no write-offs during the years ended december 31 , 2020 , 2019 and 2018. changes in market interest rates . with respect to our business operations , increases in interest rates , in general , may over time cause : the interest expense associated with our borrowings to increase , subject to any applicable ceilings ; the value of our mortgage loans to decline ; coupons on our floating rate mortgage loans to reset to higher interest rates ; and to the extent we enter into interest rate swap agreements as part of our hedging strategy where we pay fixed and receive floating interest rates , the value of these agreements to increase . conversely , decreases in interest rates , in general , may over time cause : the interest expense associated with our borrowings to decrease , subject to any applicable floors ; the value of our mortgage loan portfolio to increase , for such mortgages with applicable floors ; coupons on our floating rate mortgage loans to reset to lower interest rates , subject to any applicable floors ; and to the extent we enter into interest rate swap agreements as part of our hedging strategy where we pay fixed and receive floating interest rates , the value of these agreements to decrease . 58 credit risk . we are subject to varying degrees of credit risk in connection with our target investments . our manager seeks to mitigate this risk by seeking to originate or acquire investments of higher quality at appropriate prices with appropriate risk adjusted returns given anticipated and unanticipated losses , by employing a comprehensive review and selection process and by proactively monitoring originated or acquired investments ( see the performance monitoring methodology above in changes in fair value of our assets ) .
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results of operations for the years ended december 31 , 2020 and 2019 the following table sets forth a summary of our consolidated results of operations for the years ended december 31 , 2020 and 2019 ( $ in thousands ) : replace_table_token_1_th the following tables set forth select details of our consolidated results of operations for the years ended december 31 , 2020 and 2019 ( $ in thousands ) : net interest margin replace_table_token_2_th for the years ended december 31 , 2020 and 2019 , net interest margin was approximately $ 69.1 million and $ 52.2 million , respectively . for the years ended december 31 , 2020 and 2019 , interest income of $ 121.1 million and $ 114.8 million , respectively , was generated by weighted average earning assets of $ 1.8 billion and $ 1.6 billion , respectively , offset by $ 51.9 million and $ 62.6 million , respectively , of interest expense , unused fees and amortization of deferred loan costs . the weighted average borrowings under the wells fargo facility , the citibank facility , the baml facility , the cnb facility , the metlife facility , the u.s. bank facility and the morgan stanley facility ( individually defined below and collectively , the “ secured funding agreements ” ) , notes payable ( as defined below and excluding the note payable on the hotel property that is recognized as real estate owned in our consolidated balance sheets ) , the secured term loan , secured borrowings and securitization debt ( as defined below ) were $ 1.5 billion for the year ended december 31 , 2020 and $ 1.2 billion for the year ended december 31 , 2019. the increase in net interest margin for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 primarily relates to an increase in our weighted average earning assets and weighted average borrowings for the year ended december 31 , 2020 as well as the benefit received
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e-commerce subsequently established a wholly-owned foreign enterprise that created a domestic operating company headquartered in beijing , china ( “ gaopeng.com ” ) , which operates a group-buying site offering discounts for products and services to individual story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included under item 8 of this annual report on form 10-k. this discussion contains forward-looking statements about our business and operations . our actual results may differ materially from those we currently anticipate as a result of many factors , including those we describe under `` risk factors '' and elsewhere in this annual report . overview groupon is a local commerce marketplace that connects merchant partners to consumers by offering goods and services at a discount . traditionally , local merchants have tried to reach consumers and generate sales through a variety of methods , including the yellow pages , direct mail , newspaper , radio , television and online advertisements , promotions and the occasional guy dancing on a street corner in a gorilla suit . by bringing the brick and mortar world of local commerce onto the internet , groupon is creating a new way for local merchant partners to attract customers and sell goods and services . we provide consumers with savings and help them discover what to do , eat , see and buy in the places where they live and work . each day we email our subscribers discounted offers for goods and services that are targeted by location and personal preferences . current and potential customers access our deals directly through our websites and mobile applications . our revenue is the purchase price paid by the customer for the groupon less an agreed upon percentage of the purchase price paid to the featured merchant partners excluding any applicable taxes and net of estimated refunds . in 2011 , we generated revenue of $ 1,610.4 million , compared to $ 312.9 million in 2010 and $ 14.5 million in 2009. the increases in revenue were partially due to our rapid international expansion during 2010. revenue from our international operations was $ 112.5 million and $ 975.5 million in 2010 and 2011 , respectively . we have organized our operations into two principal segments : north america , which represents the united states and canada , and international , which represents the rest of our global operations . for the year ended december 31 , 2010 , we derived 36.0 % of our revenue from our international segment , compared to 60.6 % for the year ended december 31 , 2011. we expect the percentage of revenue derived from outside north america to continue to increase in future periods as we continue to expand globally and increase our penetration of the marketing opportunities in countries outside of north america , including those where we are already established . we incurred a net loss of $ 297.8 million for the year ended december 31 , 2011 and have an accumulated deficit of $ 698.7 million as of december 31 , 2011. since our inception , we have driven our growth through substantial investments in infrastructure and marketing to increase customer acquisition . in particular , our net loss for the year ended december 31 , 2011 was driven primarily by the rapid expansion of our international segment during the year , which involved investing heavily in upfront marketing , sales and infrastructure related to the build out of our operations in south korea , australia , japan and brazil . we intend to continue to pursue a strategy of significant investment in these regions and elsewhere in the future , consistent with the strategy we previously employed in north america and europe . how we measure our business we measure our business with several financial and operating metrics . we use these metrics to assess the progress of our business , make decisions on where to allocate capital , time and technology investments and assess the long‑term performance of our marketplace . the key metrics are as follows : financial metrics revenue . our revenue is the purchase price paid by the customer for the groupon less an agreed upon percentage of the purchase price paid to the featured merchant partner , excluding any applicable taxes and net of estimated refunds . we believe revenue is an important indicator for our business because it is a reflection of the cash retained by groupon excluding payment processing fees , and the value of our service to our merchant partners . revenue as a percentage of gross billings is influenced by the mix of national and local deals we offer . consolidated segment operating ( loss ) income ( csoi ) . csoi is the consolidated operating ( loss ) income of our two segments , north america and international , adjusted for acquisition-related costs and stock-based compensation expense . acquisition-related costs are non-recurring , non-cash items related to certain of our acquisitions . stock-based compensation expense is a non-cash item . as reported under u.s. gaap , we do not allocate stock‑based 40 compensation and acquisition‑related expense to our segments . we use csoi to allocate resources and evaluate performance internally . csoi is a non‑gaap financial measure . for further information and a reconciliation to the most applicable financial measure under u.s. gaap , refer to our discussion under non-gaap financial measures in the `` results of operations `` section . free cash flow . free cash flow , which is reconciled to `` net cash provided by operating activities , '' is cash flow from operations reduced by `` purchases of property and equipment . '' story_separator_special_tag as a result , we have incurred net losses in the majority of quarters since our inception . we anticipate that our operating expenses will increase substantially in the foreseeable future as we continue to increase the number and variety of deals we offer each day , broaden our customer base , expand our marketing channels , expand our operations , hire additional employees and develop our technology . pace and effectiveness of expansion . we have grown our business rapidly since inception , adding new customers and markets both domestically and internationally . our international operations have become critical to our revenue growth and our ability to achieve profitability . for the years ended december 31 , 2010 and 2011 , 36.0 % and 60.6 % , respectively , of our revenue was generated from our international operations . expansion into international markets requires management attention and resources and requires us to localize our services to conform to a wide variety of local cultures , business practices , laws and policies . international acquisitions also expose us to a variety of execution risks . the different commercial and internet infrastructure in other countries may make it more difficult for us to replicate our traditional business model . basis of presentation revenue revenue primarily consists of the net amount we retain from the sale of groupons after paying an agreed upon percentage of the purchase price to the featured merchant , excluding any applicable taxes and net of estimated refunds . cost of revenue cost of revenue is composed of direct and indirect costs incurred to generate revenue , including costs related to credit card processing fees , refunds which are not recoverable from the merchant , certain technology costs , editorial costs and other processing fees . credit card and other processing fees are expensed as incurred . at the time of sale , we record a liability for estimated costs to provide refunds which are not recoverable from the merchant based upon historical experience . technology costs in cost of revenue consist of payroll and stock‑based compensation expense related to our technology personnel . such technology costs also include website hosting and email distribution costs . editorial costs consist of the payroll and stock‑based compensation expense related to our editorial personnel , as such staff is primarily dedicated to drafting and promoting merchant deals . 42 marketing marketing expense consists primarily of targeted online marketing costs , such as sponsored search , advertising on social networking sites , email marketing campaigns , loyalty programs , affiliate programs and , to a lesser extent , offline marketing costs such as television , radio and print advertising . marketing payroll costs , including related stock‑based compensation expense , are also classified as marketing expense . we record these costs in marketing expense in our consolidated statements of operations when incurred . no costs included in marketing expense are incurred in connection with the fulfillment of our obligations to our merchants . marketing is the primary method by which we acquire customers , and as such , is a critical part of our growth strategy . selling , general and administrative selling expenses reported within selling , general and administrative on the consolidated statements of operations consist of payroll and sales commissions for inside and outside sales representatives as well as costs associated with supporting the sales function such as technology , telecommunications and travel . general and administrative expenses consist of payroll and related expenses for employees involved in general corporate functions , including accounting , finance , tax , legal and human resources , among others . additional costs included in general and administrative include subscriber service and operations , amortization and depreciation expense , rent , professional fees and litigation costs , travel and entertainment , stock compensation expense , charitable contributions , recruiting , office supplies , maintenance and other general corporate costs . acquisition‑related in may 2010 , we acquired citydeal , a european‑based collective buying power business launched in january 2010 that provided daily deals and online marketing services substantially similar to the company . as part of the overall consideration paid , we were obligated to issue additional shares of our common stock in december 2010 due to the achievement of financial and performance earn-out targets . we recorded a liability on our consolidated balance sheet as of the original acquisition date for this consideration and subsequently remeasured the liability on a periodic basis until final settlement . as a result of this remeasurement , we recorded a total charge of $ 204.2 million in acquisition‑related expenses in 2010 , which was partially offset by other nominal acquisition‑related items . similarly , in 2011 , as part of the overall consideration payable in connection with certain acquisitions , we may be obligated to issue additional shares of our class a common stock and make cash payments if certain financial and performance earn-out targets are achieved . we recorded a liability on our consolidated balance sheet as of the original acquisition date for this consideration and subsequently remeasured the liability as of december 31 , 2011. as a result of this remeasurment , we recorded a net gain of $ 4.5 million in 2011 due to the change in fair value measurements from updated management forecasts , see note 12 `` fair value meausrements `` . these liabilities have not yet been settled and are subject to future remeasurement . interest and other income ( expense ) interest and other income ( expense ) primarily consists of foreign currency gains and losses resulting from foreign currency transactions , which are denominated in currencies other than our functional currencies and interest expense on our loans from related parties . 43 story_separator_special_tag 46 marketing expense as a percentage of revenue for the years ended december 31 , 2009 , 2010 and 2011 was 34.8 % , 92.9 % , and 47.7 % respectively .
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results of operations comparison of the years ended december 31 , 2009 , 2010 and 2011 : replace_table_token_7_th operating expenses operating expenses with and without stock-based compensation are follows ( in thousands ) : replace_table_token_8_th 44 foreign exchange rate neutral operating results the effect on the company 's consolidated statements of operations from changes in exchange rates versus the u.s. dollar is as follows : replace_table_token_9_th _ ( 1 ) represents the outcome that would have resulted had exchange rates in the reported period been the same as those in effect in the comparable prior year period for operating results . ( 2 ) represents the increase or decrease in reported amounts resulting from changes in exchange rates from those in effect in the comparable prior year period for operating results . gross billings for the years ended december 31 , 2009 , 2010 and 2011 , our gross billings were $ 34.1 million , $ 745.3 million and $ 3,985.5 million , respectively , reflecting growth rates of 2,086.9 % and 434.7 % , respectively . gross billings have increased due to an increase in the volume of transactions related to both global expansion and a deeper penetration of addressable market in the countries in which are already established . we have seen strong growth in our daily deals business in addition to our travel and entertainment channels . revenue for the years ended december 31 , 2009 , 2010 and 2011 , our revenue was $ 14.5 million , $ 312.9 million and $ 1,610.4 million , respectively .
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as a result of this ownership change we determined that our annual limitation on the utilization of our federal net operating loss ( “ nol story_separator_special_tag safe harbor in addition to historical information , this annual report contains forward-looking statements within the meaning of section 27a of the securities act of 1933 and section 21e of the securities exchange act of 1934. actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors , risks and uncertainties , including the risk factors set forth in item 1a . above and the risk factors set forth in this annual report . generally , the words “ anticipate ” , “ expect ” , “ intend ” , “ believe ” and similar expressions identify forward-looking statements . the forward-looking statements made in this annual report are made as of the filing date of this annual report with the sec , and future events or circumstances could cause results that differ significantly from the forward-looking statements included here . accordingly , we caution readers not to place undue reliance on these statements . we expressly disclaim any obligation to update or alter our forward-looking statements , whether , as a result of new information , future events or otherwise after the date of this document . overview we are a hosted services company that provides web hosting , hosted telecommunications services , search engine optimization management , link building , e-commerce software , website development , and broadband internet services for businesses and entrepreneurs . our services are designed to make enterprise-class hosting services available to small and medium-sized businesses at affordable monthly rates . the company has three operating segments , which consist of storesonline , crexendo web services , and crexendo network services . storesonline segment – our storesonline segment serves the small office/ home office ( soho ) business owner and entrepreneur seeking the tools and training to establish a successful website on the internet . specifically , storesonline services a market segment looking for a “ do-it-yourself ” option as an alternative to the high cost of contracting an e-commerce or lead generation web developer and , most importantly , an ad agency for website promotion . both are difficult barriers to many entrepreneurs looking to establish a presence on the internet . we have historically sold our storesonline products and services through a direct mail seminar format utilizing direct response marketing campaigns . in july 2011 , we suspended the sale of our products and services through the direct mail seminar format . following the suspension the direct mail seminar format , our primary marketing channel for our storesonline segment has been through in-house telemarketing , online marketing channels , and direct prospecting . storesonline revenue continues to decline as the collections of epta revenue reduces over time as customer complete their obligations , as typical contract terms were 24 months . with the suspension of our direct mail seminar sales channel , we are no longer replacing the backlog . we continue to generate revenue from web hosting services and the sale of avail 24/7 . crexendo web services segment –we provide professional services such as search engine optimization management services , link building , paid search management services , conversion rate optimization services , and website design and development . our web services revenue increased 8 % or $ 190,000 to $ 2,505,000 for the year ended december 31 , 2012 as compared to $ 2,315,000 for the year ended december 31 , 2011. as of december 31 , 2012 and 2011 , our backlog was $ 1.1 million , respectively . crexendo network services segment - our hosted telecommunications services transmit calls using voip technology , which converts voice signals into digital data packets for transmission over the internet . each of our calling plans provides a number of basic features typically offered by traditional telephone service providers , plus a wide range of enhanced features that we believe offer an attractive value proposition to our customers . this platform enables a user via a single “ identity ” to access and utilize services and features regardless of how the user is connected to the internet , whether it be from a desktop device or a mobile device . in january 2012 , our direct sales representatives began selling our hosted telecommunications products and services . we have experienced significant growth in our network services revenue quarter-over-quarter . revenues recognized during the three months ended march 31 , 2012 , june 30 , 2012 , september 30 , 2012 and december 31 , 2012 were $ 75,000 , $ 168,000 , $ 235,000 , and $ 327,000 , respectively . in june 2012 , we began selling broadband internet connection services and during the year ended december 31 , 2012 , the company generated approximately $ 26,000 in revenue from these services . as of december 31 , 2012 , our backlog is $ 2,374,000 as compared to $ 155,000 at december 31 , 2011. backlog represents contracts signed with no service or payment provided at december 31 , 2012 . 23 restructuring and other charges in july 2011 , we initiated plans to restructure and reduce costs in our operations as a result of the continued lack of profitability and other challenges in our seminar sales channel for our storesonline segment . restructurings began in the third quarter of 2011 in an effort to better position our company for long-term growth , future profitability , greater competitiveness and improved efficiency across our business . actions taken in connection with our restructuring plan include the suspension of our direct mail marketing campaigns and sales of our products and services through our storesonline seminar channel , refinement of our product portfolio focused towards recurring subscription-based products and services , and redeployment of our sales and marketing resources in an effort to increase our direct sales , inside sales , and online sales channels . story_separator_special_tag the two primary accounting provisions which we use to classify transactions as sales-type or operating leases are : 1 ) lease term to determine if it is equal to or greater than 75 % of the economic life of the equipment and 2 ) the present value of the minimum lease payments to determine if they are equal to or greater than 90 % of the fair market value of the equipment at the inception of the lease . the economic life of most of our products is estimated to be three years , since this represents the most frequent contractual lease term for our products , and there is generally no residual value for used equipment . residual values , if any , are established at the lease inception using estimates of fair value at the end of the lease term . the vast majority of our leases that qualify as sales-type leases are non-cancelable and include cancellation penalties approximately equal to the full value of the lease receivables . leases that do not meet the criteria for sales-type lease accounting are accounted for as operating leases . revenue from sales-type leases is recognized upon installation and the interest portion is deferred and recognized as earned . revenue from operating leases in recognized ratably over the applicable service period . commission revenue we have contracts with third-party entities with respect to telemarketing product sales to our customers following the sale of the initial software licenses . these products and services are intended to assist the customers with their internet businesses . these products are sold and delivered completely by third parties . we receive commissions from these third parties , and recognize the revenue as the commissions are received , net of expected customer refunds . 25 avail 24/7 in january 2011 we changed the contract that is associated with the sale of our avail 24/7 subscription . effective march 31 , 2011 any customer that has not activated their avail 24/7 subscription was assessed an activation fee of an additional $ 34.95. prior to this change in contract , this activation fee was included in a bundle of items sold at the workshop and there was no time limit on activation . all existing customers were notified of the change in contract in january and were given 60-days to activate avail 24/7 without paying the additional activation fee . as a result of this change in contract , we recognized approximately $ 1,000,000 in revenue upon expiration of the 60-day notice during march 2011 for the avail 24/7 activation fees described above as we no longer had an obligation to provide the activation . allowance for doubtful accounts for epta contracts for sales made through epta contracts , we record an allowance for doubtful accounts at the time the epta contract is executed . the allowance represents estimated losses resulting from customers ' failure to make required payments . the allowance for doubtful accounts for eptas is netted against the current and long-term trade receivables balances . the allowance estimate is based on historical collection experience , specific identification of probable bad debts based on collection efforts , aging of trade receivables , customer payment history , and other known factors , including current economic conditions . we believe that the allowance for doubtful accounts is adequate based on our assessment to date , however , actual collection results may differ materially from our expectations . because revenue generated from customers financing through eptas is deferred and not recognized prior to the collection of cash , adjustments to the allowance for doubtful accounts related to our epta contracts increase or decrease deferred revenue . trade receivables are written off against the allowance when the related customers are no longer making required payments and the trade receivables are determined to be uncollectible , typically 90 days past their original due date . accounts receivable and allowance for doubtful accounts for web and network services trade account receivable are recorded at the invoiced amount and do not include interest . we record an allowance as a reduction of our accounts receivable balance . estimates are used in determining these reserves . we calculate the allowance for doubtful accounts using specific identification . we perform on-going credit evaluations of our customers . if such an evaluation indicates that payment is no longer reasonably assured for current services provided , any future services provided to that customer will result in the deferral of revenue until payment is made or we determine payment is reasonably assured . we do not have any off-balance sheet credit exposure related to our customers . income taxes in 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 estimating current income tax liabilities together with assessing temporary differences resulting from differing treatment of items for tax and financial reporting purposes . these temporary differences result in deferred income tax assets and liabilities . our deferred income tax assets consist primarily of the future benefit of net operating loss carry-forwards , certain deferred revenue , accrued expenses and tax credit carry-forwards . we may recognize the tax benefits from an uncertain tax position only if it is more-likely-than-not that the tax position will be sustained on examination by the taxing authorities , based on the technical merits of the position . the tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50 % likelihood of being realized upon ultimate settlement . accounting guidance is also provided on de-recognition of income tax assets and liabilities , classification of current and deferred income tax assets and liabilities , accounting for interest and penalties associated with tax positions , and income tax disclosures . judgment is required in assessing the future tax consequences of events that have been recognized in the financial statements or tax returns .
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results of consolidated operations the following discussion of financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto and other financial information included elsewhere in this annual report . results of consolidated operations ( in thousands , except for per share amounts ) replace_table_token_5_th 27 year ended december 31 , 2012 compared to year ended december 31 , 2011 revenue revenue decreased 64 % or $ 30,857,000 , to $ 17,167,000 for the year ended december 31 , 2012 as compared to $ 48,024,000 for the year ended december 31 , 2011. the decrease in primarily due to the suspension of our direct mail seminars in july 2011 , a 42 % decrease in our principal collected on our accounts receivable balance , and a 80 % decrease in commissions from third parties and other revenue . crexendo web services revenue increased 8 % or $ 190,000 to $ 2,505,000 during the year ended december 31 , 2012 compared to $ 2,315,000 for the year ended december 31 , 2011. crexendo network services revenue increased 632 % or $ 695,000 to $ 805,000 during the year ended december 31 , 2012 compared to $ 110,000 for the year ended december 31 , 2011. loss before income taxes loss before income tax increased 253 % or $ 2,975,000 , to $ 4,153,000 for the year ended december 31 , 2012 as compared to $ 1,178,000 for the year ended december 31 , 2011 primarily due to a decrease in storesonline revenue even though total operating expenses decreased 57 % or $ 30,633,000 , to $ 23,282,000 for the year ended december 31 , 2012 as compared to $ 53,915,000 for the year ended december 31 , 2011. income tax provision we had an income tax benefit of $ 212,000 for the year ended december 31 , 2012 compared to an income tax provision of $ 5,052,000 for the year ended december 31 ,
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the initial cash cap had not been reached as of december 31 , 2020. as such , no amount has been recorded with respect story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes and other financial information included elsewhere in this annual report on form 10-k. this discussion and analysis contains forward-looking statements based upon our current beliefs , plans and expectations that involve risks , uncertainties and assumptions , such as statements regarding our plans , objectives , expectations , intentions and beliefs . our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of various factors , including those set forth under the section titled “ risk factors ” and elsewhere in this annual report on form 10-k. you should carefully read the “ risk factors ” section of this annual report on form 10-k to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements . please also see the section titled “ special note regarding forward-looking statements. ” overview we are a next-generation vaccine company seeking to improve global health by developing superior and novel vaccines designed to prevent or treat some of the most common and deadly infectious diseases worldwide . our cell-free protein synthesis platform enables us to design and produce protein carriers and antigens , the critical building blocks of vaccines , in ways that we believe conventional vaccine technologies currently can not . our pipeline includes pneumococcal conjugate vaccine , or pcv , candidates that we believe are among the most broad-spectrum pcv candidates currently in development , targeting the $ 7 billion global pneumococcal vaccine market . our lead vaccine candidate is vax-24 , a 24-valent investigational pcv . we anticipate submitting our initial investigational new drug , or ind , application to the u.s. food and drug administration , or fda , for vax-24 between january and june 2022 and initiating our phase 1/2 clinical proof-of-concept study in adults thereafter . we expect to announce topline data from this study between late 2022 and early 2023. our second pcv , known as vax-xp , leverages our scalable and modular platform and builds on the technical proof of concept established by vax-24 and , if approved , would expand the breadth of coverage to at least 30 strains without compromising immunogenicity due to carrier suppression . in addition to our pcv franchise , we are developing a novel conjugate vaccine candidate for group a strep and a novel protein vaccine candidate targeting the keystone pathogen responsible for periodontitis . since january 1 , 2020 , key developments affecting our business include the following : achieved vax-24 manufacturing milestones . we achieved several key manufacturing milestones for vax-24 in preparation for the anticipated ind application submission and phase 1/2 clinical study initiation . these include completion of : the good manufacturing practice , or gmp , batches of the ecrm protein carrier ; the gmp batches of the 24 pneumococcal polysaccharides ; the first two stages of the gmp batches for the 24 conjugated drug substances ; the drug product batches used in the good laboratory practice , or glp , toxicology studies ; and the drug product batches that will serve as the source of the lead lot stability data for the ind application . progressed and reported new data for vax-xp program . as part of our strategy to maximize the optionality and value of our pcv franchise , we have continued to advance vax-xp , our broader-spectrum pcv candidate designed to cover at least 30 strains . we announced new data for vax-xp that further demonstrate the potential benefits of our scalable technology platform and the reproducibility of data with conjugates produced at larger scale . results from a preclinical proof-of-concept study showed that in rabbit models for vax-xp compared to more than 30 different pneumococcal serotypes , including all of those contained in prevnar 13 , the vax-xp igg immune responses were superior to polysaccharide-only serotypes and comparable to prevnar 13 in the common 13 strains . advanced and published data for vax-a1 program . we advanced vax-a1 , our novel conjugate vaccine candidate designed to prevent infections from group a strep , a human pathogen causing pharyngitis , or strep throat , and certain severe invasive infections such as sepsis , toxic shock syndrome and necrotizing fasciitis . based on the progress of the program , and consistent with 99 target timelines , we nominated the final vax-a1 vaccine candidate in the first quarter of 2021. in january 2021 , we announced the publication of preclinical data in the journal infectious microbes & diseases , which showed that vax-a1 demonstrated meaningful protection against systemic and soft tissue infection after challenge with no evidence of cross-reactivity with human tissue . additionally , at the end of 2020 , we completed the initial funding period under our agreement with carb-x and are now in the process of submitting our proposal to carb-x for the next funding period of the agreement . completed initial public offering ( ipo ) and series d financing . in june 2020 , we completed our ipo of 17,968,750 shares of common stock , which included the full exercise of the underwriters ' option to purchase 2,343,750 additional shares , at a public offering price of $ 16.00 per share , resulting in aggregate net proceeds of $ 264.0 million . in march 2020 , we completed our series d convertible preferred stock financing , raising aggregate net proceeds of $ 109.9 million . strengthened leadership team and advisory board with key appointments . during 2020 , we added several key leaders , including andrew guggenhime , president and chief financial officer , and appointed halley gilbert to our board of directors , each bringing over 20 years of biotechnology leadership experience . in 2021 , we added william hausdorff , phd to our scientific advisory board . story_separator_special_tag in addition to receiving funding , we entered into a license agreement with sutro biopharma , or the sutro license , on august 1 , 2014. the sutro license was amended on october 12 , 2015 and again on may 9 , 2018 and may 29 , 2018. under this license , we received an exclusive , worldwide , royalty-bearing , sublicensable license under sutro biopharma 's patents and know-how relating to cell-free expression of proteins to ( i ) research , develop , use , sell , offer for sale , export , import and otherwise exploit specified vaccine compositions , such rights being sublicensable , for the treatment or prophylaxis of infectious diseases , excluding cancer vaccines , and ( ii ) manufacture , or have manufactured by an approved contract manufacturing organization , such vaccine compositions from extracts supplied by sutro biopharma pursuant to the sutro biopharma supply agreement ( as described below ) . we are obligated to use commercially reasonable efforts to develop , obtain regulatory approval for and commercialize the vaccine compositions . in consideration of the rights granted under the sutro license , we are obligated to pay sutro biopharma a 4 % royalty on worldwide aggregate net sales of vaccine products for human health and a 2 % royalty on such net sales of vaccine products for animal health . such royalty rates are subject to specified reductions , including standard reductions for third-party payments and for expiration of relevant patent claims . royalties are payable on a vaccine composition-by-vaccine composition and country-by-country basis until the later of expiration of the last valid claim in the licensed patents covering such vaccine composition in such 101 country and ten years after the first commercial sale of such vaccine composition . in addition , we are obligated to pay sutro biopharma a percentage in the low-double digits of any net sublicensing revenue received for sublicense agreements executed before july 2020. our obligation to pay sublicense fees to sutro biopharma expired in july 2020. in may 2018 , we entered into a supply agreement , which we refer to as the sutro biopharma supply agreement , with sutro biopharma pursuant to which we purchase from sutro biopharma extract and custom reagents for use in manufacturing non-clinical and certain clinical supply of vaccine compositions utilizing the technology licensed under the sutro license at prices not to exceed a specified percentage above sutro biopharma 's fully burdened manufacturing cost . if any extracts or custom reagents do not meet the specifications and warranties provided , then we will not have an obligation to pay for the non-conforming product , and sutro biopharma will be obligated to replace the non-conforming product within the shortest possible time with conforming product at our cost . for additional details regarding our relationship with sutro biopharma , see note 13 , “ related party transactions , ” to our financial statements included in part ii , item 8 of this annual report on form 10-k. lonza in october 2016 , we entered into a development and manufacturing services agreement with lonza ltd. , or lonza , which we refer to , as amended , as the 2016 lonza agreement , pursuant to which lonza is obligated to perform manufacturing process development and clinical manufacture and supply of components for vax-24 , including the manufacture of polysaccharide antigens , our proprietary ecrm protein carrier and conjugated drug substances . in october 2018 , we entered into a second development and manufacturing services agreement with lonza , which we refer to as the 2018 lonza agreement , and together with the 2016 lonza agreement , as the lonza agreements , pursuant to which lonza is obligated to perform manufacturing process development and clinical manufacture and supply of vax-24 finished drug product . in june 2018 , we entered into a letter agreement , or the lonza letter agreement , with lonza , pursuant to which we agreed to certain terms for potential future equity payments as partial satisfaction of future obligations to lonza under the lonza agreements . specifically , we and lonza agreed that the initial pre-ind cash payments made by us to lonza are subject to a specified dollar cap , which we refer to as the initial cash cap . after the initial cash cap has been reached , then at our election , we can make any further pre-ind payments owed to lonza under the lonza agreements in cash , equity at then market prevailing prices , or a combination of both . lonza may elect to receive up to 25 % of pre-ind payments in equity , up to a maximum of $ 2.5 million , and no more than $ 10 million of pre-ind payments may be satisfied by issuances of our common stock . under the lonza agreements , we will pay lonza agreed upon fees for lonza 's performance of manufacturing services , and we will reimburse lonza for its out-of-pocket costs associated with purchasing raw materials , plus a customary handling fee . each lonza agreement is managed by a steering committee and any dispute at the steering committee will be resolved by senior executives of the parties . for additional details regarding our relationship with lonza , see note 5 , “ commitments and contingencies , ” to our financial statements included in part ii , item 8 of this annual report on form 10-k. impact of covid-19 we are continuing to closely monitor the impact of the global covid-19 pandemic on our business and are taking proactive efforts designed to protect the health and safety of our employees and to maintain business continuity . we believe that the measures we have implemented and continue to implement are appropriate , and we will continue to monitor and seek to comply with guidance from governmental authorities and adjust our activities as appropriate .
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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 periods presented : replace_table_token_1_th * not meaningful operating expenses research and development expenses the following table summarizes our research and development expenses for the periods presented : replace_table_token_2_th ( 1 ) includes expenses for third-party manufacturing and outsourced contract services , including preclinical studies and outsourced assays . ( 2 ) includes travel-related expenses , warrant expense and other miscellaneous office expenses . research and development expenses increased by $ 28.0 million , or 61.3 % , in 2020 compared to 2019. the increase was primarily attributable to an increase of $ 23.1 million in product and clinical development expenses mainly related to our lead vaccine candidate , vax-24 , driven by increases of $ 18.6 million in outsourced manufacturing activities and $ 4.5 million in outsourced research services due to the ramp-up of the ecrm and polysaccharide gmp campaigns and conjugation and drug product activities in preparation for our anticipated ind application submission between january and june 2022 and phase 1/2 clinical study initiation thereafter . the increase in personnel-related expenses of $ 4.0 million was primarily related to the increase in the number of 106 employees to support our expan sion in research and development activities and higher stock-based compensation expense resulting from an increase in the number of options granted during the year and an increase in the fair value of our common stock affecting the valuation of new option grants .
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the following table sets forth the changes in benefit obligations and plan assets during the year and the funded status for the post-employment plans at june 30 : replace_table_token_36_th the amounts recognized in the consolidated balance sheets and in accumulated other comprehensive income ( loss ) for the post-employment plans were as follows : replace_table_token_37_th 50 the following table provides information for pension plans with projected benefit obligations and accumulated benefit obligations in excess of story_separator_special_tag story_separator_special_tag 45 , sans-serif ; font-size:10pt ; '' > the following table is included to aid in review of applied 's statements of consolidated income . replace_table_token_2_th 14 sales in fiscal 2015 were $ 2.75 billion , which was $ 291.7 million or 11.9 % above the prior year , with acquisitions accounting for $ 280.2 million or 11.4 % . unfavorable foreign currency translation decreased sales by $ 43.3 million or 1.8 % . excluding the impact of businesses acquired and prior to the impact of currency translation , sales were up $ 54.8 million or 2.3 % during the year . we had 252.5 selling days in both fiscal 2015 and fiscal 2014. sales of our service center based distribution segment , which operates primarily in mro markets , increased $ 281.4 million , or 14.3 % . acquisitions within this segment increased sales by $ 280.2 million or 14.2 % . unfavorable foreign currency translation decreased sales by $ 36.5 million or 1.8 % . excluding the impact of businesses acquired and unfavorable currency translation impact , sales increased $ 37.7 million or 1.9 % . sales of our fluid power businesses segment , which operates primarily in oem markets , increased $ 10.3 million or 2.1 % , primarily attributed to strong sales growth at several of our u.s. based fluid power businesses which added $ 17.1 million or 3.5 % , while unfavorable foreign currency translation decreased sales by $ 6.8 million or 1.4 % . sales in our u.s. operations were up $ 207.1 million or 10.2 % , with acquisitions adding $ 175.8 million or 8.7 % . sales from our canadian operations increased $ 67.5 million or 23.2 % , with acquisitions adding $ 86.4 million or 29.7 % . unfavorable foreign currency translation decreased canadian sales by $ 30.4 million or 10.4 % . excluding the impact of businesses acquired and prior to the impact of currency translation , sales were up $ 11.5 million or 3.9 % during the year . consolidated sales from our other country operations , which include mexico , australia and new zealand , were $ 17.1 million or 12.4 % above the prior year , with acquisitions adding sales of $ 18.0 million or 13.1 % . unfavorable foreign currency translation decreased other country sales by $ 12.9 million or 9.4 % . excluding the impact of businesses acquired and prior to the impact of currency translation , sales were up $ 12.0 million or 8.7 % during the year . the sales product mix for fiscal 2015 was 73.2 % industrial products and 26.8 % fluid power products compared to 70.7 % industrial and 29.3 % fluid power in the prior year . these changes in product mix relate entirely to the product mix of our recent acquisitions being primarily industrial products . our gross profit margin was 28.0 % in fiscal 2015 versus 27.9 % in fiscal 2014 . the increased margins are attributable to the impact of relatively higher gross margins from acquired operations . selling , distribution and administrative expenses ( sd & a ) consist of associate compensation , benefits and other expenses associated with selling , purchasing , warehousing , supply chain management , and providing marketing and distribution of the company 's products , as well as costs associated with a variety of administrative functions such as human resources , information technology , treasury , accounting , legal , facility related expenses and expenses incurred with acquiring businesses . sd & a increased $ 62.6 million or 12.0 % during fiscal 2015 compared to the prior year , and as a percent of sales increased to 21.3 % from 21.2 % in fiscal 2014 . the acquired businesses added an incremental $ 69.4 million of sd & a expenses , which includes an additional $ 13.4 million associated with acquired identifiable intangibles amortization . excluding the $ 11.0 million decline in sd & a from foreign currency translation , the remaining sd & a amounts were similar to the prior year . the increase in sd & a as a percentage of sales , was driven by additional intangible asset amortization from businesses acquired . operating income increased $ 20.3 million , or 12.3 % , to $ 184.6 million during fiscal 2015 from $ 164.4 million during 2014 , and as a percent of sales , remained stable at 6.7 % . the increase in operating income dollars is primarily attributable to our acquired businesses . operating income as a percentage of sales for the service center based distribution segment increased to 6.2 % in fiscal 2015 from 6.0 % in fiscal 2014 . this increase is primarily attributable to an increase in gross profit as a percentage of sales , as a result of our recent acquisitions which operate at higher gross profit margins , representing an increase of 0.1 % , along with a decrease in sd & a as a percentage of sales of 0.1 % . operating income as a percentage of sales for the fluid power businesses segment increased to 9.8 % in fiscal 2015 from 9.2 % in fiscal 2014 . this increase is primarily attributable to the leveraging of organic sales growth in our u.s. based fluid power businesses , without a commensurate increase in sd & a expenses . segment operating income is impacted by changes in the amounts and levels of expenses allocated to the segments . the expense allocations include corporate charges for working capital , logistics support and other items and impact segment gross profit and operating expense . story_separator_special_tag selling , distribution and administrative expenses ( sd & a ) consist of associate compensation , benefits and other expenses associated with selling , purchasing , warehousing , supply chain management , and providing marketing and distribution of the company 's products , as well as costs associated with a variety of administrative functions such as human resources , information technology , treasury , accounting , legal , facility related expenses and expenses incurred with acquiring businesses . sd & a increased $ 16.0 million or 3.2 % during fiscal 2014 compared to fiscal 2013 , and as a percent of sales increased to 21.2 % from 20.6 % in fiscal 2013. the acquired businesses added $ 19.3 million of sd & a expenses , which included an additional $ 2.5 million associated with acquired identifiable intangibles amortization . the increase in sd & a as a percentage of sales , was driven by relatively higher sd & a levels from businesses acquired in fiscal year 2014. operating income decreased $ 12.0 million , or 6.8 % , to $ 164.4 million during fiscal 2014 from $ 176.4 million during 2013. as a percent of sales , operating income decreased to 6.7 % in fiscal 2014 from 7.2 % in 2013. the decrease in operating income was primarily attributable to relatively flat gross profit levels coupled with added levels of sd & a from businesses acquired in the 2014 fiscal year . the decrease in operating margin percentage was driven by the negative leverage resulting from decreasing sales from businesses not acquired in fiscal year 2014 without a similar level of sd & a reductions , which resulted in an increase in sd & a as a percentage of sales to 21.2 % from 20.6 % in fiscal year 2013 , slightly offset by an increase in gross profit as a percentage of sales to 27.9 % from 27.7 % . operating income as a percentage of sales for the service center based distribution segment decreased to 6.0 % in fiscal 2014 from 6.9 % in fiscal 2013. this decrease was attributable to the negative leverage resulting from decreasing sales in businesses not acquired in fiscal year 2014 without a similar level of sd & a reductions , which resulted in an increase in sd & a as a percentage of sales . in addition , sd & a for acquisitions in fiscal year 2014 operated at a relatively higher sd & a level . the sd & a impacts represented an approximate 1.0 % reduction in operating income as a percentage of sales and were slightly offset by an increase in gross profit margins also due to acquisitions in fiscal year 2014 ( representing an increase of approximately 0.1 % ) representing the total net change in operating income as a percentage of sales . operating income as a percentage of sales for the fluid power businesses segment increased to 9.2 % in fiscal 2014 from 9.0 % in fiscal 2013. this increase was due to the positive leverage provided by an increase in sales without a commensurate increase in sd & a levels at several of our fluid power businesses ( representing a 0.5 % increase in operating income as a percentage of sales ) , offset by a slight decrease in gross profit margins ( representing a 0.3 decrease in operating income as a percentage of sales ) . segment operating income was impacted by changes in the amounts and levels of expenses allocated to the segments . the expense allocations included corporate charges for working capital , logistics support and other items and impact segment gross profit and operating expense . interest expense , net , remained relatively stable as compared to fiscal year 2013. other expense ( income ) , net , represented certain non-operating items of income and expense . this was $ 2.2 million of income in fiscal 2014 compared to $ 1.4 million of income in fiscal 2013. fiscal year 2014 income primarily consisted of unrealized gains on investments held by non-qualified deferred compensation trusts of $ 1.7 million as well as $ 1.3 million of income associated with the elimination of the one-month canadian and mexican reporting lags ( see note 1 in item 8 under the caption `` financial statements and supplementary data '' ) , offset by foreign currency transaction losses of $ 0.8 million . fiscal 2013 consisted primarily of unrealized gains on investments held by non-qualified deferred compensation trusts of $ 1.3 million . income tax expense as a percent of income before taxes was 32.1 % for fiscal 2014 and 33.5 % for fiscal 2013. the impact of lower effective tax rates in foreign jurisdictions favorably reduced our rate when compared to the u.s. federal statutory rate by 2.6 % . further reducing our rate compared to the u.s. federal statutory rate by 1.6 % was the reversal of a deferred tax liability recorded in the years prior to fiscal 2014 on a portion of the undistributed earnings in canada . all undistributed earnings of our foreign subsidiaries were considered to be permanently reinvested at june 30 , 2014. the effective tax rate for fiscal 2014 was further reduced by 1.1 % due to a favorable permanent dividend deduction along with other items . these reductions compared to the u.s. federal statutory rate were offset by the impact of state and local taxes which increased the rate by 2.4 % .
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and results of operations . overview with more than 5,800 employees across north america , australia and new zealand , applied industrial technologies ( “ applied , ” the “ company , ” “ we , ” “ us ” or “ our ” ) is a leading industrial distributor serving mro ( maintenance , repair & operations ) and oem ( original equipment manufacturer ) customers in virtually every industry . in addition , applied provides engineering , design and systems integration for industrial and fluid power applications , as well as customized mechanical , fabricated rubber and fluid power shop services . applied also offers maintenance training and inventory management solutions that provide added value to our customers . we have a long tradition of growth dating back to 1923 , the year our business was founded in cleveland , ohio . at june 30 , 2015 , business was conducted in the united states , puerto rico , canada , mexico , australia and new zealand from 565 facilities . the following is management 's discussion and analysis of significant factors that have affected our financial condition , results of operations and cash flows during the periods included in the accompanying consolidated balance sheets , statements of consolidated income , consolidated comprehensive income and consolidated cash flows in item 8 under the caption `` financial statements and supplementary data '' . when reviewing the discussion and analysis set forth below , please note that the majority of skus ( stock keeping units ) we sell in any given year were not sold in the comparable period of the prior year , resulting in the inability to quantify certain commonly used comparative metrics analyzing sales , such as changes in product mix and volume . our fiscal 2015 consolidated sales were $ 2.75 billion , an increase of $ 291.7 million or 11.9 % compared to the prior year , with acquisitions contributing $ 280.2 million or 11.4 % and an unfavorable foreign currency translation of $ 43.3 million decreasing sales by 1.8 % . gross margin was 28.0
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as a result of this detailed analysis , we recorded a reduction in our current state income tax provision of $ 814,000. without the effect of the $ 814,000 , during 2010 , we accrued state and federal income taxes at an effective tax rate of 39.4 % . we performed a similar reconciliation process during the fourth quarter of 2011 which did not yield a significant adjustment . net income attributable to noncontrolling interests net income attributable to noncontrolling interests was $ 8.8 million in 2011 compared to $ 9.1 million in 2010. as a percentage of operating income before corporate office costs , net income attributable to noncontrolling interests was 14.5 % in 2011 compared to 16.2 % in 2010. the reduction is attributable to the company 's increased ownership interest in certain physical therapy partnerships . fiscal year 2010 compared to fiscal 2009 net revenues rose 4.9 % to $ 211.2 million for 2010 from $ 201.4 million for 2009 due to a 3.0 % increase in net patient revenue per visit to $ 105.92 from $ 102.85 for 2009 while the number of patient visits increased by 1.5 % from 1,899,000 to 1,927,000. our net patient revenue per visit increased due to our continuing efforts to provide additional services and to negotiate more favorable reimbursement rates with payors . the 2010 results include 10 months of operations for the clinics acquired in the february 2010 acquisition and eight days of operations for the clinics acquired in the december 21 , 2010 acquisition . the 2010 and 2009 results include 254 days and 255 days of operations , respectively . net income attributable to common shareholders increased 33.0 % to $ 15.6 million for 2010 from $ 11.8 million . earnings per diluted share increased to $ 1.32 from $ 1.00. total diluted shares for the years ended december 31 , 2010 and 2009 were 11.9 million and 11.8 million , respectively . net patient revenues net patient revenues increased to $ 204.1 million for 2010 from $ 195.3 million for 2009 , an increase of $ 8.8 million , or 4.5 % , primarily due to an increase of $ 3.07 in patient revenues per visit to $ 105.92 as previously mentioned . total patient visits increased to 1,927,000 for 2010 from 1,899,000 for 2009 . 2010 new clinics accounted for 62,000 additional visits in 2010 while 2010 mature clinics accounted for a decrease of 34,000 visits . for 2009 new clinics , the number of visits increased by 35,000 from 2009 to 2010 due to an increase in business for developed clinics and a full year of activity for those opened in 2009. for 2009 mature clinics , the number of visits decreased by 68,000 in 2010 as compared to 2009. net patient revenues are based on established billing rates less allowances and discounts for patients covered by contractual programs and workers ' compensation . net patient revenues reflect contractual and other adjustments , which we evaluate monthly , relating to patient discounts from certain payors . payments received under these programs are based on predetermined rates and are generally less than the established billing rates of the clinics . 28 other revenues other revenues increased by approximately $ 1.0 million from 2009 to 2010 due to additional management contracts . clinic operating costs clinic operating costs were 73.5 % of net revenues for 2010 and 74.3 % of net revenues for 2009. each component of clinic operating costs is discussed below : clinic operating costs salaries and related costs salaries and related costs increased to $ 110.9 million for 2010 from $ 105.7 million for 2009 , an increase of $ 5.2 million , or 4.9 % . approximately $ 4.1 million of the increase was attributable to 2010 new clinics . the remaining $ 1.1 million of the increase was due to $ 2.1 million in higher costs at various 2009 new clinics offset by a decrease of $ 1.0 million in costs at various 2009 mature clinics . salaries and related costs as a percentage of net revenues was 52.5 % for 2010 and 2009. clinic operating costs rent , clinic supplies and other rent , clinic supplies and other costs increased to $ 40.9 million for 2010 from $ 40.5 million for 2009 , an increase of $ 0.4 million , or 1.1 % . for 2010 , 2010 new clinics accounted for approximately $ 1.9 million of the increase and 2009 new clinics accounted for approximately $ 0.7 million of the increase due to a full year of activity for clinics developed in 2009. rent , clinic supplies and other costs for 2009 mature clinics decreased $ 2.2 million in 2010 as compared to 2009 due to cost containment efforts . rent , clinic supplies and other costs as a percent of net revenues was 19.4 % for 2010 and 20.1 % for 2009. clinic operating costs provision for doubtful accounts the provision for doubtful accounts for net patient receivables as a percentage of net patient revenues was 1.6 % for 2010 and 1.7 % for 2009. our allowance for bad debts as a percentage of total patient accounts receivable was 8.1 % at december 31 , 2010 and 7.6 % at december 31 , 2009. the allowance for doubtful accounts at the end of each period is based on a detailed , clinic-by-clinic review of overdue accounts and is regularly reviewed in the aggregate in light of historical experience . the accounts receivable days outstanding were 45 days at december 31 , 2010 and december 31 , 2009. receivables in the amount of $ 2.8 million and $ 3.8 million were written-off in 2010 and 2009 , respectively . story_separator_special_tag closure costs in 2010 , 15 clinics were closed with closure costs amounting to $ 163,000. for 2009 , closure costs amounted to $ 91,000 related to the closure of 10 clinics . corporate office costs corporate office costs , consisting primarily of salaries , benefits and equity based compensation of corporate office personnel and directors , rent , insurance costs , depreciation and amortization , travel , legal , compliance , professional , marketing and recruiting fees , were $ 22.8 million for 2010 and $ 23.5 million for 2009 , a decrease of $ 0.7 million . this decrease is primarily due to lower incentive compensation , including the long-term incentive plan . corporate office costs as a percentage of net revenues were 10.8 % for 2010 and 11.7 % for 2009 . 29 interest and other income , net interest and other income for 2010 included a pre-tax gain of $ 578,000 from the sale of our 51.0 % interest in a five clinic texas joint venture . interest expense interest expense decreased to $ 236,000 for 2010 from $ 352,000 for 2009 primarily due to lower average borrowings . at december 31 , 2010 , $ 5.5 million was outstanding under our revolving credit facility . see liquidity and capital resources below for a discussion of the terms of our revolving credit facility . provision for income taxes the provision for income taxes increased to $ 8.8 million for 2010 from $ 7.9 million for 2009 , an increase of approximately $ 0.9 million , primarily as a result of higher pre-tax income . during the fourth quarter of 2010 , we completed a process to perform a detailed reconciliation of our federal and state taxes payable and receivable accounts along with our federal and state deferred tax asset and liability accounts . historically , calculations of these tax-related accounts were performed through summary estimates and analysis . as a result of this detailed analysis , we recorded a reduction in our current state income tax provision of $ 814,000. without the effect of the $ 814,000 , during 2010 , we accrued state and federal income taxes at an effective tax rate ( provision for taxes divided by the difference between income from operations and net income attributable to noncontrolling interest ) of 39.4 % . for 2009 , the results included certain incentive compensation that was not tax deductible thereby slightly increasing the effective income tax rate to 40.3 % . net income attributable to noncontrolling interests net income attributable to noncontrolling interests was $ 9.1 million in 2010 compared to $ 8.2 million in 2009. as a percentage of operating income before corporate office costs , net income attributable to noncontrolling interests was 16.2 % in 2010 compared to 15.9 % in 2009. liquidity and capital resources we believe that our business is generating sufficient cash flow from operating activities to allow us to meet our short-term and long-term cash requirements , other than those with respect to future significant acquisitions . at december 31 , 2011 , we had $ 10.0 million in cash and cash equivalents compared to $ 9.2 million at december 31 , 2010. although the start-up costs associated with opening new clinics and our planned capital expenditures are significant , we believe that our cash and cash equivalents and availability under our revolving credit facility are sufficient to fund the working capital needs of our operating subsidiaries , future clinic development and investments through at least december 2012. the amount outstanding under our revolving credit facility was $ 23.5 million at december 31 , 2011 compared to $ 5.5 million at december 31 , 2010. at december 31 , 2011 , we had $ 51.5 million available under our revolving credit facility . significant acquisitions would likely require financing under our revolving credit facility . the increase in cash and cash equivalents of $ 0.8 million from december 31 , 2010 to december 31 , 2011 was due primarily to $ 32.7 million provided by operations , $ 18.0 million of net proceeds on our revolving credit facility and $ 1.5 million from a purchase price settlement . the major uses of cash for investing and financing activities included : acquisitions of noncontrolling interests ( $ 20.4 million ) , distributions to noncontrolling interests ( $ 9.8 million ) , purchase of business and earnout payment on a previously acquired business ( $ 9.5 million ) , purchases of our common stock ( $ 4.7 million ) , payments of cash dividends to our shareholders ( $ 3.8 million ) , purchases of fixed assets ( $ 3.2 million ) , and payments on notes payable ( $ 0.3 million ) . 30 effective august 27 , 2007 , we entered into a credit agreement with a commitment for a $ 30.0 million revolving credit facility which was increased to $ 50.0 million effective june 4 , 2008 ( credit agreement ) . effective march 18 , 2009 , we amended the credit agreement to permit us to purchase up to $ 15,000,000 of our common stock subject to compliance with certain covenants , including the requirement that after giving effect to any stock purchase , our consolidated leverage ratio ( as defined in the credit agreement ) be less than 1.0 to 1.0 and that any stock repurchased be retired within seven days of purchase . effective october 13 , 2010 , we amended the credit agreement to extend the maturity date from august 31 , 2011 to august 31 , 2015. in addition , the credit agreement was amended to adjust the pricing grid which is based on our consolidated leverage ratio with the applicable spread over libor ranging from 1.6 % to 2.5 % or the applicable spread over the base rate ranging from .1 % to 1 % . on july 14 , 2011 , we amended the credit agreement to increase the commitment
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results of operations fiscal year 2011 compared to fiscal 2010 net revenues rose 12.2 % to $ 237.0 million for 2011 from $ 211.2 million for 2010 due to increases in net patient revenues and other revenues as discussed below . the 2011 results include five months of operations of the july 2011 acquisition . the 2010 results include 10 months of operations for the february 2010 acquisition and eight days of operations for the december 21 , 2010 acquisition . the 2011 and 2010 results include 255 days and 254 days of operations , respectively . net income attributable to common shareholders for the year ended december 31 , 2011 increased 34.1 % to $ 21.0 million from $ 15.6 million in 2010. diluted earnings per share rose to $ 1.75 from $ 1.32. included in the 2011 results is a pretax gain of $ 5.4 million related to a purchase price settlement on the february 2010 acquisition . included in the 2010 results was a positive adjustment in the income tax provision of $ 0.8 million and a gain from the sale of a five clinic joint venture of approximately $ 0.6 25 million . excluding the 2011 and 2010 gains and the 2010 tax adjustment , diluted earnings per shares from operations would have been $ 1.35 for 2011 and $ 1.22 for 2010 , an increase of 10.7 % . see table below replace_table_token_10_th net patient revenues net patient revenues increased to $ 226.6 million for 2011 from $ 204.1 million for 2010 , an increase of $ 22.5 million , or 11.0 % , primarily due to an increase in patient visits from 1.9 million to 2.2 million . the increase in net patient revenues of $ 22.5 million consisted of an increase of $ 14.3 million from mature clinics and $ 8.2 million from new clinics , primarily due to the july 2011 acquisition .
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interest on loans is credited to story_separator_special_tag the following discussion and analysis is intended to assist in understanding the financial condition , results of operations , liquidity , and capital resources of the company . the bank comprises almost all of the consolidated assets and liabilities of the company and the company is dependent primarily upon the performance of the bank for the results of its operations . because of this relationship , references to management actions , strategies and results of actions apply to both the bank and the company . story_separator_special_tag uncertainty and how that may play out with the credit risk exposure in the bank 's loan portfolio , the company elected to defer the annual true blue dividend in june 2020 and did not ask at that time for a regulatory non-objection to move capital from the bank to the company to pay that dividend . it is management 's intention to ask for a regulatory non-objection at some point in the future to pay this dividend when economic conditions are more certain . it is currently the company 's intention to pay out 100 % of its fiscal year 2021 earnings . management 's evolving response to covid-19 - there is continued concern about a resurgence of covid-19 as we enter the winter months . in october and november 2020 , covid-19 cases , hospitalizations , and deaths nationally and in our local market areas increased compared to the summer months , including to new record levels in some areas . the kansas governor recently issued an executive order establishing a statewide face-covering protocol as part of her administration 's strategy to keep schools and businesses open and to protect the economy . we continue to be confronted with a significant and unfamiliar degree of uncertainty as to how a resurgence will impact our customers , employees , and operations and how actions taken by governmental authorities and other third parties in response to a resurgence will impact our customers , employees , and operations . we will continue to monitor covid-19 cases and will adjust operational plans as necessary . we will also continue to assist our customers as necessary during these uncertain times . see `` part i , item 1a . risk factors - risks related to macroeconomic conditions '' for additional discussion regarding the impact the covid-19 pandemic may have on our business , results of operations and financial condition . impact on market interest rates as a result of covid-19 pandemic and company 's response the federal reserve , in response to economic risks resulting from the covid-19 pandemic , returned to a zero-interest rate policy in march 2020. this was after most broader market rates decreased significantly in response to evolving news about the covid-19 pandemic . the dramatic lowering of interest rates in a short period of time impacted the operations and performance of the bank . deteriorating economic conditions included more than 20 million people becoming unemployed in the united states in one month 's time , with more than 58 million in total filing for unemployment benefits , along with immediate reductions in consumer spending on almost all categories of purchases except groceries and staples , and closure or significantly reduced operations of restaurants , bars , airlines , hotels , and entertainment and hospitality venues , among others , and had a devastating impact on the economy . since that time , many areas of consumer spending have rebounded , generally locally and not related to travel and entertainment . as previously described , we adjusted our operations in response to the 45 covid-19 pandemic and have worked with both our retail and commercial customers to help them manage their debt during this period of economic uncertainty as our regulators or the cares act have allowed . there is increasing concern about the longer lasting impact on local business as well as travel and entertainment resulting from the covid-19 pandemic . this could cause a longer recovery time for all sectors of the economy and could make it challenging for sectors that have had better recoveries to maintain that recovery in the long run . we have been responding and expect to continue to respond to local market conditions regarding the loan and deposit rates we offer . we responded to lower market rates for lending by lowering rates offered on our one- to four-family loan products over the course of the year . given current market interest rates , rates offered on new loans and the recent volume of one- to four-family refinances and endorsements allowing borrowers to take advantage of the lower current market interest rates , the yield on the total loan portfolio is likely to continue to decrease . additionally , with significant cash inflows realized due to investment securities being called and prepayments on mbs increasing , the yields on reinvested funds into new securities are lower than portfolio yields . since the onset of the pandemic the bank lowered its offered rates on all retail deposit products except checking and savings accounts . changes in the rates paid on money market accounts have an immediate impact on the cost of our deposits , while the impact of reducing rates offered on our certificate of deposit products lower the cost of deposits only as certificates of deposit reprice lower when they mature . as the bank further monitors rates offered and the cost of borrowings , we anticipate that the average cost of our interest-bearing liabilities will continue to decrease . considering the drastic changes in market rates and the ongoing economic uncertainty , even with the changes the bank has made to its cost of funding , with the lower rates on new mortgage loans , refinances , endorsements and new securities also at lower rates , our net interest margin could continue to decrease , with further downside risk as a result of high levels of prepayments and premium amortization on correspondent one- to four-family loans and mbs . story_separator_special_tag stockholders ' equity was $ 1.28 billion at september 30 , 2020 compared to $ 1.34 billion at september 30 , 2019. the $ 51.5 million decrease was due primarily to the payment of cash dividends totaling $ 93.9 million and the repurchase of common stock totaling $ 23.8 million , partially offset by net income of $ 64.5 million during the current year . during the current fiscal year , the company repurchased 2,558,100 shares of common stock . in the long run , management considers the bank 's equity to total assets ratio of at least 10 % an appropriate level of capital . at september 30 , 2020 , this ratio was 12.3 % . the cash dividends paid during the current year totaled $ 0.68 per share and consisted of a $ 0.34 per share cash true-up dividend related to fiscal year 2019 earnings , paid in december 2019 , per the company 's dividend policy , and four regular quarterly cash dividends of $ 0.085 per share , totaling $ 0.34 per share . critical accounting policies our most critical accounting policies are the methodologies used to determine the acl and fair value measurements . these policies are important to the presentation of our financial condition and results of operations , involve a high degree of complexity , and require management to make difficult and subjective judgments that may require assumptions or estimates about highly uncertain matters . the use of different judgments , assumptions , and estimates could affect reported results materially . these critical accounting policies and their application are reviewed at least annually by our audit committee . the following is a description of our critical accounting policies and an explanation of the methods and assumptions underlying their application . allowance for credit losses . the company maintains an acl to absorb inherent losses in the loan portfolio based upon ongoing quarterly assessments of the loan portfolio . the acl is maintained through provisions for credit losses which are either charged or credited to income . the methodology for determining the acl is considered a critical accounting policy by management because of the high degree of judgment involved , the subjectivity of the assumptions used , and the potential for changes in economic conditions that could result in changes to the amount of the recorded acl . additionally , bank regulators review the acl and could have a differing view from management regarding the acl balance , which could result in an increase in the acl and or the recognition of additional charge-offs . although management believes that the bank has established and maintained the acl at appropriate levels , additions may be necessary if economic and other conditions worsen substantially from the current operating environment , and or if bank regulators have a differing view from management regarding the acl balance . 47 our lending emphasis on the origination and purchase of one- to four-family loans and , to a lesser extent , consumer loans secured by one- to four-family residential properties , has resulted in a loan concentration in one- to four-family residential mortgage loans . we believe the primary risks inherent in our one- to four-family and consumer loan portfolios are a decline in economic conditions , elevated levels of unemployment or underemployment , and declines in residential real estate values . adverse changes in any one or a combination of these events may negatively affect borrowers ' ability to repay their loans , resulting in increased delinquencies , non-performing assets , loan losses , and future loan loss provisions . although the commercial loan portfolio is subject to the same risk of declines in economic conditions , the primary risk characteristics inherent in this portfolio include the ability of the borrower to sustain sufficient cash flows from leases and business operations , the ability to control operational or business expenses to satisfy their contractual debt payments , and the ability to utilize personal or business resources to pay their contractual debt payments if the cash flows are not sufficient . additionally , if the bank were to repossess the secured collateral of a commercial real estate loan , the pool of potential buyers is more limited than that for a residential property . therefore , the bank could hold the property for an extended period of time , or potentially be forced to sell at a discounted price , resulting in additional losses . our commercial and industrial loans are primarily secured by accounts receivable , inventory and equipment , which may be difficult to appraise , may be illiquid and may fluctuate in value based on the success of the business . each quarter , we prepare a formula analysis model which segregates our loan portfolio into categories based on certain risk characteristics such as loan type ( one- to four-family , commercial , etc . ) , interest payments ( fixed-rate and adjustable-rate ) , loan source ( originated , correspondent purchased , or bulk purchased ) , ltv ratios , borrower 's credit score and payment status ( i.e . current or number of days delinquent ) . consumer loans , such as second mortgages and home equity lines of credit , with the same underlying collateral as a one- to four-family loan are combined with the one- to four-family loan in the formula analysis model to calculate a combined ltv ratio . historical loss factors are applied to each loan category in the formula analysis model . additionally , qualitative factors that management believes impact the collectability of the loan portfolio as of the evaluation date are applied to each loan category . qualitative loss factors increase as loans are classified or become delinquent . see `` part ii , item 8. financial statements and supplementary data – notes to consolidated financial statements – note 1. summary of significant accounting policies '' for additional information related to the historical and qualitative loss factors utilized in the formula analysis model .
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executive summary the following summary should be read in conjunction with the management 's discussion and analysis of financial condition and results of operations section in its entirety . the company provides a full range of banking services through the bank , which is a wholly-owned subsidiary of the company headquartered in topeka , kansas . the bank has 45 traditional and nine in-store banking offices serving primarily the metropolitan areas of topeka , wichita , lawrence , manhattan , emporia and salina , kansas and portions of the kansas city metropolitan area . we have been , and intend to continue to be , a community-oriented financial institution offering a variety of financial services to meet the needs of the communities we serve . the company 's results of operations are primarily dependent on net interest income , which is the difference between the interest earned on loans , securities , and cash , and the interest paid on deposits and borrowings . company 's actions and impact on operations as a result of the covid-19 pandemic management 's actions related to the covid-19 pandemic and the impact of the pandemic on certain aspects of the company 's business during fiscal year 2020 are summarized below . bank operations - in mid-march 2020 , preventative health measures were put in place including elimination of business-related travel , implementing mandatory work from home for all employees able to do so , social distancing precautions for all employees in bank offices , and preventative cleaning at offices and branches . lobby services were limited to appointment only while drive-through , mobile , and online banking became the bank 's primary channels of serving customers . retail loan closings were conducted with customers coming to our drive-through facilities and commercial loans were closed in person only when necessary . all employees continued to be paid their regular salary and receive full benefits .
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is a commercial-stage medical device company leveraging our advanced excimer laser-based platform for use in the treatment of vascular and dermatological immune-mediated inflammatory diseases . we believe our products enhance patients ' quality of life by restoring blood-flow in arteries and clearing chronic skin conditions . the dabra laser and single-use catheter , together referred to as dabra , is used as a tool in the treatment of peripheral artery disease , or pad , which commonly occurs in the legs . dabra is cleared by the u.s. food and drug administration , or fda , as a device for crossing chronic total occlusions , or ctos , in patients with symptomatic infrainguinal lower extremity vascular disease and with an intended use for ablating a channel in occlusive peripheral vascular disease . dabra was also granted ce mark approval in europe in september 2016 for the endovascular treatment of infrainguinal arteries via atherectomy and for crossing total occlusions . our vascular business strategy is focused on multiple engineering efforts to improve our catheter offering as well as conducting a clinical study to obtain an atherectomy “ indication for use ” in the united states . key catheter engineering efforts currently underway include projects to : extend our catheter 's shelf life . during 2020 , we identified the factors limiting our shelf life , including the introduction of unwanted elements in the catheter 's fluid core and the degradation of the coating on the inner diameter , and are currently implementing multiple remediations to address these issues . our initial internal accelerated aging test data supports shelf life for our catheter of at least six months ; increase the robustness of our catheter via a braided overjacket , or a similar design , to make the catheter more kink-resistant when navigating tortuous anatomy . we expect to complete the engineering work for this catheter in the second half of 2021 and subsequently submit to the fda for clearance ; and develop a version of the dabra catheter that is compatible with a standard guidewire . we completed several guidewire-compatible catheter prototypes in the fourth quarter of 2020 and then conducted in vitro evaluations with several physicians . we expect to finalize the design for this catheter at the end of 2021 and subsequently submit to the fda for clearance . as stated , we are currently pursuing an atherectomy indication for use , which the fda defines to include a prespecified improvement in luminal patency . to satisfy the fda 's data requirements to support an atherectomy indication , we are performing a pivotal study designed to allow the fda to evaluate the use of dabra in atherectomy procedures . we received an investigational device exemption , or ide , approval in january 2020 and the study is approved for up to 10 clinical sites and 100 subjects . we enrolled the first subject in february 2020. throughout much of 2020 , the covid-19 pandemic substantially impacted our ability to activate new sites and enroll additional subjects . many sites or potential sites have been or are currently operating at a reduced capacity , and some have been closed from time to time . in addition , potential study subjects may voluntarily opt to postpone their procedures due to covid-19 concerns . as of december 31 , 2020 , we have enrolled 20 subjects and five sites have been cleared to enroll subjects . due to the unpredictable impact the covid-19 pandemic has had and will continue to have on enrollment in this study , we currently can not estimate when enrollment will be completed . we are continuing to supply catheters to those sites involved in our atherectomy clinical study . we have paused shipments of catheters to commercial sites while we conduct further studies on the stability of our shelf life . 88 we submitted a dditional test data in march 2021 , which will need to be cleared by the fda prior to resuming commercial shipments of catheters . we do not anticipate rebuilding our vascular sales team until most of our engineering projects are complete and we have a more definitive timeline for obtaining an atherectomy indication . our pharos laser is a medical device that we have marketed since october 2004 as a tool for the treatment of proliferative skin conditions including psoriasis , vitiligo , atopic dermatitis , and leukoderma . the covid-19 pandemic is negatively impacting the dermatology business as many customers delay the acquisition or purchase of capital equipment such as our pharos laser . because this business does not have a disposables component and we augment our capital equipment sales with recurring revenue derived from service and or rental or lease agreements , we are experiencing less of an impact than business models that rely solely on capital equipment and or disposables sales . we continue to evaluate our overall strategy for the dermatology business and believe there could be an opportunity to grow revenues and increase its cash contribution in the future . changes to our dermatology business strategy , as well as the timing of those potential changes , will be influenced by the continued impact of the covid-19 pandemic . recent developments covid-19 the global spread of the novel coronavirus ( covid-19 ) has created significant volatility , uncertainty and economic disruption . the ultimate effects of the covid-19 on our business , operations and financial condition are unknown at this time . in the near term , we expect that our revenue will continue to be adversely impacted and enrollment in our atherectomy clinical trial will continue to be delayed or slowed , as patients elect to postpone voluntary treatments and physicians ' offices are either closed or operating at a reduced capacity . in addition , some customers are requesting more flexible payment terms on a temporary basis . we also may not be able to secure additional financing in a timely manner or on favorable terms , if at all . our manufacturing facility located in carlsbad , california is currently operational . story_separator_special_tag however , non-gaap financial information is presented for supplemental informational purposes only , has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with u.s. gaap . some of these limitations are that : ebitda excludes certain recurring , non-cash charges such as depreciation and amortization of long-lived assets , although these are non-cash charges , the assets being depreciated and amortized may have to be replaced in the future ; and 93 adjusted ebitda further excludes stock-based compensation expense , which has been , and will continue to be for the foreseeable future , a significant recurring expense in our business and an important part of our compensation strategy . in addition , other companies , including companies in our industry , may calculate similarly-titled non-gaap measures differently or may use other measures to evaluate their performance , all of which could reduce the usefulness of our non-gaap financial measures as tools for comparison . a reconciliation for each non-gaap financial measure to the most directly comparable financial measure stated in accordance with u.s. gaap is included below . investors are encouraged to review the related gaap financial measures and the reconciliation of these non-gaap financial measures to their most directly comparable gaap financial measures , and not to rely on any single financial measure to evaluate our business . we define adjusted ebitda as our gaap net loss as adjusted to exclude depreciation and amortization , interest income , interest expense , income tax expense and stock-based compensation . the following is a reconciliation of net loss to adjusted ebitda : replace_table_token_5_th adjusted ebitda was negative $ 29.6 million compared to negative $ 32.4 million for the years ended december 31 , 2020 and 2019 , respectively . the change in adjusted ebitda reflects decreased selling , general and administrative expenses , including salary , benefits and travel , due to reduced personnel , offset by increased research and development expenses and increased costs and loss estimates related to the ongoing litigation . liquidity and capital resources as of december 31 , 2020 , we had cash and cash equivalents of $ 23.9 million and an accumulated deficit of $ 153.2 million . our primary sources of capital have been from the sale of our products and services , the net proceeds of $ 67.3 million from our initial public offering , the net proceeds of $ 19.1 million from our 2020 public offerings and , to a lesser extent , private placements of common stock and equipment financing arrangements . in may 2020 , we entered into a $ 2.0 million paycheck protection program promissory note and agreement ( “ ppp promissory note ” ) with a commercial bank under the coronavirus aid relief , and economic security act . the ppp promissory note bears interest at 1.0 % per annum . under the terms of the ppp promissory note , payments would be due monthly beginning november 1 , 2020 and the principal amount of the ppp promissory note along with any unpaid interest would be due on may 3 , 2022. on june 5 , 2020 , the paycheck protection program flexibility act of 2020 ( the “ pppfa ” ) extended the deferral period for all loans to 10 months after the last day of the covered period . under the revised terms , payments are due beginning august 2021 and the principal amount along with unpaid interest is due in july 2023. we have requested from our lender an extension of the loan maturity from two years to five years as permitted under the pppfa . the principal and interest may be forgiven if the proceeds are used for forgivable purposes as defined by the terms in the ppp promissory note , and we believe we have used the proceeds from the ppp promissory note for forgivable purposes as defined by the terms of the ppp promissory note . it is our intent to apply for forgiveness under the provisions of the cares act . forgiveness is subject to the sole approval of the small business administration . 94 management expects operating losses and negative cash flows to continue for the foreseeable future with our reduced commercial footprint , and as we continue to incur costs related to our atherectomy clinical trial , engineering efforts to improve the shelf-life of our catheters , and develop next generation products and legal costs associated with ongoing litigation . we also expect the covid-19 pandemic to have a continued negative impact on its revenue and the timing of enrollment in its atherectomy clinical trial as well as the company 's ability to secure additional financing in a timely manner or on favorable terms , if at all . in the third quarter of 2019 , we began implementing certain operational efficiency and cost savings initiatives intended to align our resources with our product strategy , reduce our operating expenses , and manage our cash flows . these cost efficiency initiatives included targeted workforce reductions of our sales and marketing teams . we reduced the size of our dabra sales force from 34 employees as of june 30 , 2019 to five clinical specialists as of december 31 , 2020 . in addition , we may need to decrease or defer capital expenditures and development activities to further optimize our operations . such measures may impair our ability to invest in developing , marketing and selling new and existing products . we are incurring additional costs as a result of operating as a public company , including increases in legal , accounting , insurance and other expenses . additionally , we expect legal and related expenses to remain high in the near term in connection with the legal proceedings discussed in note 15 , `` commitments and contingencies , '' in the notes to the financial statements .
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results of operations comparison of the years ended december 31 , 2020 and 2019 the following table shows our results of operations ( in thousands ) : replace_table_token_1_th comparison of years ended december 31 , 2020 , and 2019—by reportable segments we organize our business into two operating segments based on the product specialties : the vascular segment and the dermatology segment . in deciding how to allocate resources and assess performance , we regularly evaluate the net revenue and gross profit ( loss ) of these segments . amounts included within selling , general and administrative expense and research and development expense are general to us and not specific to a particular segment ; therefore , these amounts are not evaluated by us on a segmented basis . additional information on our reportable segments is contained in note 16 to the financial statements appearing elsewhere in this annual report on form 10-k. net revenue the following table shows our net revenue from our two segments ( in thousands ) : replace_table_token_2_th 91 vascular net revenue was $ 0.3 million and $ 1.3 million for the years ended december 31 , 2020 and 2019 , respectively . the decrease of approximately $ 1.0 million was due to decreased catheter unit sales . we do not expect our net revenue to increase in the near term as we sell catheters only to support our atherectomy clinical study while we focus on remedying the inconsistencies in our dabra catheter performance and obtaining an atherectomy indication . in addition , we expect net revenue to continue to be negatively impacted by the covid-19 pandemic , as patients elect to postpone voluntary treatments and physicians ' offices are either closed or operating at a reduced capacity . over the longer term , if we are able to extend the shelf life , introduce design changes to the catheter and obtain an atherectomy indication , we believe we will be able to increase our vascular revenue .
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overview we are a diversified international transportation services company that operates automotive and commercial truck dealerships principally in the united states , canada , and western europe and distributes commercial vehicles , power systems , and related parts and services principally in australia and new zealand . we employ over 23,000 people worldwide . covid-19 disclosure overview - the outbreak of the covid-19 pandemic across the globe adversely impacted each of our markets and the global economy beginning in the first quarter of 2020 , leading to disruptions to our business . governmental authorities have taken countermeasures to slow the outbreak , including shelter-in-place orders , restrictions on travel , and government-funded assistance programs to individuals and businesses . the shelter-in-place orders and resulting business closures severely and negatively impacted our results , in particular in the second quarter of 2020. while the pandemic continues in all of our markets , as these orders lapsed and businesses reopened , we experienced improved business conditions and improved financial results in the third and fourth quarters , primarily driven by our cost cutting measures and increased gross profit on vehicles sold . during 2020 , our new and used gross profit per unit increased 17.1 % and 29.3 % , principally resulting from limited vehicle availability due to plant shutdowns related to the covid-19 pandemic , as new and used retail automotive gross profit per unit increased when compared to 2019. in addition , selling , general , and administrative expenses as a percentage of gross profit decreased by 3.6 percentage points in 2020 in part due to employee reductions , temporary compensation reductions , government assistance , and other expense reductions noted below . the situation caused by the covid-19 pandemic is highly fluid and rapidly evolving , and while we continue to adjust our operations to conform to regulatory changes and consumer preferences in the evolving environment , we can not anticipate with any certainty the length , scope , or severity of the business impact from the covid-19 pandemic in each of the jurisdictions that we operate . see “ part i , item 1a . risk factors. ” in response to shelter-in-place orders resulting from the covid-19 pandemic , many of our automotive and commercial vehicle showrooms experienced temporary closures during 2020. nearly all of our service , parts , and collision center departments remained open during the crisis , and curbside or home delivery offerings supplemented our traditional service offerings . we modified certain business practices to conform to government restrictions and best practices encouraged by governmental and regulatory authorities . we continue to offer sales activity by appointment and through our e-commerce channels . in all of our locations , we implemented enhanced cleaning procedures , enforced social distancing guidelines , and took other precautions to maintain the health and safety of our employees and customers . we continue to experience interim business closures at some of our facilities in response to a customer or employee reporting a positive test result for covid-19 . when we become aware of such result , we notify appropriate personnel and deep clean our facility , which may include closure of that facility . we also are experiencing increased costs for providing the appropriate level of safety equipment for our facilities , employees , and customers , as well as increased costs for daily and enhanced deep cleaning when appropriate . beginning in the first quarter of 2020 , we implemented a hiring freeze and expense reductions across the company , including the postponement and elimination of an estimated $ 150 million in capital expenditures . we furloughed 35 approximately 15,000 employees in april and may in various countries , though we returned most of those employees to work during the course of the year . we also reduced our workforce by approximately 3,300 employees or 12.4 % compared to december 31 , 2019. during 2020 , many of our employees who were not furloughed worked reduced hours and experienced pay cuts , including a six-month 100 % reduction in salary for our ceo and president and 25 % temporary reductions in salary for our other named executive officers . in addition , our board of directors waived six months of board service fees in 2020. the compensation levels for our executive officers and board of directors have since returned to their pre-covid-19 levels . most of our manufacturer partners began suspending production beginning in late march 2020 , and production disruptions continued into the second quarter of 2020. these disruptions resulted in lower inventory levels , in particular for new vehicles and limited inventory of certain models . our manufacturer partners began providing us with additional incentive support in march 2020 , and our manufacturer and lending partners have provided support to retail customers , such as increased incentives , payment deferrals , as well as 0 % financing on certain vehicles and term lengths . while production has improved , the level of new vehicle inventory remains well below historical levels , which has contributed to increased gross profit on vehicles sold . united states – beginning in march 2020 , shelter-in-place rules in many states either required we close dealerships or limit our automotive dealership operations to essential services . virtual/online sales of new and used vehicles remained available in all locations , while the service departments remained open to support critical transportation needs . in may 2020 , many shelter-in-place rules began to expire , and restrictions were slowly lifted in many states allowing us to reopen dealerships all of which remain open , subject in certain locations to personnel capacity limits . for the year ended december 31 , 2020 , new and used retail automotive gross profit per unit increased 19.5 % and 16.8 % , primarily due to inventory shortages and additional manufacturer incentives , while our automotive dealerships experienced a 14.4 % decrease in unit volume and a 12.5 % decrease in service and parts revenues compared to the prior year on a same-store basis . story_separator_special_tag refer to part ii , item 8 , note 10 of the notes to our consolidated financial statements for further discussion of our long-term debt . risks and uncertainties – the full impact that the covid-19 pandemic will have on our business can not be predicted at this time due to numerous uncertainties , including the duration of the outbreak , travel restrictions , business closures , the effectiveness of actions taken to contain the disease , the distribution rate and acceptance rate of a vaccine , the effect of government assistance programs , production levels from our manufacturing partners , and other unintended consequences . this impact could include changes in customer demand , our relationship with , and the financial and operational capacities of , vehicle manufacturers , captive finance companies and other suppliers , workforce availability , risks associated with our indebtedness ( including available borrowing capacity , compliance with financial covenants and ability to refinance or repay indebtedness on favorable terms ) , the adequacy of our cash flow and earnings and other conditions which may affect our liquidity , our ability to pay our quarterly dividend at prior levels , and disruptions to our technology network and other critical systems , including our dealer management systems and software or other facilities or equipment . we believe that business disruption relating to the covid-19 pandemic will continue to negatively impact the global economy and may materially affect our businesses as outlined above , or in other manners , all of which would adversely impact our business and results of operations . business overview in 2020 , our business generated $ 20.4 billion in total revenue , which is comprised of approximately $ 17.9 billion from retail automotive dealerships , $ 2.1 billion from retail commercial truck dealerships , and $ 454.2 million from commercial vehicle distribution and other operations . we generated $ 3.2 billion in gross profit , which is comprised of $ 2.8 billion from retail automotive dealerships , $ 280.9 million from retail commercial truck dealerships , and $ 122.3 million from commercial vehicle distribution and other operations . 37 retail automotive dealership . we believe we are the second largest automotive retailer headquartered in the u.s. as measured by the $ 17.9 billion in total retail automotive dealership revenue we generated in 2020. as of december 31 , 2020 , we operated 304 retail automotive franchises , of which 142 franchises are located in the u.s. and 162 franchises are located outside of the u.s. the franchises outside the u.s. are located primarily in the u.k. in 2020 , we retailed and wholesaled more than 505,000 vehicles . we are diversified geographically with 57 % of our total retail automotive dealership revenues in 2020 generated in the u.s. and puerto rico and 43 % generated outside the u.s. we offer over 35 vehicle brands with 71 % of our retail automotive dealership revenue in 2020 generated from premium brands , such as audi , bmw , land rover , mercedes-benz , and porsche . each of our franchised dealerships offers a wide selection of new and used vehicles for sale . in addition to selling new and used vehicles , we generate higher-margin revenue at each of our dealerships through maintenance and repair services , the sale and placement of third-party finance and insurance products , third-party extended service and maintenance contracts , and replacement and aftermarket automotive products . in 2020 , we also acquired the remaining 8.2 % interest in one of our former retail automotive joint ventures in aachen , germany . we also operate seventeen used vehicle supercenters in the u.s. and the u.k. , which retail and wholesale used vehicles under a one price , “ no-haggle ” methodology . our operations in the u.s. consist of six retail locations operating in the philadelphia and pittsburgh , pennsylvania market areas . our operations in the u.k. consist of eleven retail locations and a vehicle preparation center . during 2020 , we opened one used vehicle supercenter in nottingham , united kingdom . for the year ended december 31 , 2020 , these used vehicle supercenters retailed 53,207 units and generated $ 1.0 billion in revenue . retail automotive dealerships represented 87.7 % of our total revenues and 87.3 % of our total gross profit in 2020 . retail commercial truck dealership . we operate a heavy and medium duty truck dealership group known as premier truck group ( “ ptg ” ) offering primarily freightliner and western star trucks ( both daimler brands ) with locations in texas , oklahoma , tennessee , georgia , utah , idaho , and canada . as of december 31 , 2020 , ptg operated twenty-five locations . ptg also offers a full range of used trucks available for sale as well as service and parts departments , providing a full range of maintenance and repair services . this business represented 10.1 % of our total revenues and 8.8 % of our total gross profit in 2020 . penske australia . we are the exclusive importer and distributor of western star heavy-duty trucks , man heavy and medium duty trucks and buses ( a vw group brand ) , and dennis eagle refuse collection vehicles , together with associated parts , across australia , new zealand , and portions of the pacific . in most of these same markets , we are also a leading distributor of diesel and gas engines and power systems , principally representing mtu , detroit diesel , allison transmission , mtu onsite energy , rolls royce power systems , and bergen engines . this business , known as penske australia , offers products across the on- and off-highway markets , including in the construction , mining , marine , defense , and power generation sectors and supports full parts and aftersales service through a network of branches , field locations , and dealers across the region .
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results of operations the following tables present comparative financial data relating to our operating performance in the aggregate and on a “ same-store ” basis . dealership results are included in same-store comparisons when we have consolidated the acquired entity during the entirety of both periods being compared . as an example , if a dealership were acquired on january 15 , 2018 , the results of the acquired entity would be included in annual same-store comparisons beginning with the year ended december 31 , 2020 , and in quarterly same-store comparisons beginning with the quarter ended june 30 , 2019 . the results for 2020 have been impacted by the covid-19 pandemic , and each of the items mentioned below should be reviewed in light of our discussion under “ covid-19 disclosure ” and “ item 1a . risk factors ” which are incorporated herein . the results for 2020 include a net income tax benefit of $ 11.4 million , or $ 0.14 per share , related to the cares act and various other u.s. and foreign tax legislation changes . the results for 2020 also include a net benefit of $ 3.3 million , or $ 0.04 per share , related to a gain on the sale of retail automotive dealerships , partially offset by a loss on debt extinguishment of $ 6.4 million , or $ 0.08 per share . for the discussion and analysis comparing the results of operations for 2018 to 2019 , we refer you to part ii , item 7 , management 's discussion and analysis of financial condition and results in the 2019 form 10-k filed on february 21 , 2020 .
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this annual report on form 10-k contains “ forward-looking statements ” within the meaning of section 21e of the securities exchange act of 1934 , as amended , or the exchange act . these statements are often identified by the use of words such as “ may , ” “ will , ” “ expect , ” “ believe , ” “ anticipate , ” “ intend , ” “ could , ” “ should , ” “ estimate , ” “ plan , ” or “ continue , ” and similar expressions or variations . such forward-looking statements are subject to risks , uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those discussed in the section titled “ risk factors , ” set forth in part i , item 1a of this annual report on form 10-k and elsewhere in this report . the forward-looking statements in this annual report on form 10-k represent our views as of the date of this annual report on form 10-k. we anticipate that subsequent events and developments will cause our views to change . however , while we may elect to update these forward-looking statements at some point in the future , we have no current intention of doing so except to the extent required by applicable law . you should , therefore , not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this annual report on form 10-k. business overview we are focused on the development and commercialization of novel therapeutics for the treatment of rare diseases . our lead candidate , diazoxide choline controlled release tablits , or dccr , a once-daily oral tablet for the treatment of prader-willi syndrome , or pwc , is currently being evaluated in a phase iii clinical development program . we initially established our operations as a diversified healthcare company that developed and commercialized innovative diagnostics , devices and therapeutics addressing unmet medical needs , which consisted of : precision metering of gas flow technology marketed as serenz ® allergy relief , or serenz ; cosense ® end-tidal carbon monoxide ( etco ) monitor , or cosense , which measures etco and aids in the detection of excessive hemolysis , a condition in which red blood cells degrade rapidly and which can lead to adverse neurological outcomes ; and , products that included temperature probes , scales , surgical tables , and patient surfaces . on march 7 , 2017 , we completed a merger , or the merger , with essentialis . essentialis 's efforts prior to the merger were focused primarily on developing and testing product candidates that target the atp-sensitive potassium channel , a metabolically-regulated membrane protein whose modulation has the potential to impact a wide range of rare metabolic , cardiovascular , and cns diseases . essentialis had tested dccr as a treatment for pws , a complex metabolic/neurobehavioral disorder . dccr has orphan designation for the treatment of pws in the united states , or u.s. , as well as in the european union , or e.u . subsequent to the merger with essentialis described above , we determined to divest , sell or otherwise dispose of its business efforts focused on the development and commercialization of its serenz and cosense technologies . accordingly , and pursuant to asc 205-20-45-10 , the assets and liabilities related to the discontinued activities of cosense and serenz were presented separately in the balance sheet as held for sale items , and the related operations reported herein for the cosense and serenz activities are reported as discontinued operations in the statements of operations . 55 on december 4 , 2017 , we and our then wholly-owned subsidiary capnia , entered into a joint venture with optasia healthcare limite d , or oahl , with the purpose of developing and commercializing cosense with the intent to transfer ownership of capnia to oahl . during october 2018 , capnia issued 1,690,322 shares of its common stock to oahl , representing 53 % of its outstanding shares , aft er which we no longer held a controlling interest in capnia . accordingly , we deconsolidated capnia 's financial statements from ours and our remaining minority interest in capnia was reported as a minority interest investment in our consolidated balance she et . during september 2019 , the company sold its remaining 47 % investment in capnia to sinon investments llc , or sinon . following the transaction , the company has no interest remaining in capnia and the previous joint venture agreement with oahl has been terminated . on july 30 , 2018 , the fda has granted fast track designation to dccr for the treatment of pws . we are currently conducting a phase iii clinical trial of dccr for the treatment of pws . as of december 31 , 2019 , we had an accumulated deficit of $ 157.8 million , primarily as a result of research and development and general and administrative expenses . we may never be successful in commercializing our novel therapeutic-lead candidate dccr . accordingly , we expect to incur significant losses from operations for the foreseeable future , and there can be no assurance that we will ever generate significant revenue or profits . recent financings 2017 pipe offering on december 11 , 2017 , we enter ed into a securities purchase agreement with certain purchasers , pursuant to which we sold and issued 8,141,116 immediately separable units at a price per unit of $ 1.84 , for aggregate gross proceeds of $ 15.0 million . story_separator_special_tag we base our estimates on historical experience and on various other assumptions that we belie ve to be reasonable in the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under di fferent assumptions and conditions . our significant accounting policies are more fully described in note 3 to our audited financial statements contained herein . series a , series c , 2017 pipe warrants , and the 2018 pipe warrants we account for the series a , series c , 2017 pipe warrants , and 2018 pipe warrants , collectively referred to as the warrants , in accordance with the guidance in asc 815 derivatives and hedging . the warrants contain standard anti-dilution provisions for stock dividends , stock splits , subdivisions , combinations and similar types of recapitalization events . the warrants also contain a fundamental transactions provision that permits their settlement in cash at fair value at the option of the holder upon the occurrence of a change in control . such change in control events include tender offers or hostile takeovers , which are not within our sole control as the issuer of these warrants . accordingly , the warrants are considered to have a cash settlement feature that precludes their classification as equity instruments . settlement at fair value upon the occurrence of a fundamental transaction would be computed using the black scholes option pricing model , which approximates the binomial lattice model . we classified the warrants as liabilities at their fair value and re-measure the warrants at each balance sheet date until they are exercised or expire . any change in the fair value is recognized as other income ( expense ) in the statements of operations . the series a warrants expired in november 2019. research and development expense research and development costs are charged to operations as incurred . research and development costs consist primarily of salaries and benefits , consultant fees , prototype expenses , certain facility costs and other costs associated with clinical trials , net of reimbursed amounts . costs to acquire technologies to be used in research and development that have not reached technological feasibility and have no alternative future use are expensed to research and development costs when incurred . certain research and development expenses are reported as discontinued operations . stock-based compensation expense stock-based compensation costs related to stock options and restricted stock units granted to employees , nonemployees and directors are measured at the date of grant based on the estimated fair value of the award . for restricted stock units this fair value is based on our common stock price on the grant date . we estimate the grant date fair value of stock options , and the resulting stock-based compensation expense , using the black-scholes option-pricing model . the grant date fair value of stock-based awards is recognized on a straight-line basis over the requisite service period , which is generally the vesting period of the award . stock options generally vest over four years . the black-scholes option-pricing model requires the use of highly subjective assumptions to estimate the fair value of stock-based awards . if we had made different assumptions , our stock-based compensation expense , net loss and net loss per share of common stock could have been significantly different . these assumptions include : expected volatility : we calculate the estimated volatility rate based on the volatility of our common stock together with comparable companies in our industry . expected term : we do not believe we are able to rely on our historical exercise and post-vesting termination activity to provide accurate data for estimating the expected term for use in estimating the fair value-based measurement of our options . therefore , we have opted to use the “ simplified method ” for estimating the expected term of options . 58 risk-free rate : the risk-free interest rate is based on the yields of u.s. treasury securities with maturities s imilar to the expected time to liquidity . expected dividend yield : we have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future . consequently , we used an expected dividend yield of zero . contingent consideration contingent consideration elements of a business combination are recorded in accordance with asc 805 which provides that , when contingent consideration terms provide for future payment obligations , the obligation is measured at its fair value on the acquisition date , and the subsequent increase or decrease of the value of the estimated amounts of contingent consideration to be paid is be recognized as expense or income , respectively , in the statements of operations . our agreement to pay the selling shareholders of essentialis for achieving certain commercial milestones resulted in the recognition of a contingent consideration , which was recorded at the inception of the transaction , and subsequent changes to estimate of the amounts of contingent consideration to be paid will be recognized as expenses or income in the statements of operations . the fair value of the contingent consideration is based on our analysis of the likelihood of the drug indication moving from phase ii through approval in the federal drug administration approval process and then reaching the cumulative revenue milestones . common stock purchase warrants and other derivative financial instruments we account for the warrants in accordance with the guidance in asc 815 derivatives and hedging . we classify common stock purchase warrants and other free standing derivative financial instruments as equity if the contracts ( i ) require physical settlement or net-share settlement or ( ii ) give us a choice of net-cash settlement or settlement in its own shares ( physical settlement or net-share settlement ) .
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results of continuing operations comparison of the years ended december 31 , 2019 and 2018 from continuing operations replace_table_token_0_th revenue we have not commenced commercialization of dccr , our current sole novel therapeutic product , and accordingly , through december 31 , 2019 , have generated no revenue in continuing operations . research and development expense research and development expense of $ 16.3 million for the year ended december 31 , 2019 increased by $ 9.1 million over 2018 resulting primarily from the initiation of the phase iii clinical trial in may 2018. as of december 31 , 2019 , we have 29 clinical trial sites initiated compared to 13 as of december 31 , 2018. as a result , we have 60 incurred increased clinical site costs , con sulting costs , lab costs , and manufacturing costs for dccr production . the company announced the completion of target enrollment in destiny pws , the ongoing phase iii trial of dccr in prader willi syndrome in january 2020. general and administrative expense general and administrative expense of $ 6.9 million during 2019 increased by approximately $ 374,000 from 2018. the slight increase was due to a general increase in the level of operations during the year and primarily consisted of an increase in personnel related costs . change in fair value of contingent consideration we are obligated to make cash payments of up to a maximum of $ 30 million to essentialis stockholders upon the achievement of certain future commercial milestones associated with the sale of essentialis ' product in accordance with the terms of the essentialis merger agreement .
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% limited partner interest in midstream holdings as of december 31 , 2014 and 25 % limited partner interest in midstream holdings as of february 17 , 2015. each of the partnership and midstream holdings is required by its partnership agreement to distribute all its cash on hand at the end of each quarter , less reserves established by its general partner in its sole discretion to provide for the proper conduct of the partnership 's or midstream holdings ' business , as applicable , or to provide for future distributions . the incentive distribution rights in the partnership entitle us to receive an increasing percentage of cash distributed by the partnership as certain target distribution levels are reached . specifically , they entitle us to receive 13.0 % of all cash distributed in a quarter after each unit has received $ 0.25 for that quarter , 23.0 % of all cash distributed after each unit has received $ 0.3125 for that quarter and 48.0 % of all cash distributed after each unit has received $ 0.375 for that quarter . since we control the general partner interest in the partnership , we reflect our ownership interest in the partnership on a consolidated basis , which means that our financial results are combined with the partnership 's financial results and the results of our other subsidiaries . since the partnership controls midstream holdings through the ownership of its general partner , the financial results of the partnership consolidate all of midstream holdings ' financial results . our consolidated results of operations are derived from the results of operations of the partnership and also include our deferred taxes , interest of non-controlling partners in the partnership 's net income , interest income ( expense ) and general and administrative expenses not reflected in the partnership 's results of operations . accordingly , the discussion of our financial position and results of operations in this “ management 's discussion and analysis of financial condition and results of operations ” primarily reflects the operating activities and results of operations of the partnership and midstream holdings . the partnership primarily focuses on providing midstream energy services , including gathering , transmission , processing , fractionation , condensate stabilization , brine services and marketing to producers of natural gas , ngls , crude oil and condensate . the partnership 's midstream energy asset network includes approximately 8,800 miles of pipelines , thirteen natural gas processing plants , seven fractionators , 3.1 million barrels of ngl cavern storage , 11.0 bcf of natural gas storage , rail terminals , barge terminals , truck terminals and a fleet of approximately 100 trucks . the partnership manages and reports its activities primarily according to geography . the partnership has five reportable segments : ( 1 ) texas , which includes its 55 activities in north texas and the permian basin in west texas ; ( 2 ) oklahoma , which includes its activities in cana-woodford and arkoma-woodford shale areas ; ( 3 ) louisiana , which includes its pipelines , processing plants and ngl assets located in louisiana ; ( 4 ) orv , which includes its activities in the utica and marcellus shales and its equity interests in e2 energy services , llc , e2 appalachian compression , llc and e2 ohio compression ( collectively , “ e2 ” ) ; and ( 5 ) corporate segment , or corporate , which includes its equity investments in howard energy partners , or hep , in the eagle ford shale , its contractual right to the burdens and benefits associated with devon 's ownership interest in gcf in south texas and its general partnership property and expenses . the partnership manages its operations by focusing on gross operating margin because the partnership 's business is generally to purchase and resell natural gas , ngls , condensate and crude oil for a margin or to gather , process , transport or market natural gas , ngls , condensate and crude oil for a fee . in addition , the partnership earns a volume based fee for brine disposal services and condensate stabilization . the partnership defines gross operating margin as operating revenue minus cost of purchased gas , ngls , condensate and crude oil . gross operating margin is a non-generally accepted accounting principle , or non-gaap , financial measure and is explained in greater detail under “ non-gaap financial measures ” under “ item 6. selected financial data. ” the partnership 's gross operating margins are determined primarily by the volumes of natural gas gathered , transported , purchased and sold through its pipeline systems , processed at its processing facilities , the volumes of ngls handled at its fractionation facilities , the volumes of crude oil and condensate handled at its crude terminals , the volumes of crude oil and condensate gathered , transported , purchased and sold , the volume of brine disposed and the volumes of condensate stabilized . the partnership generates revenues from eight primary sources : purchasing and reselling or transporting natural gas and ngls on the pipeline systems it owns ; processing natural gas at its processing plants ; fractionating and marketing the recovered ngls ; providing compression services ; purchasing and reselling crude oil and condensate ; providing crude oil and condensate transportation and terminal services ; providing condensate stabilization services ; and providing brine disposal services . story_separator_special_tag ” operating expenses are costs directly associated with the operations of a particular asset . among the most significant of these costs are those associated with direct labor and supervision , property insurance , property taxes , repair and maintenance expenses , contract services and utilities . these costs are normally fairly stable across broad volume ranges and therefore do not normally decrease or increase significantly in the short term with decreases or increases in the volume of gas , liquids or crude oil moved through or by the asset . our general and administrative expenses are dictated by the terms of our partnership agreement . these expenses include the costs of employee , officer and director compensation and benefits properly allocable to us , fees , services and other transaction costs related to acquisitions , and all other expenses necessary or appropriate to the conduct of business and allocable to us . our partnership agreement provides that our general partner determines the expenses that are allocable to us in any reasonable manner determined by our general partner in its sole discretion . devon energy transaction on march 7 , 2014 , enlc consummated the transactions contemplated by the agreement and plan of merger , dated as of october 21 , 2013 ( the “ merger agreement ” ) , among enlink midstream , inc. , or emi , devon , acacia natural gas corp i , inc. , formerly a wholly-owned subsidiary of devon ( “ new acacia ” ) , and certain other wholly-owned subsidiaries of devon pursuant to which emi and new acacia each became wholly-owned subsidiaries of enlc ( collectively , the “ mergers ” ) . upon the closing of the mergers ( the “ closing ” ) , each issued and outstanding share of emi 's common stock was converted into the right to receive ( i ) one common unit and ( ii ) an amount in cash equal to approximately $ 2.06. in addition , enlc issued 115,495,669 class b units to a wholly-owned subsidiary of devon , which units represent approximately 70 % of the outstanding limited liability company interests in enlc , with the remaining 30 % held by the former stockholders of emi in exchange for a 50 % interest in midstream holdings . the class b units were substantially similar in all respects to the common units , except that they were only entitled to a pro rata distribution for the fiscal quarter ended march 31 , 2014. the class b units automatically converted into common units on a one-for-one basis on may 6 , 2014. also , on march 7 , 2014 , the partnership consummated the transactions contemplated by the contribution agreement , dated as of october 21 , 2013 ( the “ contribution agreement ” ) , among the partnership , enlink midstream operating , devon and certain of devon 's wholly-owned subsidiaries . recent growth developments organic growth 57 ohio river valley condensate pipeline and condensate stabilization facilities . in august 2014 , the partnership announced plans to construct a new 45-mile , eight-inch condensate pipeline and six natural gas compression and condensate stabilization facilities that will service major producer customers in the utica shale , including eclipse resources . as a component of the project , the partnership has entered into a long-term , fee-based agreement under which eclipse resources will receive compression and stabilization services and has agreed to sell stabilized condensate to the partnership . the new-build stabilized condensate pipeline will connect to the partnership 's existing 200-mile pipeline in the orv , providing producer customers in the region access to premium market outlets through our barge facility on the ohio river and rail terminal in ohio . the pipeline , which is expected to be complete in the second half of 2015 , is expected to have an initial capacity of approximately 50,000 bbls/d . the partnership also expects to build and operate six natural gas compression and condensate stabilization facilities in noble , belmont , and guernsey counties in ohio . upon completion , the facilities will have a combined capacity of approximately 560 mmcf/d of natural gas compression and approximately 41,500 bbls/d of condensate stabilization . the first two compression and condensate stabilization facilities began operations during the fourth quarter of 2014 and the remaining four facilities are expected to be operational by the end of 2015. in support of the project , the partnership plans to leverage and expand its existing midstream assets in the region , including increasing condensate storage capacity and handling capabilities at its barge terminal on the ohio river . the partnership will add approximately 130,000 barrels of above ground storage , bringing its total storage capacity at the barge facility to over 360,000 barrels . marathon petroleum joint venture . the partnership has entered into a series of agreements with mpl investment llc , a subsidiary of marathon petroleum corporation ( “ marathon petroleum ” ) , to create a 50/50 joint venture named ascension pipeline company , llc . this joint venture will build a new 30-mile ngl pipeline connecting the partnership 's existing riverside fractionation and terminal complex to marathon petroleum 's garyville refinery located on the mississippi river . the bolt-on project to the partnership 's cajun-sibon ngl system is supported by long-term , fee-based contracts with marathon petroleum . under the arrangement , the partnership will serve as the construction manager and operator of the pipeline project , which is expected to be operational in the first half of 2017. cajun-sibon phases i and ii .
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results of operations the table below sets forth certain financial and operating data for the periods indicated . we manage our operations by focusing on gross operating margin which we define as operating revenue less cost of purchased gas , ngls , condensate and crude oil as reflected in the table below . items affecting comparability of our financial results our historical financial results discussed below may not be comparable to our future financial results , and our financial results for the year ended december 31 , 2013 may not be comparable to our financial results for the year ended december 31 , 2014 for the following reasons : in connection with the business combination , midstream holdings entered into new agreements with devon that were effective on march 1 , 2014 pursuant to which midstream holdings provides services to devon under fixed-fee arrangements in which midstream holdings does not take title to the natural gas gathered or processed or the ngls it fractionates . prior to the effectiveness of these agreements , the predecessor provided services to devon under a percent-of-proceeds arrangement in which it took title to the natural gas it gathered and processed and the ngls it fractionated . 60 prior to march 7 , 2014 , our financial results only included the assets , liabilities and operations of our predecessor . beginning on march 7 , 2014 , our financial results also consolidate the assets , liabilities and operations of the legacy business of the partnership prior to giving effect to the business combination . subsequent to march 7 , 2014 , we own a 50 % direct ownership interest in midstream holdings and indirectly own an additional interest of approximately 3 % of midstream holdings through our ownership in the partnership which owns the remaining 50 % interest in midstream holdings rather than the 100 % ownership reflected as part of our predecessor 's historical financial results .
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for 2013 , no changes were made to the commission structure for mr. clarke . actual net sales for both the anna sui brand and secondary market product sales aggregated approximately $ 38.3 million story_separator_special_tag overview we operate in the fragrance business and manufacture , market and distribute a wide array of fragrances and fragrance related products . we manage our business in two segments , european based operations and united states based operations . certain prestige fragrance products are produced and marketed by our european operations through our 73 % owned subsidiary in paris , interparfums sa , which is also a publicly traded company as 27 % of interparfums sa shares trade on the nyse euronext . prestige cosmetics and prestige skin care products represent less than 1 % of consolidated net sales . we produce and distribute our european based prestige products primarily under license agreements with brand owners , and european based prestige product sales represented approximately 82 % , 87 % and 90 % of net sales for 2013 , 2012 and 2011 , respectively . we have built a portfolio of prestige brands , which include lanvin , montblanc , jimmy choo , van cleef & arpels , paul smith , boucheron , s.t . dupont , balmain , karl lagerfeld and repetto , whose products are distributed in over 100 countries around the world . burberry was our most significant license , and net sales of burberry products represented 23 % , 46 % and 50 % of net sales for the years ended december 31 , 2013 , 2012 and 2011 , respectively . ( see note 2 “ termination of burberry license ” in notes to consolidated financial statements on page f-13 of this form 10-k ) . in addition , we own the lanvin brand name for our class of trade , and license the montblanc and jimmy choo brand names ; for the year ended december 31 , 2013 , sales of product for these brands represented 15 % , 15 % and 13 % of net sales , respectively . through our united states operations we also market prestige brand as well as specialty retail fragrance and fragrance related products . united states operations represented 18 % , 13 % and 10 % of net sales in 2013 , 2012 and 2011 , respectively . these fragrance products are sold under trademarks owned by us or pursuant to license or other agreements with the owners of the anna sui , alfred dunhill , oscar de la renta , shanghai tang , agent provocateur , gap , banana republic , brooks brothers , bebe and betsey johnson brands . 38 historically , seasonality has not been a major factor for our company as quarterly sales fluctuations were more influenced by the timing of new product launches than by the third and fourth quarter holiday season . however , in certain markets where we now sell directly to retailers , seasonality is more evident . we have operated our european distribution subsidiaries in italy , germany , spain and the united kingdom since 2007 , and in january 2011 , we commenced operations of our u.s. distribution subsidiary . in addition , our specialty retail product lines sold to u.s. retailers is also concentrated in the second half of the year . we grow our business in two distinct ways . first , we grow by adding new brands to our portfolio , either through new licenses or other arrangements or out-right acquisitions of brands . second , we grow through the introduction of new products and supporting new and established products through advertising , merchandising and sampling as well as phasing out existing products that no longer meet the needs of our consumers . the economics of developing , producing , launching and supporting products influence our sales and operating performance each year . our introduction of new products may have some cannibalizing effect on sales of existing products , which we take into account in our business planning . our business is not capital intensive , and it is important to note that we do not own manufacturing facilities . we act as a general contractor and source our needed components from our suppliers . these components are received at one of our distribution centers and then , based upon production needs , the components are sent to one of several third party fillers , which manufacture the finished product for us and then deliver them to one of our distribution centers . as with any global business , many aspects of our operations are subject to influences outside our control . we believe we have a strong brand portfolio with global reach and potential . as part of our strategy , we plan to continue to make investments behind fast-growing markets and channels to grow market share . during 2013 , the economic uncertainty and financial market volatility taking place in certain european countries did not have a significant impact on our business , and at this time we do not believe it will have a significant impact on our business for the foreseeable future . this is due in part to our belief that we are well positioned as a result of our strategy to manage our business effectively and efficiently . however , if the degree of uncertainty or volatility worsens or is prolonged , then there will likely be a negative effect on ongoing consumer confidence , demand and spending and as a result , our business . currently , we believe general economic and other uncertainties still exist in select markets in which we do business and we continue to monitor global economic uncertainties and other risks that may affect our business . our reported net sales are impacted by changes in foreign currency exchange rates . a weak u.s. dollar has a positive impact on our net sales . however , earnings are negatively affected by a weak dollar because approximately 40 % of net sales of our european operations are denominated in u.s. story_separator_special_tag in addition , as necessary , specific accruals may be established for significant future known or anticipated events . the types of known or anticipated events that we have considered , and will continue to consider , include , but are not limited to , the financial condition of our customers , store closings by retailers , changes in the retail environment and our decision to continue to support new and existing products . we record estimated reserves for sales returns as a reduction of sales , cost of sales and accounts receivable . returned products are recorded as inventories and are valued based upon estimated realizable value . the physical condition and marketability of returned products are the major factors we consider in estimating realizable value . actual returns , as well as estimated realizable values of returned products , may differ significantly , either favorably or unfavorably , from our estimates , if factors such as economic conditions , inventory levels or competitive conditions differ from our expectations . promotional allowances we have various performance-based arrangements with certain retailers . these arrangements primarily allow customers to take deductions against amounts owed to us for product purchases . the costs that we incur for performance-based arrangements , shelf replacement costs and slotting fees are netted against revenues on our company 's consolidated statement of income . estimated accruals for promotions and advertising programs are recorded in the period in which the related revenue is recognized . we review and revise the estimated accruals for the projected costs for these promotions . actual costs incurred may differ significantly , either favorably or unfavorably , from estimates if factors such as the level and success of the retailers ' programs or other conditions differ from our expectations . inventories inventories are stated at the lower of cost or market value . cost is principally determined by the first-in , first-out method . we record adjustments to the cost of inventories based upon our sales forecast and the physical condition of the inventories . these adjustments are estimates , which could vary significantly , either favorably or unfavorably , from actual requirements if future economic conditions or competitive conditions differ from our expectations . 42 equipment and other long-lived assets equipment , which includes tools and molds , is recorded at cost and is depreciated on a straight-line basis over the estimated useful lives of such assets . changes in circumstances such as technological advances , changes to our business model or changes in our capital spending strategy can result in the actual useful lives differing from our estimates . in those cases where we determine that the useful life of equipment should be shortened , we would depreciate the net book value in excess of the salvage value , over its revised remaining useful life , thereby increasing depreciation expense . factors such as changes in the planned use of equipment , or market acceptance of products , could result in shortened useful lives . we evaluate indefinite-lived intangible assets for impairment at least annually during the fourth quarter , or more frequently when events occur or circumstances change , such as an unexpected decline in sales , that would more likely than not indicate that the carrying value of an indefinite-lived intangible asset may not be recoverable . when testing indefinite-lived intangible assets for impairment , the evaluation requires a comparison of the estimated fair value of the asset to the carrying value of the asset . the fair values used in our evaluations are estimated based upon discounted future cash flow projections using a weighted average cost of capital of 6.7 % . the cash flow projections are based upon a number of assumptions , including , future sales levels and future cost of goods and operating expense levels , as well as economic conditions , changes to our business model or changes in consumer acceptance of our products which are more subjective in nature . if the carrying value of an indefinite-lived intangible asset exceeds its fair value , an impairment charge is recorded . we believe that the assumptions we have made in projecting future cash flows for the evaluations described above are reasonable and currently no impairment indicators exist for our indefinite-lived intangible assets . however , if future actual results do not meet our expectations , we may be required to record an impairment charge , the amount of which could be material to our results of operations . the following table presents the impact a change in the following significant assumptions would have had on the calculated fair value in 2013 assuming all other assumptions remained constant : replace_table_token_8_th intangible assets subject to amortization are evaluated for impairment testing whenever events or changes in circumstances indicate that the carrying amount of an amortizable intangible asset may not be recoverable . if impairment indicators exist for an amortizable intangible asset , the undiscounted future cash flows associated with the expected service potential of the asset are compared to the carrying value of the asset . if our projection of undiscounted future cash flows is in excess of the carrying value of the intangible asset , no impairment charge is recorded . if our projection of undiscounted future cash flows is less than the carrying value of the intangible asset , an impairment charge would be recorded to reduce the intangible asset to its fair value . the cash flow projections are based upon a number of assumptions , including future sales levels and future cost of goods and operating expense levels , as well as economic conditions , changes to our business model or changes in consumer acceptance of our products which are more subjective in nature . we believe that the assumptions we have made in projecting future cash flows for the evaluations described above are reasonable and currently no impairment indicators exist for our intangible assets subject to amortization .
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results of operations net sales replace_table_token_9_th 45 after increasing 6 % in 2012 , net sales for the year ended december 31 , 2013 decreased 14 % to $ 563.6 million . at comparable foreign currency exchange rates , net sales declined 14 % in 2013 and increased 9 % in 2012. while there was no discernible effect of currency rates on net sales in 2013 , the strength of the u.s. dollar in 2012 as compared to 2011 had a negative effect on reported net sales in 2012. the average dollar/euro exchange rates for the years ended december 31 , 2013 , 2012 and 2011 were 1.33 , 1.28 and 1.39 , respectively . our association with burberry concluded during the second quarter of 2013. burberry brand product sales aggregated $ 130.3 million in 2013 , as compared to $ 301.4 million in 2012. see information regarding regulation s-k item 10 ( e ) , “ use of non-gaap financial measures ” , on page v of this form 10-k. european based prestige product sales , excluding burberry brand product sales , increased 23 % in 2013 , as compared to 2012. our major ongoing brands have performed very well in 2013. for jimmy choo we introduced its second fragrance line , jimmy choo flash , which contributed to the 41 % increase in brand sales for 2013. sales of montblanc legend fragrances also performed exceptionally well with 2013 brand sales increasing 40 % . with the continued growth of eclat ď arpège along with the launch of lanvin me and the steady performance of the jeanne lanvin line , lanvin product sales increased 11 % in 2013. in addition , the recent launches of the repetto signature scent , along with place vendôme from boucheron have exceeded our expectations and were meaningful contributors to our growth in sales of ongoing brands in 2013. future sales within our european operations will be significantly affected as a result of the termination of the burberry license .
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client prepayments ( even story_separator_special_tag the following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion and analysis also contains forward-looking statements and should also be read in conjunction with the disclosures and information contained in “ disclosure regarding forward-looking statements ” and “ risk factors ” in this annual report on form 10-k. we use the terms “ accenture , ” “ we , ” the “ company , ” “ our ” and “ us ” in this report to refer to accenture plc and its subsidiaries . all references to years , unless otherwise noted , refer to our fiscal year , which ends on august 31. for example , a reference to “ fiscal 2015 ” means the 12-month period that ended on august 31 , 2015 . all references to quarters , unless otherwise noted , refer to the quarters of our fiscal year . we use the term “ in local currency ” so that certain financial results may be viewed without the impact of foreign currency exchange rate fluctuations , thereby facilitating period-to-period comparisons of business performance . financial results “ in local currency ” are calculated by restating current period activity into u.s. dollars using the comparable prior year period 's foreign currency exchange rates . this approach is used for all results where the functional currency is not the u.s. dollar . overview revenues are driven by the ability of our executives to secure new contracts and to deliver services and solutions that add value relevant to our clients ' current needs and challenges . the level of revenues we achieve is based on our ability to deliver market-leading service offerings and to deploy skilled teams of professionals quickly and on a global basis . our results of operations are affected by economic conditions , including macroeconomic conditions and levels of business confidence . there continues to be volatility and economic and geopolitical uncertainty in certain markets around the world , which may impact our business . we continue to monitor the impact of this volatility and uncertainty and seek to manage our costs in order to respond to changing conditions . there continues to be significant volatility in foreign currency exchange rates . the majority of our net revenues are denominated in currencies other than the u.s. dollar , including the euro and the u.k. pound . unfavorable fluctuations in foreign currency exchange rates have had and we expect will continue to have a material effect on our financial results . revenues before reimbursements ( “ net revenues ” ) for the fourth quarter of fiscal 2015 increased 1 % in u.s. dollars and 12 % in local currency compared to the fourth quarter of fiscal 2014 . net revenues for fiscal 2015 increased 3 % in u.s. dollars and 11 % in local currency compared to fiscal 2014 . demand for our services and solutions continued to be strong , resulting in growth across all areas of our business . all of our operating groups experienced quarterly year-over-year revenue growth in local currency . revenue growth in local currency was very strong in consulting and strong in outsourcing during the fourth quarter of fiscal 2015. while the business environment remained competitive , pricing was relatively stable and we saw improvement in certain areas of our business . we use the term “ pricing ” to mean the contract profitability or margin on the work that we sell . in our consulting business , net revenues for the fourth quarter of fiscal 2015 increased 4 % in u.s. dollars and 14 % in local currency compared to the fourth quarter of fiscal 2014 . net consulting revenues for fiscal 2015 increased 3 % in u.s. dollars and 11 % in local currency compared to fiscal 2014 . we continue to experience growing demand for digital-related services and assisting clients with the adoption of new technologies . in addition , clients continued to be focused on initiatives designed to deliver cost savings and operational efficiency , as well as projects to integrate their global operations and grow and transform their businesses . compared to fiscal 2014 , we continued to provide a greater proportion of systems integration consulting through use of lower-cost resources in our global delivery network . this trend has resulted in work volume growing faster than revenue in our systems integration business , and we expect this trend to continue . in our outsourcing business , net revenues for the fourth quarter of fiscal 2015 decreased 1 % in u.s. dollars and increased 9 % in local currency compared to the fourth quarter of fiscal 2014 . net outsourcing revenues for fiscal 2015 increased 4 % in u.s. dollars and 11 % in local currency compared to fiscal 2014 . we are experiencing growing demand to assist clients with cloud enablement and operation and maintenance of digital-related services . in addition , clients continue to be focused on transforming their operations to improve effectiveness and save costs . compared to fiscal 2014 , we continued to provide a greater proportion of application outsourcing through use of lower-cost resources in our global delivery network . as we are a global company , our revenues are denominated in multiple currencies and may be significantly affected by currency exchange rate fluctuations . if the u.s. dollar strengthens against other currencies , resulting in unfavorable currency translation , our revenues , revenue growth and results of operations in u.s. dollars may be lower . if the u.s. dollar weakens against other currencies , resulting in favorable currency translation , our revenues , revenue growth and results of operations in u.s. dollars may be higher . story_separator_special_tag absent the tax impact of the $ 64 million pension settlement charge recorded during the third quarter of fiscal 2015 , our effective tax rate would have been 26.0 % for fiscal 2015. diluted earnings per share were $ 4.76 for fiscal 2015 , compared with $ 4.52 for fiscal 2014 . the pension settlement charge recorded during the third quarter of fiscal 2015 decreased diluted earnings per share by $ 0.06 in fiscal 2015. excluding the impact of this charge , diluted earnings per share would have been $ 4.82 for fiscal 2015. we have also presented operating income , operating margin , effective tax rate and diluted earnings per share excluding the non-cash pension settlement charge , as we believe doing so facilitates understanding as to both the impact of this charge and our operating performance in comparison to the prior period . 28 our operating income and earnings per share are affected by currency exchange-rate fluctuations on revenues and costs . most of our costs are incurred in the same currency as the related net revenues . where practical , we also seek to manage foreign currency exposure for costs not incurred in the same currency as the related net revenues , such as the cost of our global delivery network , by using currency protection provisions in our customer contracts and through our hedging programs . we seek to manage our costs , taking into consideration the residual positive and negative effects of changes in foreign exchange rates on those costs . for more information on our hedging programs , see note 7 ( derivative financial instruments ) to our consolidated financial statements under item 8 , “ financial statements and supplementary data. ” bookings and backlog new bookings for the fourth quarter of fiscal 2015 were $ 8.81 billion , with consulting bookings of $ 4.08 billion and outsourcing bookings of $ 4.73 billion . new bookings for fiscal 2015 were $ 34.36 billion , with consulting bookings of $ 16.70 billion and outsourcing bookings of $ 17.66 billion . we provide information regarding our new bookings , which include new contracts , including those acquired through acquisitions , as well as renewals , extensions and changes to existing contracts , because we believe doing so provides useful trend information regarding changes in the volume of our new business over time . new bookings can vary significantly quarter to quarter depending in part on the timing of the signing of a small number of large outsourcing contracts . the types of services and solutions clients are demanding and the pace and level of their spending may impact the conversion of new bookings to revenues . for example , outsourcing bookings , which are typically for multi-year contracts , generally convert to revenue over a longer period of time compared to consulting bookings . information regarding our new bookings is not comparable to , nor should it be substituted for , an analysis of our revenues over time . new bookings involve estimates and judgments . there are no third-party standards or requirements governing the calculation of bookings . we do not update our new bookings for material subsequent terminations or reductions related to bookings originally recorded in prior fiscal years . new bookings are recorded using then-existing foreign currency exchange rates and are not subsequently adjusted for foreign currency exchange rate fluctuations . the majority of our contracts are terminable by the client on short notice , and some without notice . accordingly , we do not believe it is appropriate to characterize bookings attributable to these contracts as backlog . normally , if a client terminates a project , the client remains obligated to pay for commitments we have made to third parties in connection with the project , services performed and reimbursable expenses incurred by us through the date of termination . critical accounting policies and estimates the preparation of our consolidated financial statements in conformity with u.s. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses . we continually evaluate our estimates , judgments and assumptions based on available information and experience . because the use of estimates is inherent in the financial reporting process , actual results could differ from those estimates . certain of our accounting policies require higher degrees of judgment than others in their application . these include certain aspects of accounting for revenue recognition and income taxes . 29 revenue recognition our contracts have different terms based on the scope , deliverables and complexity of the engagement , the terms of which frequently require us to make judgments and estimates in recognizing revenues . we have many types of contracts , including time-and-materials contracts , fixed-price contracts and contracts with features of both of these contract types . in addition , some contracts include incentives related to costs incurred , benefits produced or adherence to schedules that may increase the variability in revenues and margins earned on such contracts . we conduct rigorous reviews prior to signing such contracts to evaluate whether these incentives are reasonably achievable . we recognize revenues from technology integration consulting contracts using the percentage-of-completion method of accounting , which involves calculating the percentage of services provided during the reporting period compared with the total estimated services to be provided over the duration of the contract . our contracts for technology integration consulting services generally span six months to two years . estimated revenues used in applying the percentage-of-completion method include estimated incentives for which achievement of defined goals is deemed probable . this method is followed where reasonably dependable estimates of revenues and costs can be made . estimates of total contract revenues and costs are continuously monitored during the term of the contract , and recorded revenues and estimated costs are subject to revision as the contract progresses .
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results of operations for fiscal 2015 compared to fiscal 2014 net revenues ( by operating group , geographic region and type of work ) and reimbursements were as follows : replace_table_token_6_th _ n/m = not meaningful amounts in table may not total due to rounding . ( 1 ) effective september 1 , 2014 , we revised the reporting of our geographic regions as follows : north america ( the united states and canada ) ; europe ; and growth markets ( asia pacific , latin america , africa , the middle east , russia and turkey ) . prior period amounts have been reclassified to conform to the current period presentation . our business in the united states represented 43 % , 40 % and 39 % of our consolidated net revenues during fiscal 2015 , 2014 and 2013 , respectively . no other country individually comprised 10 % or more of our consolidated net revenues during these periods . net revenues the following net revenues commentary discusses local currency net revenue changes for fiscal 2015 compared to fiscal 2014 : operating groups communications , media & technology net revenues increased 16 % in local currency . outsourcing revenues reflected significant growth , driven by growth across all industry groups and geographic regions , led by communications in all geographic regions as well as media & entertainment in north america . consulting revenues reflected significant growth , driven by growth across all industry groups and geographic regions , led by communications in north america and growth markets . financial services net revenues increased 11 % in local currency . consulting revenues reflected significant growth , driven by growth across both industry groups and all geographic regions , led by banking & capital markets in europe . outsourcing revenue growth was driven by banking & capital markets and insurance in europe and banking & capital markets in growth markets . these outsourcing increases were partially offset by a decline in banking & capital markets in north america .
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borrowing rates under the credit agreement are determined at the company 's option at the time of each borrowing and are generally based on either the prime lending rate of bank of america , n.a story_separator_special_tag overview we are a world leader in sensor systems that enhance perception and awareness . we were founded in 1978 and have since become a premier designer , manufacturer , and marketer of thermal imaging and other sensing products and systems . our advanced sensors and integrated sensor systems enable the gathering and analysis of critical information through a wide variety of applications in commercial , industrial , and government markets worldwide . our goal is to both enable our customers to benefit from the valuable information produced by advanced sensing technologies and to deliver sustained superior financial performance for our shareholders . we create value for our customers by providing advanced surveillance and tactical defense capabilities , improving personal and public safety and security , facilitating air , ground , and maritime navigation , enhancing enjoyment of the outdoors , providing infrastructure inefficiency information , conveying pre-emptive structural deficiency data , displaying process irregularities , and enabling commercial business opportunities through our continual support and development of new thermal imaging data and analytics applications . our business model meets the needs of a wide range of customers – we sell off-the-shelf products to many markets and also offer a variety of system configurations to suit specific customer requirements . centered on the design of products for low cost manufacturing and high volume distribution , our commercial operating model has been developed over time and provides us with a unique ability to adapt to market changes and meet our customers ' needs . this management 's discussion and analysis of financial condition and results of operations is prepared and reported based on our reporting structure of six operating segments . for a more detailed description of our segments , see `` business segments '' within item 1. international revenue accounted for approximately 47 percent , 49 percent and 50 percent of our revenue in 2015 , 2014 and 2013 , respectively . we anticipate that international sales will continue to account for a significant percentage of revenue in the future . we have exposure to foreign exchange fluctuations and changing dynamics of foreign competitiveness based on variations in the value of the united states dollar relative to other currencies . factors contributing to this variability include significant manufacturing activity in europe , significant sales denominated in currencies other than the united states dollar , and cross currency fluctuations between such currencies as the united states dollar , euro , swedish kronor and british pound sterling . the impact of those fluctuations is reflected throughout our consolidated financial statements , and primarily due to the united states dollar strengthening in 2015 , there was a meaningful impact on our results of operations in 2015 , including a reduction of approximately $ 63 million in revenue and reductions in the carrying values of our foreign net assets when translated from foreign currencies to united states dollars . we experience fluctuations in orders and sales due to seasonal variations and customer sales cycles , such as the seasonal pattern of contracting by the united states and certain foreign governments , the desire of customers to take delivery of equipment prior to fiscal year ends due to funding considerations , and the tendency of commercial enterprises to fully utilize annual capital budgets prior to expiration . such events have resulted and could continue to result in fluctuations in quarterly results in the future . as a result of such quarterly fluctuations in operating results , we believe that quarter-to-quarter comparisons of our results of operations are not necessarily meaningful and should not be relied upon as indicators of future performance . we expect that macroeconomic factors , including reduced spending by united states government agencies and economic weaknesses in certain geographic markets , will continue to present challenges for us and render predictions regarding future performance difficult to make . critical accounting policies and estimates this discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with united states generally accepted accounting principles . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . we evaluate our estimates , including those related to revenue recognition , allowance for doubtful accounts , inventories , goodwill , warranty obligations , contingencies and income taxes on an on-going basis . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . senior management has discussed the development , selection and disclosure of these estimates with the audit committee of our board of directors . we believe the following critical accounting policies and the related judgments and estimates affect the preparation of our consolidated financial statements . 32 revenue recognition . revenue is recognized when persuasive evidence of an arrangement exists , upon delivery of the product to the customer at a fixed or determinable price with a reasonable assurance of collection , passage of title and risk of loss to the customer as indicated by the contractual terms and fulfillment of all significant obligations . we design , market and sell our products primarily as commercial , off-the-shelf products . certain customers request different system configurations , generally based on standard options or accessories that we offer . in general , our revenue arrangements do not involve acceptance provisions based upon customer specified acceptance criteria . story_separator_special_tag we believe that our recorded liability of $ 16.5 million at december 31 , 2015 is adequate to cover our future cost of materials , labor and overhead for the servicing of our products sold through that date . if actual product failures or material or service delivery costs differ from our estimates , our warranty liability would need to be revised accordingly . contingencies . we are subject to the possibility of loss contingencies arising in the normal course of business . we consider the likelihood of loss or impairment of an asset or the incurrence of a liability , as well as our ability to reasonably estimate the amount of loss in determining loss contingencies . an estimated loss is accrued when it is probable that an asset has been impaired or a liability has been incurred and the amount can be reasonably estimated . we regularly evaluate current information available to us to determine whether such accruals and disclosures should be adjusted . income taxes . we account for income taxes using the asset and liability method , which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of the assets and liabilities measured using the enacted tax rates in effect in the years in which the differences are expected to reverse . valuation allowances against deferred tax assets are recorded when a determination is made that the deferred tax assets are not more likely than not to be realized in the future . in making that determination , on a jurisdiction by jurisdiction basis , we estimate our future taxable income based upon historical operating results and external market data . future levels of taxable income are dependent upon , but not limited to , general economic conditions , competitive pressures and other factors beyond our control . as of december 31 , 2015 , we have determined that a valuation allowance against our deferred tax assets of $ 2.6 million is required . if we should determine that we may be unable to realize our deferred tax assets to the extent reported , an adjustment to the deferred tax assets would be recorded in the period such determination is made . we are subject to income taxes in the united states and in numerous foreign jurisdictions , and in the ordinary course of business , there are many transactions and calculations where the ultimate tax determination is uncertain . while we believe the positions we have taken are appropriate , we have reserves for taxes to address potential exposures involving tax positions that are being challenged or that could be challenged by the tax authorities . we record a benefit on a tax position when we determine that it is more likely than not that the position is sustainable upon examination , including resolution of any related appeals or litigation processes , based on the technical merits of the position . for tax positions that are more likely than not to be sustained , we measure the tax position at the largest amount of benefit that has a greater than 50 percent likelihood of being realized when it is effectively settled , using information that is available at the reporting date . we review the tax reserves as circumstances warrant and adjust the reserves as changes in available facts arise that affect our potential liability for additional taxes . 34 story_separator_special_tag have completed the majority of the actions in our realignment plan . interest expense . interest expense totaled $ 14.1 million , $ 14.6 million and $ 14.1 million for the years ended december 31 , 2015 , 2014 and 2013 , respectively . interest expense is primarily attributable to the $ 250 million aggregate principal amount of 3.75 percent senior unsecured notes due september 1 , 2016 and the amortization of the costs related to the issuance of the notes and the $ 150 million term loan that was drawn on april 5 , 2013. other ( income ) expense , net . other income totaled $ 12.6 million , $ 3.5 million and $ 1.3 million for the years ended december 31 , 2015 , 2014 and 2013 , respectively . the increase in other income during the year ended december 31 , 2015 is primarily attributed to the gain on the sale of our cost basis investment in a private technology company . income taxes . our income tax provision was $ 63.8 million , $ 49.3 million and $ 52.0 million in 2015 , 2014 and 2013 , respectively . the effective tax rates for 2015 , 2014 and 2013 were 20.9 percent , 19.7 percent and 22.7 percent , respectively . the mix in taxable income between our united states and international operations has a significant impact on our annual income tax provision and effective tax rates . our effective tax rate is lower than the united states federal tax rate of 35 percent because of lower foreign tax rates , the effect of foreign , federal and state tax credits and other discrete items . in 2015 , the discrete items included a $ 12.1 million release of a previously recorded tax valuation allowance , and in 2014 , the discrete items included a $ 9.4 million release of previously recorded unrecognized tax benefits that were no longer required due to closure of the applicable statute . we expect the effective tax rate for 2016 to be approximately 26 percent excluding discrete items . at december 31 , 2015 , we had united states tax net operating loss carry-forwards totaling approximately $ 4.6 million which expire between 2019 and 2031 . in addition , we have various state net operating loss carry-forwards totaling approximately $ 39.2 million which expire between 2016 and 2033 .
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consolidated operating results the following table sets forth for the indicated periods certain items as a percentage of revenue : replace_table_token_3_th _ ( 1 ) totals may not recompute due to rounding . the following discussion of operating results provides an overview of our operations by addressing key elements in our consolidated statements of income . the “ segment operating results ” section that follows describes the contributions of each of our business segments to our consolidated revenue and earnings from operations for 2015 , 2014 and 2013 . given the nature of our business , we believe revenue and earnings from operations ( including operating margin percentage ) are most relevant to an understanding of our performance at a segment level . additionally , at the segment level we disclose backlog , which represents orders received for products or services for which a sales agreement is in place and delivery is expected within twelve months . 35 revenue . revenue for 2015 totaled $ 1,557.1 million , an increase of 1.7 percent from 2014 revenue of $ 1,530.7 million . year over year revenue growth was primarily due to increases in our security and detection segments , partially offset by declines in our surveillance , instruments , oem & emerging markets , and maritime segments . the revenue increase was negatively impacted by year over year changes in foreign currency rates , particularly in our instruments and maritime segments . on a constant currency basis , revenue for 2015 would have been an increase of approximately 5.8 percent over 2014 revenue . revenue for 2014 totaled $ 1,530.7 million , an increase of 2.3 percent over 2013 revenue of $ 1,496.4 million . most of our operating segments reported increases in year over year revenues .
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the accounting standard will be effective for reporting periods beginning after december 15 , 2017. the partnership is in the process of evaluating the impact that the new accounting guidance will have on its consolidated financial position , results of operations and cash flows . business combinations ( asu no . 2017-01 ) in january 2017 , the fasb issued an accounting standard update to assist entities with evaluating when a set of transferred assets and activities is a business . the guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets ; if so , the set of transferred assets and activities is not a business . the guidance also requires a business to include at least one substantive process and narrows the definition of outputs by more closely aligning it with story_separator_special_tag overview this management 's discussion and analysis of financial condition and results of operations should be read in conjunction with the accompanying consolidated and combined financial statements , the notes thereto , and the other financial information appearing elsewhere in this report . the following discussion includes forward-looking statements that involve certain risks and uncertainties . see `` cautionary statement regarding forward-looking statements '' and `` item 1a . risk factors '' in this report . unless the context otherwise requires , references in this report to the `` predecessor '' refer to westlake chemical partners lp predecessor , our predecessor for accounting purposes , and refer to the time periods prior to the completion of our initial public offering on august 4 , 2014 ( the `` ipo '' ) . unless otherwise indicated , references in this report to `` we , '' `` our , '' `` us '' or like terms refer to westlake chemical partners lp ( `` westlake chemical partners lp '' or the `` partnership '' ) , westlake chemical opco lp ( `` opco '' ) and westlake chemical opco gp llc ( `` opco gp '' ) , and references to the partnership for all periods prior to the ipo refer to the predecessor . references to `` westlake '' refer to westlake chemical corporation and its consolidated subsidiaries other than the partnership , opco gp and opco . partnership overview on august 4 , 2014 , we closed our initial public offering ( the `` ipo '' ) of 12,937,500 common units . we are a delaware limited partnership formed by westlake to operate , acquire and develop ethylene production facilities and related assets . currently , our sole revenue generating asset is our 13.3 % limited partner interest in opco , a limited partnership formed by westlake and us in anticipation of the ipo to own and operate an ethylene production business . we control opco through our ownership of its general partner . westlake retains the remaining 86.7 % limited partner interest in opco as well as a significant interest in us through its ownership of our general partner , 52.2 % of our limited partner units ( consisting of 1,436,115 common units and all of the subordinated units ) and our incentive distribution rights . opco 's assets include ( 1 ) two ethylene production facilities ( `` petro 1 '' and `` petro 2 '' and , collectively , `` lake charles olefins '' ) at westlake 's lake charles , louisiana site ; ( 2 ) one ethylene production facility ( `` calvert city olefins '' ) at westlake 's calvert city , kentucky site ; and ( 3 ) a 200-mile common carrier ethylene pipeline ( the `` longview pipeline '' ) that runs from mont belvieu , texas to westlake 's longview , texas facility . on april 29 , 2015 , we purchased a 2.7 % newly-issued limited partner interest in opco for approximately $ 135.3 million , resulting in an aggregate 13.3 % limited partner interest in opco effective april 1 , 2015. in order to fund this purchase , we entered into a revolving credit facility ( the `` mlp revolver '' ) with a subsidiary of westlake , which has a total borrowing capacity of $ 300.0 million . we intend to rely on the mlp revolver in making any additional purchases of limited partner interests in opco in the future . for more information on the mlp revolver , please see `` liquidity and capital resources—indebtedness—mlp revolver . '' how we generate revenue we generate revenue primarily by selling ethylene and the resulting co-products we produce . in connection with the ipo , opco and westlake entered into an ethylene sales agreement ( the `` ethylene sales agreement '' ) pursuant to which we generate a substantial majority of our revenue . the ethylene sales agreement is a long-term , fee-based agreement with a minimum purchase commitment and includes variable pricing based on opco 's actual feedstock and natural gas costs and estimated other costs of producing ethylene ( including opco 's estimated operating costs and a five-year average of opco 's expected future maintenance capital expenditures and other turnaround expenditures based on opco 's planned ethylene production capacity for the year ) , plus a fixed margin per pound of $ 0.10 less revenue from co-products sales . pursuant to the ethylene sales agreement , westlake 's obligation to pay for the annual minimum commitment ( 95 % of opco 's budgeted ethylene production ) , which is measured at the end of the year , is generally not reduced for the first 45 days of a force majeure event , but is reduced for the portion of a force majeure event extending beyond the 45th day . westlake has an option to take 95 % of volumes in excess of the minimum commitment on an annual basis under the ethylene sales agreement if we produce more than our planned production . story_separator_special_tag the impact on profitability is partially mitigated by the fact that we recognize any shortfall as revenue in the period such costs and expenses are incurred . we seek to manage our operating and maintenance expenses on our ethylene production facilities by scheduling maintenance and turnarounds over time to avoid significant variability in our operating margins and minimize the impact on our cash flows , without compromising our commitment to safety and environmental stewardship . in addition , we reserve cash on an annual basis from what we would otherwise distribute to minimize the impact of turnaround costs in the year of incurrence . the purchase price under the ethylene sales agreement is not designed to cover capital expenditures for expansions . mlp distributable cash flow and ebitda we use each of mlp distributable cash flow and ebitda to analyze our performance . we define distributable cash flow as net income plus depreciation and amortization , less contributions for turnaround reserves and maintenance capital expenditures . we define mlp distributable cash flow as distributable cash flow attributable to periods subsequent to the date of the ipo less distributable cash flow attributable to westlake 's noncontrolling interest in opco and distributions attributable to the incentive distribution rights holder . mlp distributable cash flow does not reflect changes in working capital balances . we define ebitda as net income before interest expense , income taxes , depreciation and amortization . mlp distributable cash flow and ebitda are non-gaap supplemental financial measures that management and external users of our consolidated financial statements , such as industry analysts , investors , lenders and rating agencies , may use to assess : our operating performance as compared to other publicly traded partnerships ; our ability to incur and service debt and fund capital expenditures ; the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities . we believe that the presentation of mlp distributable cash flow and ebitda provides useful information to investors in assessing our financial condition and results of operations . the gaap measures most directly comparable to mlp distributable cash flow are net income and net cash provided by operating activities . mlp distributable cash flow should not be considered as an alternative to gaap net income or net cash provided by operating activities . mlp distributable cash flow has important limitations as an analytical tool because it excludes some but not all items that affect net income and net cash provided by operating activities . the gaap measures most directly comparable to ebitda are net income and net cash provided by operating activities , but ebitda should not be considered an alternative to such gaap measures . ebitda has important limitations as an analytical tool because it excludes ( 1 ) interest expense , which is a necessary element of our costs and ability to generate revenues because we have borrowed money to finance our operations , ( 2 ) depreciation , which is a necessary element of our costs and ability to generate revenues because we use capital assets and ( 3 ) income taxes , which was a necessary element of the predecessor 's operations . mlp distributable cash flow and ebitda should not be considered in isolation or as a substitute for analysis of our results as reported under gaap . see reconciliations for each of mlp distributable cash flow and ebitda under `` results of operations '' below . factors affecting the comparability of our financial results our results of operations subsequent to the ipo are not comparable to the predecessor 's historical results of operations for the reasons described below : revenue ethylene , co-products and excess feedstock sales there are differences in the way the predecessor generated and recorded revenue and the way we generate and record revenue from ethylene sales to westlake . the predecessor generally recognized revenue for ethylene sold internally based on a transfer pricing formula intended to approximate the fair market value of the commodity . subsequent to the ipo , a substantial majority of our revenue from ethylene sales is generated from sales of ethylene to westlake under the ethylene sales agreement . the ethylene sales agreement contains minimum purchase commitments and pricing that is expected to generate a fixed margin of $ 0.10 per pound . 30 the predecessor 's third-party sales consisted of ethylene , feedstock and associated co-products sales . with respect to third-party ethylene sales , the predecessor also resold externally procured ethylene to third parties . subsequent to the ipo , the ethylene procurement and reselling activities of the predecessor remained with westlake . in addition , the predecessor 's net sales included revenue from sales to third parties of excess feedstock not used in the ethylene production process . following the closing of the ipo , we do not generate revenues from the sale of excess feedstock to third parties as all of the predecessor 's feedstock risk-management activities remained with westlake . however , we sell all of our co-products volume to third parties in a manner consistent with the predecessor . as such , there are no significant changes to revenue related to the sale of co-products , as compared to the predecessor 's historical revenue from co-products sales . expenses selling , general and administrative expenses the predecessor 's selling , general and administrative expenses included direct and indirect charges for the management and operation of our ethylene and other transportation assets allocated by westlake for general corporate services such as treasury , information technology , legal , corporate tax , human resources , executive compensation , and other financial and administrative services . these expenses were charged or allocated to the predecessor based on the nature of the expense and the predecessor 's proportionate share of fixed assets , headcount or other measure , as deemed appropriate .
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summary for the year ended december 31 , 2016 , net income was $ 353.4 million on net sales of $ 986.7 million . this represents a decrease in net income of $ 0.5 million compared to 2015 net income of $ 353.9 million on net sales of $ 1,007.2 million . net sales for 2016 decreased by $ 20.5 million as compared to 2015 mainly due to lower overall sales volumes to westlake and third parties , partially offset by the shortfall of $ 63.5 million and buyer deficiency fee of $ 13.1 million recognized during the year . income from operations was $ 366.4 million for 2016 as compared to $ 359.3 million in 2015. income from operations for year ended december 31 , 2016 increased mainly as a result of the shortfall recognized during 2016 , partially offset by the lower volume of ethylene sales to westlake and third parties and lower ethylene sales prices to third parties as compared to 2015 . 2016 compared with 2015 net sales . net sales decreased by $ 20.5 million , or 2.0 % , to $ 986.7 million in 2016 from $ 1,007.2 million in 2015 , primarily due to lower sales volume that was partially offset by an increase in average sales price .
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significant group concentrations of credit risk – most of the company 's activities are with customers located in anne arundel county , maryland and nearby areas . note 2 , of the notes to consolidated financial statements discusses the types of securities that the company currently invests in . note 3 discusses the types of lending that the company engages in . although the company intends to have a diversified loan portfolio , its debtors ' ability to honor their contracts will be influenced by the story_separator_special_tag overview the company provides a wide range of personal and commercial banking services . personal services include mortgage lending and various other lending services as well as deposit products such as personal internet banking and online bill pay , checking accounts , individual retirement accounts , money market accounts , and savings and time deposit accounts . commercial services include commercial secured and unsecured lending services as well as business internet banking , corporate cash management services and deposit services . the company also provides atms , credit cards , debit cards , mortgage lending , safe deposit boxes , and telephone banking , among other products and services . the company has experienced an improved level of profitability in 2016 , as well as increased loan originations and expanded local economic activity . the significant increase in net income was largely due to the reversal of the valuation allowance that the company had placed on its deferred tax assets during the second quarter of 2016. this resulted in a gain of $ 11,837,000 being recorded . management believes that , while conditions continue to improve , and real estate values in the company 's market area continue to stabilize and , in some cases improve , including job losses and other factors , still exist for some customers . the interest rate spread between the company 's cost of funds and what it earns on loans has increased from 2015 levels and competition for new loans and deposits remains strong . the company expects to experience similar market conditions in 2017 as 2016 , as the national and local economies continue to improve and as the employment environment in its market improves . if interest rates increase , demand for borrowing may decrease and the company 's interest rate spread could decrease . the company will continue to manage loan and deposit pricing against the risks of rising costs of its deposits and borrowings . interest rates are outside the control of the company , so it must attempt to balance its pricing and duration of its loan portfolio against the risks of rising costs of its deposits and borrowings . 47 the continued success and attraction of anne arundel county , maryland , and vicinity , will also be important to the company 's ability to originate and grow its mortgage loans and deposits , as will the company 's continued focus on maintaining a low overhead . if the volatility in the market and the economy continues or worsens , the company 's business , financial condition , results of operations , access to funds and the price of its stock could be materially and adversely impacted . critical accounting policies the company 's significant accounting policies and recent accounting pronouncements are set forth in note 1 of the consolidated financial statements which are included under part iv , item 5 in this form 10-k. of these significant accounting policies , the company considers the policies regarding the allowance for loan losses , the valuation of foreclosed real estate , the evaluation of other than temporary impairment of investment securities and the valuation of the deferred tax asset to be its most critical accounting policies , given the uncertainty in evaluating the level of the allowance required to cover credit losses inherent in the loan portfolio and the material effect that such judgments can have on the results of operations and future taxable income . in addition , changes in economic conditions can have a significant impact on real estate values of underlying collateral affecting the allowance for loan losses and therefore the provision for loan losses and results of operations as well as the valuation of foreclosed real estate . the company has developed policies and procedures for assessing the adequacy of the allowance for loan losses , recognizing that this process requires a number of assumptions and estimates with respect to its loan portfolio . the company 's assessments may be impacted in future periods by changes in economic conditions , the impact of regulatory examinations , and the discovery of information with respect to borrowers that is not known to management at the time of the issuance of the consolidated financial statements . comparison of statement of financial condition for december 31 , 2016 versus 2015. financial condition total assets increased by $ 25,406,000 , or 3.3 % to $ 787,485,000 at december 31 , 2016 , compared to the $ 762,079,000 at december 31 , 2015. increases in loans , cash , and deferred income taxes were the reasons for the increase . cash cash and cash equivalents increased by $ 23,523,000 , or 54.0 % , to $ 67,114,000 at december 31 , 2016 , compared to $ 43,591,000 at december 31 , 2015. this increase was primarily due to proceeds received in 2016 from matured securities and mortgage backed securities pay downs and deposit growth . investments investment securities held to maturity decreased by $ 13,376,000 , or 17.6 % , to $ 62,757,000 at december 31 , 2016 , compared to $ 76,133,000 at december 31 , 2015. this decrease was primarily due to management 's decision to use matured securities funds and pay downs from mortgage backed securities to fund an increase in loan demand . loans loans held for sale . story_separator_special_tag as of december 31 , 2015 , the company had deferred the payment of fifteen quarters of interest and the cumulative amount of interest in arrears not paid , including interest on unpaid interest , was $ 1,863,000. during the second quarter of 2016 , the company paid all of the deferred interest and as of december 31 , 2016 , the company is current on all interest due on the 2035 debenture . accrued interest payable and other liabilities . accrued interest payable and other liabilities decreased $ 9,243,000 , or 72.5 % , from $ 12,733,000 as of december 31 , 2015 to $ 3,490,000 as of december 31 , 2015. the decrease was due to the repayment of the deferred interest on the subordinated debentures and the repayment of all accrued and unpaid dividends and interest on its series b preferred stock in 2016. the total amount of deferred interest paid on the subordinated debentures was $ 1,863,000 and the amount of dividends and interest paid on the series b preferred stock was $ 7,590,000. subordinated notes and series a preferred stock . on november 15 , 2008 , the company completed a private placement offering consisting of a total of 70 units , at an offering price of $ 100,000 per unit , for gross proceeds of $ 7,000,000. each unit consists of 6,250 shares of the company 's series a 8.0 % non-cumulative convertible preferred stock and the company 's subordinated notes ( “ subordinated notes ” ) in the original principal amount of $ 50,000. the subordinated notes earned interest at an annual rate of 8.0 % , payable quarterly in arrears on the last day of march , june , september and december commencing december 31 , 2008. the subordinated notes were redeemable in whole or in part at the option of the company at any time beginning on december 31 , 2009 until maturity , which was december 31 , 2018. dividends will not be paid on the company 's common stock in any quarter until the dividend on the series a preferred stock has been paid for such quarter ; however , there is no requirement that the company 's board of directors declare any dividends on the series a preferred stock and any unpaid dividends are not cumulative . dividends on the series a preferred stock have been declared and paid on june 30 , 2016 , september 30 , 2016 and december 30 , 2016 in the amount of $ 70,000 each quarter . prior to that , the company had not paid a dividend on the series a preferred stock since the first quarter of 2012. on september 30 , 2016 the aggregate principal amount of subordinated notes outstanding of $ 3,500,000 was paid in full . the subordinated notes were redeemable in whole or in part at the option of the company at any time beginning on december 31 , 2009 until maturity , which was december 31 , 2018. series b preferred stock . on november 21 , 2008 , the company entered into an agreement with the united states department of the treasury ( “ treasury ” ) , pursuant to which the company issued and sold ( i ) 23,393 shares of its series b fixed rate cumulative perpetual preferred stock , par value $ 0.01 per share with a liquidation preference of $ 1,000 per share , ( the “ series b preferred stock ” ) and ( ii ) a warrant ( the “ warrant ” ) to purchase 556,976 shares of the company 's common stock , par value $ 0.01 per share , for an aggregate purchase price of $ 23,393,000. on september 25 , 2013 , the treasury sold all of its 23,393 shares of series b preferred stock to outside investors as part of their ongoing efforts to wind down and recover its remaining investments under the troubled asset relief program ( “ tarp ” ) . the terms of the series b preferred stock remain the same . the treasury continues to hold the warrant . on april 15 , 2016 , the company paid all unpaid cumulative dividends of $ 6,550,000 and unpaid cumulative interest of $ 1,040,000 on the series b preferred stock totaling $ 7,590,000. on may 11 , 2016 , the company declared and paid a dividend of $ 326,000 on the series b preferred stock , and redeemed 10,000 shares of such stock for $ 10,000,000. on august 11 , 2016 the company declared and paid a dividend of $ 301,000 and on september 8 , 2016 a final dividend of $ 77,000 was paid along with the redemption of the 13,393 remaining shares of the series b preferred stock for $ 13,393,000. as of december 31 , 2016 , the company has paid the dividend arrearages on its series b preferred stock and redeemed all outstanding shares . 50 the warrant has a 10-year term and is immediately exercisable at an exercise price of $ 6.30 per share of common stock . the exercise price and number of shares subject to the warrant are both subject to anti-dilution adjustments . pursuant to the purchase agreement , treasury has agreed not to exercise voting power with respect to any shares of common stock issued upon exercise of the warrant . the warrant expires november 11 , 2018. notes payable . on september 30 , 2016 , the company entered into a loan agreement with a commercial bank whereby the company borrowed $ 3,500,000 for a term of 8 years . the unsecured note bears interest at a fixed rate of 4.25 % for the first 36 months then , at the option of the company , converts to either ( 1 ) floating rate of the wall street journal prime plus 0.50 % or ( 2 ) fixed rate at two hundred seventy five ( 275 ) basis points over the five year amortizing federal home loan bank rate for the remaining five years .
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general . net income increased $ 11,005,000 , or 242.7 % , to $ 15,540,000 for the year ended december 31 , 2016 compared to $ 4,535,000 for the year ended december 31 , 2015. earnings per common share , after the effect of dividends declared on preferred stock and amortization of discount on preferred stock , increased to $ 1.20 per basic common share and $ 1.19 per diluted common share for the year ended december 31 , 2016 compared to $ 0.21 per basic common share and $ 0.21 per diluted common share for the year ended december 31 , 2015. this increase in net income was primarily due to a non-recurring income tax benefit of $ 11,837,000 , resulting from a reversal of a net deferred tax asset valuation allowance which was recorded in the second quarter of 2016. net interest income . net interest income ( interest earned net of interest charges ) increased $ 28,000 , or 0.1 % , to $ 22,189,000 for the year ended december 31 , 2016 , compared to $ 22,161,000 for the year ended december 31 , 2015. this increase was primarily due to lower interest expense on borrowings offset by a decrease in the company 's loan interest . the company 's interest rate spread increased 3 basis points to 3.17 % for the year ended december 31 , 2016 , compared to 3.14 % for the year ended december 31 , 2015. provision for loan losses . the company 's loan portfolio is subject to varying degrees of credit risk and an allowance for loan losses is maintained to absorb losses inherent in its loan portfolio . credit risk includes , but is not limited to , the potential for borrower default and the failure of collateral to be worth what the bank determined it was worth at the time of the granting of the loan . the bank monitors its loan portfolio loan delinquencies at least as often as monthly .
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if mr. campbell 's employment is terminated without cause or if he terminates it for good reason , then mr. campbell shall , at the company 's sole discretion , be entitled to the lesser of ( i ) the total amount of his base salary that remains unpaid under the campbell employment agreement , which shall be paid monthly , or ( ii ) monthly salary payments for twelve ( 12 ) months , based on mr. campbell 's monthly rate of base salary at the date of such termination , which the company may pay in a lump-sum in lieu of the aforementioned monthly payments . the payment of the severance is contingent upon mr. campbell executing a release agreement , such release becoming effective , and only so long as mr. campbell does not revoke or breach the provision of the release or the restrictive covenants set forth in sections 4 and 5 of the campbell employment agreement . mr. campbell shall also be entitled to ( i ) payment for accrued and unused vacation ; ( ii ) the immediate vesting of any non-vested equity-related instruments granted pursuant to section 2.6 of the campbell employment agreement ; and ( iii ) any bonuses which have accrued prior to the date of mr. campbell 's termination . if the campbell employment agreement is terminated with cause or if mr. campbell terminates it without good reason then mr. campbell shall cease to accrue salary , personal time off , benefits and other compensation on the date of such termination . pursuant to the campbell employment agreement , the company paid for certain relocation related expenses up to a maximum of $ 10,000 . the company and gabriel g. matus entered into an employment agreement , dated as of april 30 , 2013 ( the “ matus employment agreement ” ) , pursuant to which mr. matus will serve as the company 's senior vice president , general counsel and secretary . mr. matus ' employment with the company commenced on may 13 , 2013 ( the “ commencement date ” ) and shall continue until may 13 , 2015 , unless terminated sooner pursuant to the matus employment agreement . pursuant to the matus employment agreement , mr. matus is paid a base salary of $ 234,000 per annum and received stock options valued at $ 50,000 . if mr. matus voluntarily terminates his employment with the company , other than for good reason ( as such term is defined in the employment agreement ) , he shall cease to accrue salary , personal time off , benefits and other compensation on the date of voluntary termination and all unvested stock options granted to mr. matus will be void . the company may terminate mr. matus ' employment with or without cause . if the company terminates mr. matus ' employment without cause ( as such term is defined in the employment agreement ) after 120 days from the date of the employment agreement , mr. matus will be entitled to monthly salary payments for twelve ( 12 ) months , based on his monthly rate of base salary at the date of such termination , provided , however , in lieu of the aforementioned monthly payments the company may in its sole discretion pay such amounts in a single lump-sum payment . in addition , any non-vested options pursuant to the employment agreement shall vest immediately . mr. matus shall also be entitled to receive ( i ) payment for accrued and unpaid vacation pay , and ( ii ) all bonuses that have accrued during the term of the employment agreement but have not been paid . 46 future sales concessions story_separator_special_tag introduction the following discussion should be read in conjunction with the financial statements and notes thereto . our fiscal year ends december 31. this document contains certain forward-looking statements including , among others , anticipated trends in our financial condition and results of operations and our business strategy . these forward-looking statements are based largely on our current expectations and are subject to a number of risks and uncertainties . ( see part i , item 1a , `` risk factors `` ) . actual results could differ materially from these forward-looking statements . important factors to consider in evaluating such forward-looking statements include ( i ) changes in external factors or in our internal budgeting process which might impact trends in our results of operations ; ( ii ) unanticipated working capital or other cash requirements ; ( iii ) changes in our business strategy or an inability to execute our strategy due to unanticipated changes in the industries in which we operate ; and ( iv ) various competitive market factors that may prevent us from competing successfully in the marketplace . overview we design , manufacture and supply miniature displays , which we refer to as oled-on-silicon-microdisplays , and microdisplay modules for virtual imaging , primarily for incorporation into the products of other manufacturers . microdisplays are typically smaller than many postage stamps , but when viewed through a magnifier they can contain all of the information appearing on a high-resolution personal computer screen . our microdisplays use organic light emitting diodes , or oleds , which emit light themselves when a current is passed through the device . our technology permits oleds to be coated onto silicon chips to produce high resolution oled-on-silicon microdisplays . we believe that our oled-on-silicon microdisplays offer a number of advantages in near to the eye applications over other current microdisplay technologies , including lower power requirements , less weight , fast video speed without flicker , and wider viewing angles . story_separator_special_tag not all of the accounting policies require management to make difficult , subjective or complex judgments or estimates . however , the following policies could be deemed to be critical within the sec definition . revenue and cost recognition revenue on product sales is recognized when persuasive evidence of an arrangement exists , such as when a purchase order or contract is received from the customer , the price is fixed , title and risk of loss to the goods has changed and there is a reasonable assurance of collection of the sales proceeds . we obtain written purchase authorizations from our customers for a specified amount of product at a specified price and consider delivery to have occurred at the time of shipment . revenues from research and development activities relating to firm fixed-price contracts and cost-type contracts are generally recognized on the percentage-of-completion method of accounting as costs are incurred ( cost-to-cost basis ) . progress is generally based on a cost-to-cost approach however an alternative method may be used such as physical progress , labor hours or others depending on the type of contract . physical progress is determined as a combination of input and output measures as deemed appropriate by the circumstances . contract costs include all direct material , labor and subcontractor costs and an allocation of allowable indirect costs as defined by each contract , as periodically adjusted to reflect revised agreed upon rates . these rates are subject to audit by the other party . product warranty we offer a one-year product replacement warranty . in general , our standard policy is to repair or replace the defective products . we accrue for estimated returns of defective products at the time revenue is recognized based on historical activity as well as for specific known product issues . the determination of these accruals requires us to make estimates of the frequency and extent of warranty activity and estimate future costs to replace the products under warranty . if the actual warranty activity and or repair and replacement costs differ significantly from these estimates , adjustments to cost of revenue may be required in future periods . use of estimates in accordance with accounting principles generally accepted in the united states of america , management utilizes certain 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 . on an on-going basis , management evaluates its estimates and judgments related to , among others , allowance for doubtful accounts , warranty reserves , inventory reserves , stock-based compensation expense , deferred tax asset valuation allowances , fair value of financial instruments , litigation and other loss contingencies . management bases its estimates and judgments on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results could differ from those estimates . 22 fair value of financial instruments emagin 's cash , cash equivalents , accounts receivable , short-term investments , and accounts payable are stated at cost which approximates fair value due to the short-term nature of these instruments . long-term investments are stated at cost which approximates fair value . stock-based compensation emagin maintains several stock equity incentive plans . the 2005 employee stock purchase plan ( the “ espp ” ) provides our employees with the opportunity to purchase common stock through payroll deductions . employees may purchase stock semi-annually at a price that is 85 % of the fair market value at certain plan-defined dates . as of december 31 , 2014 , the number of shares of common stock available for issuance was 300,000. as of december 31 , 2014 , the plan had not been implemented . the 2008 incentive stock plan ( “ the 2008 plan ” ) adopted and approved by the board of directors on november 5 , 2008 provides for grants of common stock and options to purchase shares of common stock to employees , officers , directors and consultants . the 2008 plan has an aggregate of 2 million shares . in 2014 , there were no options granted from this plan . the 2011 incentive stock plan adopted and approved by the shareholders on november 3 , 2011 provides for grants of common stock and options to purchase shares of common stock to employees , officers , directors and consultants . on june 7 , 2012 , at our annual meeting , the shareholders approved an amended and restated 2011 incentive stock plan ( “ the 2011 plan ” ) . the 2011 plan has an aggregate of 1.4 million shares . in 2014 , there were no options granted from this plan . the 2013 incentive stock plan ( “ the 2013 plan ” ) adopted and approved by the shareholders on may 17 , 2013 provides for grants of common stock and options to purchase shares of common stock to employees , officers , directors and consultants . the 2013 plan has an aggregate of 1.5 million shares . in 2014 , there were 404,113 options granted from this plan . we account for the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors by estimating the fair value of stock awards at the date of grant using the black-scholes option valuation model . stock-based compensation expense is reduced for estimated forfeitures and is amortized over the vesting period using the straight-line method . see note 10 of the consolidated financial statements – stock compensation for a further discussion on stock-based compensation .
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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 . consolidated statements of operations data : replace_table_token_4_th year ended december 31 , 2014 compared to year ended december 31 , 2013 revenues replace_table_token_5_th revenues decreased approximately $ 2.3 million to a total of approximately $ 26.0 million for the year ended december 31 , 2014 from approximately $ 28.0 million for the year ended december 31 , 2013 , an 8 % decrease . in 2014 , product revenue decreased as there was an 18 % decrease in the number of displays sold offset by an 11 % increase in the average selling price as compared to 2013. contract revenue was relatively unchanged year over year . 24 cost of goods sold replace_table_token_6_th cost of goods sold is comprised of costs of product revenue and contract revenue . cost of product revenue includes materials , labor and manufacturing overhead related to our products . cost of contract revenue includes direct and allocated indirect costs associated with performance on contracts . cost of goods sold for the year ended december 31 , 2014 was approximately $ 18.3 million as compared to approximately $ 19.6 million for the year ended december 31 , 2013 , a decrease of approximately $ 1.2 million . cost of goods sold as a percentage of revenues was 71 % for the year ended december 31 , 2014 up from 70 % for the year ended december 31 , 2013 which is a result of a higher cost per display in 2014 , partially offset by a higher average selling price . depreciation increased $ 0.3 million due to the installation of new equipment .
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since the contract price is for all deliverables under one advertising contract , the sohu group allocates the contract price among all the deliverables at the inception of the story_separator_special_tag overview sohu.com inc. ( nasdaq : sohu ) , a delaware corporation organized in 1996 , is a leading chinese online media , search and game service group providing comprehensive online products and services on pcs and mobile devices in the people 's republic of china ( the prc or china ) . our businesses are conducted by sohu.com inc. and its subsidiaries and vies ( collectively referred to as the sohu group or the group ) . the sohu group consists of sohu , which when referred to in this report , unless the context requires otherwise , excludes the businesses and the corresponding subsidiaries and vies of sogou inc. ( sogou ) and changyou.com limited ( changyou ) , sogou and changyou . sogou and changyou are indirect controlled subsidiaries of sohu.com inc. sohu is a leading chinese language online media content and services provider . sogou is a leading online search , client software and mobile internet product provider in china . changyou is a leading online game developer and operator in china as measured by the popularity of its pc game tlbb and its mobile game tlbb 3d , and engages primarily in the development , operation and licensing of online games for pcs and mobile devices . most of our operations are conducted through our china-based subsidiaries and vies . through the operation of sohu , sogou and changyou , we generate online advertising revenues ( including brand advertising revenues and search and search-related revenues ) , online games revenues and other revenues . for the year ended december 31 , 2016 , our total revenues were approximately $ 1.65 billion , representing an decrease of 15 % compared to 2015 , and our gross margin decreased from 56 % to 48 % . our online advertising business generated revenues of $ 1.05 billion , with a 6 % annual decline , representing 63 % of total revenues . our online game business generated revenues of $ 395.7 million , with a 38 % annual decline , representing 24 % of total revenues . in 2016 , our net loss before deducting the noncontrolling interest was $ 119.3 million , compared to net profit of $ 108.9 million in 2015. in 2016 , our net loss after deducting the noncontrolling interest was $ 224.0 million , compared to a net loss of $ 49.6 million in 2015. diluted net loss per share attributable to sohu.com inc. was $ 5.83 in 2016 , compared to a diluted net loss per share attributable to sohu.com inc. of $ 1.32 in 2015. factors and trends affecting our business with the accelerated shift in user activities from pcs to mobile devices and an increase in the number of internet users , the use of various kinds of mobile internet services continued to increase . as of the end of december 2016 , according to china internet network information center ( cnnic ) , mobile internet users had reached 695 million , an increase of 12 % from the end of 2015. at sohu , we focused our efforts on developing a portfolio of leading mobile products across our business lines that we believed our users would like . for sohu media portal , we concentrated our focus on content and product design to accelerate the usage of our core mobile products - the sohu news app and the web-based html5 portal m.sohu.com . during 2016 , we continued to optimize sohu news app 's design and introduce new features to meet users ' appetites . at the same time , we ramped up marketing and promotion activities to accelerate the product 's penetration . daily active users of sohu news app continued to gain traction . on the sales front , in 2016 we experienced a modest decline in revenue for sohu media portal as advertising revenues from large brand advertisers were soft due to the sluggish chinese economy , while solid growth from small and medium enterprise ( sme ) customers partially offset the negative impact . 113 online video services remained one of the most popular internet applications , and continued to gain viewers from television stations . the video industry continued to be deeply competitive as major online platforms aggressively competed for popular content . the competition led to an escalation in the price of content . during 2016 , sohu video began to shift our focus to the self-developed content category , which , in our view , will create long-lasting value to our platform and offer better financial returns compared to tv station content . leveraging our exclusive original content , we also actively explored opportunities with subscription services that we believe will become an important revenue source in addition to traditional advertising revenues . financially , sohu video 's revenues for 2016 were affected by the weak economy and a turnover of the video sales team in the middle of the year , and its loss-making widened from 2015. for our search and search-related business , sogou is one of the top players in the online search sector in china . we have reinforced our competitive position through cooperation with tencent , which has helped us build exclusive access to tencent 's social platforms and bring in unique and high-quality content . in 2016 , we launched and upgraded a series of vertical channels , including english , academic and healthcare . these new services helped us stand out from competing products . by the end of december 2016 , sogou 's mobile search traffic grew 70 % from the same period in 2015 , contributing 75 % of aggregate traffic . mobile search revenues accounted for two-thirds of total search revenues . during 2016 , we also made solid progress in artificial intelligence , in particular with voice technology . story_separator_special_tag sogou 's net income/ ( loss ) attributable to the sogou noncontrolling shareholders is recorded as noncontrolling interest in our consolidated statements of comprehensive income . sogou 's cumulative results of operations attributable to the sogou noncontrolling shareholders , along with changes in shareholders ' equity/ ( deficit ) and adjustment for share-based compensation expense in relation to those share-based awards which are unvested and vested but not yet settled and the sogou noncontrolling shareholders ' investments in sogou 's series a preferred shares and series b preferred shares ( collectively , the sogou preferred shares ) and ordinary shares are accounted for as a noncontrolling interest classified as permanent equity in our consolidated balance sheets , as we have the right to reject a redemption requested by the noncontrolling shareholders . these treatments are based on the terms governing investment , and on the terms of the classes of sogou shares held , by the noncontrolling shareholders in sogou . principles of allocation of sogou 's profit and loss by virtue of the terms of sogou preferred shares and class a ordinary shares and class b ordinary shares , sogou 's losses are allocated in the following order : ( i ) net losses are allocated to holders of sogou class a ordinary shares and the holder of sogou class b ordinary shares until their basis in sogou decreased to zero ; ( ii ) additional net losses are allocated to holders of sogou series a preferred shares until their basis in sogou decreased to zero ; ( iii ) additional net losses are allocated to the holder of sogou series b preferred shares until its basis in sogou decreases to zero ; and ( iv ) further net losses are allocated between sohu and noncontrolling shareholders based on their shareholding percentage in sogou . 115 net income from sogou is allocated in the following order : ( i ) net income is allocated between sohu and noncontrolling shareholders based on their shareholding percentage in sogou until their basis in sogou increases to zero ; ( ii ) additional net income is allocated to the holder of sogou series b preferred shares to bring its basis back ; ( iii ) additional net income is allocated to holders of sogou series a preferred shares to bring their basis back ; ( iv ) further net income is allocated to holders of sogou class a ordinary shares and the holder of sogou class b ordinary shares to bring their basis back ; and ( v ) further net income is allocated between sohu and noncontrolling shareholders based on their shareholding percentage in sogou . key terms of sogou preferred shares the following is a summary of some of the key terms of the sogou preferred shares under sogou 's memorandum and articles of association as currently in effect . dividend rights sogou may not declare or pay dividends on its class a ordinary shares or class b ordinary shares ( collectively , ordinary shares ) unless the holders of the sogou preferred shares then outstanding first receive a dividend on each outstanding preferred share in an amount at least equal to the sum of ( i ) the dividends that would have been payable to the holder of such preferred share if such share had been converted into ordinary shares , at the then-applicable conversion rate , immediately prior to the record date for such dividend , and ( ii ) all accrued and unpaid accruing dividends . accruing dividends are calculated from the date of issuance of the series a preferred shares at the rate per annum of $ 0.0375 per series a preferred share and from the date of issuance of the series b preferred shares at the rate per annum of $ 0.411 per series b preferred share . liquidation rights in the event of any liquidation event , such as the liquidation , dissolution or winding up of sogou , a merger or consolidation of sogou resulting in a change of control , the sale of substantially all of sogou 's assets or similar events , the holders of series b preferred shares are entitled to receive an amount per share equal to the greater of ( i ) $ 6.847 plus any unpaid accruing dividends or ( ii ) such amount per share as would have been payable if the series b preferred shares had been converted into ordinary shares prior the liquidation event , and holders of series a preferred shares are entitled to receive , after payment to the holders of the series b preferred shares but before any payment to holders of ordinary shares , an amount equal to the greater of ( i ) 1.3 times their original investment in the series a preferred shares plus all accrued but unpaid accruing dividends or ( ii ) such amount per share as would be payable if the series a preferred shares had been converted into ordinary shares immediately prior to the liquidation event . redemption rights the sogou preferred shares are not redeemable at the option of the holders . conversion rights each sogou preferred share is convertible , at the option of the holder , at any time , and without the payment of additional consideration by the holder . each sogou preferred share is convertible into such number of class a ordinary shares as is determined , in the case of series a preferred shares , by dividing $ 0.625 by the then-effective conversion price for series a preferred shares , which is initially $ 0.625 , and , in the case of series b preferred shares , by dividing $ 7.267 by the then-effective conversion price for series b preferred shares , which is initially $ 7.267. the conversion prices of the sogou preferred shares are subject to adjustment on a weighted average basis upon the issuance of additional equity shares , or securities convertible into equity shares , at a price per share less than $ 0.625 , in the case of series a preferred shares , or less than
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results of operations revenues the following table presents our revenues by revenue source and by proportion for the periods indicated ( in thousands , except percentages ) : replace_table_token_5_th 131 online advertising revenues online advertising revenues were $ 1.05 billion for 2016 , compared to $ 1.12 billion and $ 899.0 million , respectively , for 2015 and 2014. the year-on-year decrease for 2016 was $ 71.5 million and the year-on-year increase for 2015 was $ 217.6 million , representing a year-on-year decrease rate of 6 % for 2016 and a year-on-year growth rate of 24 % for 2015. brand advertising revenues , generated by sohu and changyou brand advertising revenues were $ 448.0 million for 2016 , compared to $ 577.1 million and $ 541.2 million , respectively , for 2015 and 2014. the year-on-year decrease for 2016 was $ 129.1 million and the year-on-year increase for 2015 was $ 35.9 million , representing a year-on-year decrease of 22 % for 2016 and a year-on-year increase of 7 % for 2015. the year-on-year fluctuations in brand advertising revenues for 2016 and 2015 were both mainly from sohu video . sohu sohu media portal revenues from sohu media portal were $ 181.8 million for 2016 , compared to $ 197.6 million for both 2015 and 2014. the year-on-year decrease for 2016 was $ 15.8 million , representing a year-on-year decrease of 8 % compared to 2015 , while revenues for 2015 were flat compared to 2014. in 2016 , while the slowdown in the growth of the economy in china shrank the budgets of brand advertisers , rapid growth in the number of small and medium enterprise ( sme ) customers advertising on sohu media portal helped offset the impact to some extent .
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the company adopted asu 2011-08 in december 2011 with no impact on the company 's financial position or results of operations . ( 3 ) supplemental cash flow information cash paid for interest and income taxes is as follows : replace_table_token_15_th during the years ended december 31 , 2011 , and 2010 , the company permitted the exercise of stock options with exercise proceeds paid with the company 's stock ( cashless exercises ) totaling $ 93,879 and $ 343,750 , respectively . ( 4 ) receivables and net sales receivables consist of the following : replace_table_token_16_th f-13 receivables are written off against these reserves in the period they are determined to be uncollectible , and payments subsequently received on previously written-off receivables are recorded as a reversal of the bad debt provision . the company performs credit evaluations on its customers and obtains credit insurance on a large percentage of its accounts , but does not generally require collateral . the company recorded a provision for doubtful accounts of $ 55,209 and $ 8,466 for the years ended december 31 , 2011 , and 2010 , respectively . sales to the top customer in the company 's component products segment comprised 10.9 % of that segment 's total sales and 7.2 % of the company 's total sales for the year ended december 31 , 2011. sales to the top customer in the company 's packaging segment comprised 6.9 % of that segment 's total sales and 2.3 % of the company 's total sales for the year ended december 31 , 2011 . ( 5 ) inventories inventories consist of the following : replace_table_token_17_th ( 6 ) other intangible assets the carrying values of the company 's definite-lived intangible assets as of december 31 , 2011 , and 2010 , are as follows : replace_table_token_18_th amortization expense related to intangible assets was $ 195,330 , $ 223,908 , and $ 157,104 for the years ended december 31 , 2011 , 2010 , and 2009 , respectively . future amortization for the years ending december 31 will be approximately : replace_table_token_19_th f-14 ( 7 ) property , plant , and equipment property , plant , and equipment consist of the following : replace_table_token_20_th depreciation and amortization expense for the years ended december 31 , 2011 , 2010 , and 2009 , was $ 2,585,672 , $ 2,928,285 , and $ 2,737,958 , respectively . ( 8 ) investment in and advances to affiliated partnership the company has a 26.32 % ownership interest in a realty limited partnership , united development company limited ( udt ) . the company has consolidated the financial statements of udt for all periods presented because it has determined that udt is a vie , and the company is the primary beneficiary . udt owns one building , which is leased to the company . the lease payments from the company account for 100 % of udt 's revenue . therefore , the company believes it has the power to direct the activities of udt that most significantly impact the entity 's economic performance , and the obligation to absorb losses of udt or the right to receive benefits from udt that could potentially be significant to udt . in addition to the lease arrangement , the company 's management provides management services to udt in certain situations . the creditors of udt have no recourse to the general credit of the company ( see note 23 ) . included in the december 31 consolidated balance sheets are the following amounts related to udt : replace_table_token_21_th ( 9 ) 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 , 2011 , the company had 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 f-15 december 31 , 2011. the company 's $ 17 million revolving credit facility matures november 30 , 2013 ; the term loans are all due 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 , computer and electronics , industrial , and consumer markets . story_separator_special_tag under the credit facility , the company is subject to a minimum fixed-charge coverage financial covenant . the company 's $ 17 million revolving credit facility matures november 30 , 2013 ; the term loans are all due on january 29 , 2016. at december 31 , 2011 , the interest rate on these facilities was 1.28 % , and there were no borrowings outstanding on the line of credit . commitments , contractual obligations , and off-balance-sheet arrangements the following table summarizes the company 's contractual obligations at december 31 , 2011 : replace_table_token_6_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 17 facility . although the company generated cash from operations in the year ended december 31 , 2011 , 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 2011 , 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 . 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 . intangible assets intangible assets include patents and other intangible assets . intangible assets with an indefinite life are not amortized . intangible assets with a definite life are amortized on a straight-line basis , with estimated useful lives ranging from eight to 14 years . indefinite-lived intangible assets are 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 . intangible assets with a definite life are tested for impairment whenever events or circumstances indicate that their carrying amounts may not be recoverable . 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 18 unit . the company assessed qualitative factors as of december 31 , 2011 , and determined that it was more likely than not that the fair value of both reporting units 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 ( approximately $ 37 million or 161 % and $ 7 million or 190 % for the component products and molded fiber reporting units , respectively ) . as a result , no goodwill impairment test was performed in 2011. based upon tests performed in 2010 and 2009 , there was no goodwill impairment as of december 31 , 2010 , and 2009. accounts receivable
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results of operations 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_5_th 2011 compared to 2010 net sales increased 5.4 % to $ 127.2 million for the year ended december 31 , 2011 , from net sales of $ 120.8 million in the same period of 2010. the $ 6.4 million increase in sales was largely attributable to increased sales into the aerospace and defense industries of approximately $ 3.1 million fueled by a new contract for the us marines to supply backpack components ( component products segment ) as well as demand for interior trim parts from the automotive industry of approximately $ 1.8 million ( component products segment ) . gross profit as a percentage of sales ( 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 ) .
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such forward-looking statements include , without limitation , statements with respect to our capabilities ; goals ; expectations regarding future revenue and expense levels ; potential market sizes and demand for our product candidates ; the efficacy , safety and intended utilization of our product candidates ; the development of our clinical-stage product candidates and our recombinant vaccine and adjuvant technologies ; the development of our pre-clinical product candidates ; the conduct , timing and potential results from clinical and other trials ; plans regarding regulatory filings ; the expected timing and content of regulatory actions ; reimbursement by the department of health and human services , biomedical advanced research and development authority ( “ hhs barda ” ) ; the potential modification to our license agreement with wyeth holdings corporation , a subsidiary of pfizer inc. ( “ wyeth ” ) ; our available cash resources and the availability of financing generally ; plans regarding partnering activities , business development initiatives and the adoption of stock incentive plans , and other factors referenced herein . you can identify these forward-looking statements by the use of words or phrases such as “ believe , ” “ may , ” “ could , ” “ will , ” “ would , ” “ possible , ” “ can , ” “ estimate , ” “ continue , ” “ ongoing , ” “ consider , ” “ anticipate , ” “ intend , ” “ seek , ” “ plan , ” “ project , ” “ expect , ” “ should , ” “ would , ” or “ assume ” or the negative of these terms , or other comparable terminology , although not all forward-looking statements contain these words . accordingly , these statements involve estimates , assumptions and uncertainties that could cause actual results to differ materially from those expressed or implied in them . any or all of our forward-looking statements in this annual report may turn out to be inaccurate or materially different than actual results . because the risk factors discussed in this annual report , and other risk factors of which we are not aware , could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by or on behalf of us , you should not place undue reliance on any such forward-looking statements . these statements are subject to risks and uncertainties , known and unknown , which could cause actual results and developments to differ materially from those expressed or implied in such statements . we have included important factors in the cautionary statements included in this annual report , particularly those identified in part i , item 1a , “ risk factors ” of this annual report , that we believe could cause actual results or events to differ materially from the forward-looking statements that we make . these and other risks may also be detailed and modified or updated in our reports and other documents filed with the securities and exchange commission ( sec ) from time to time under the securities act and or the exchange act . you are encouraged to read these filings as they are made . although we believe that the expectations reflected in our forward-looking statements are reasonable , we can not guarantee future results , events , levels of activity , performance or achievement . further , any forward-looking statements speak only as of the date on which it is made , and we undertake no obligation to update or revise any forward-looking statements , whether as a result of new information , future events or otherwise , unless required by law . new factors emerge from time to time , and it is not possible for us to predict which factors will arise . in addition , we can not assess the impact of each factor on our business or the extent to which any factor , or combination of factors , may cause actual results to differ materially from those contained in any forward-looking statements . overview we are a clinical-stage vaccine company focused on the discovery , development and commercialization of recombinant nanoparticle vaccines and adjuvants . using innovative proprietary recombinant nanoparticle vaccine technology , we produce vaccine candidates to efficiently and effectively respond to both known and newly emerging diseases . our vaccine candidates are genetically engineered three-dimensional nanostructures that incorporate immunologically important proteins . our product pipeline targets a variety of infectious diseases with vaccine candidates currently in clinical development for respiratory syncytial virus ( “ rsv ” ) , seasonal influenza , pandemic influenza and the ebola virus ( “ ebov ” ) . we have additional pre-clinical stage programs in a variety of infectious diseases , including middle east respiratory syndrome ( “ mers ” ) . further , cpl biologics private limited ( “ cplb ” ) , our joint venture company with cadila pharmaceuticals limited ( “ cadila ” ) in india , is actively developing a number of vaccine candidates that were genetically engineered by novavax , including its seasonal vlp influenza vaccine candidate that completed enrollment of a phase 3 clinical trial in india in 2014 , and its rabies vaccine that completed its phase 1/2 clinical trial in india in 2014. cplb is owned 20 % by us and 80 % by cadila . cplb operates a manufacturing facility in india for the production of vaccines 38 we are also developing proprietary technology for the production of immune stimulating saponin-based adjuvants , through our swedish wholly-owned subsidiary , novavax ab . our matrix adjuvant technology utilizes selected quillaja fractions , which form separate matrix structures , to develop modern , multi-purpose immune-modulating adjuvant products for a broad range of potential vaccine applications . our lead adjuvant for human applications , matrix-m , has been successfully tested in a phase 1/2 clinical trial for our pandemic influenza h7n9 vaccine candidate , conducted under our contract with hhs barda , and we are currently testing matrix-m in conjunction with our ebov vaccine candidate in a phase 1 clinical trial . story_separator_special_tag , ( 2009 ) n engl j med . 360 ( 6 ) :588-98 14 falsey , a. , et al. , ( 2014 ) infectious disorders . 12 ( 2 ) : 98-102 40 path vaccine solutions ( “ path ” ) clinical development agreement for rsv maternal program in conjunction with our development of our rsv f vaccine candidate for maternal immunization , in 2012 we entered into a clinical development agreement with path to develop our rsv f vaccine candidate in certain low-resource countries . we refer to this as our rsv collaboration program . we were awarded approximately $ 2.0 million by path for initial funding under the agreement to partially support our phase 2 dose-ranging clinical trial in women of childbearing age described above . in october 2013 , the funding under this agreement was increased by $ 0.4 million to support reproductive toxicology studies , which was necessary before we began conducting clinical trials in pregnant women . in december 2013 , we entered into an amendment with path providing an additional $ 3.5 million in funding to support the phase 2 dose-confirmation clinical trial in 720 women of childbearing age . in october 2014 , we entered into an amendment with path providing an additional $ 1.0 million towards the development of a strategy for approaching phase 3 clinical trials of our rsv maternal immunization program and are in ongoing discussion with path for additional funding . we retain global rights to commercialize the product and will support path in its goal to make an rsv maternal vaccine product affordable and available in low-resource countries . to the extent path elects to continue to fund 50 % of our external clinical development costs for the rsv collaboration program , but we do not continue development , we would then grant path a fully-paid license to our rsv f vaccine candidate technology for use in pregnant women in certain contractually defined , low-resource countries . rsv pediatric program while the burden of rsv disease falls heavily on newborn infants , rsv is also a prevalent and currently unaddressed problem in pediatrics . this third market segment for our rsv vaccine candidate remains an important opportunity . in november 2014 , we initiated a phase 1 clinical trial of our rsv f vaccine in 150 healthy children two to six years old . this trial is designed to evaluate the safety and immunogenicity of our rsv f vaccine in children . the preliminary data from this trial are expected in late 2015 or in the first half of 2016 and will inform the next steps in the development of our rsv pediatric program . influenza influenza is a world-wide infectious disease that causes illness in humans with symptoms ranging from mild to life-threatening ; serious illness occurs not only in susceptible populations such as pediatrics and the elderly , but also in the general population because of unique strains of influenza for which most humans have not developed protective antibodies . influenza is a major burden on public health worldwide : estimates of one million deaths each year are attributed to influenza . 15 it is further estimated that , each year , influenza attacks between five and ten percent of adults and 20 % to 30 % of children , causing significant levels of illness , hospitalization and death . 16 although a number of licensed seasonal influenza vaccines are currently commercially available in most geographies , and these manufacturers have capabilities to develop influenza vaccines that are responsive to unique and emerging influenza strains , we believe our influenza virus-like particle ( “ vlp ” ) vaccine candidates have immunological advantages over currently available vaccines . these immunological advantages stem from the fact that our influenza vlps contain three of the major structural virus proteins that are important for fighting influenza : hemagglutinin ( “ ha ” ) and neuraminidase ( “ na ” ) , both of which stimulate the body to produce antibodies that neutralize the influenza virus and prevent its spread through the cells in the respiratory tract , and matrix 1 ( “ m1 ” ) , which stimulates cytotoxic t lymphocytes to kill cells that may already be infected . our vlps are not made from live viruses and have no genetic nucleic material in their inner core , which render them incapable of replicating and causing disease . 15 resolution of the world health assembly . prevention and control of influenza pandemics and annual epidemics . wha56.19 . 28 may 2003 16 who . vaccines against influenza . who position paper – november 2012 weekly epidemiol record 2012 ; 87 ( 47 ) :461–76 . 41 seasonal quadrivalent influenza vaccine developing and commercializing a seasonal influenza vaccine is an important business opportunity and strategic goal for novavax . the advisory committee for immunization practices of the center for disease control and prevention ( “ cdc ” ) recommends that all persons aged six months and older should be vaccinated annually against seasonal influenza . in conjunction with these universal recommendations , attention from the 2009 influenza h1n1 pandemic , along with reports of other cases of avian-based influenza strains , has increased public health awareness of the importance of seasonal influenza vaccination , the market for which is expected to continue to grow worldwide in both developed and developing global markets . in recent years , trivalent influenza vaccines ( three influenza strains : two influenza a strains and one influenza b strain ) have been made generally available on a worldwide basis . with two distinct lineages of influenza b viruses circulating , public health authorities have advocated for the addition of a second influenza b strain to provide additional protection . vaccine manufacturers have responded through the development and licensure of quadrivalent ( i.e . , four influenza strains : two influenza a strains and two influenza b strains ) influenza vaccines . it is expected that quadrivalent seasonal influenza vaccines will ultimately replace trivalent seasonal influenza vaccines in the global market .
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general and administrative expenses general and administrative expenses increased to $ 19.9 million for 2014 from $ 14.8 million for 2013 , an increase of $ 5.1 million , or 34 % . excluding the increase in general and administrative expenses of approximately $ 0.7 million from novavax ab resulting from twelve months of activity in 2014 as compared to only five months in 2013 , the increase was primarily due to higher employee-related costs , as compared to 2013. for 2015 , we expect general and administrative expenses to increase primarily due to increased employee costs and pre-commercialization activities . general and administrative expenses increased to $ 14.8 million for 2013 from $ 10.1 million for 2012 , an increase of $ 4.7 million , or 46 % . excluding the increase in general and administrative expenses of approximately $ 1.0 million from novavax ab , the increase was primarily due to higher professional fees , including those associated with our acquisition of novavax ab . 51 other income ( expense ) : replace_table_token_10_th we had total other income , net of $ 0.7 million for 2014 compared to total other income , net of $ 0.5 million for the same period in 2013. the change in fair value of our warrant liability resulted in a $ 0.3 million decrease in total other income , net for 2014 , as compared to 2013. the warrants expired unexercised on july 31 , 2013. for 2014 , we sold our auction rate security and received proceeds of $ 1.8 million resulting in a realized gain of $ 0.6 million . we had total other income , net of $ 0.5 million for 2013 compared to total other income , net of $ 1.2 million for 2012 , a decrease of $ 0.7 million .
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our actual results may differ materially from those in this discussion as a result of various factors , including but not limited to those discussed in part , 1. item 1a , “ risk factors ” in this form 10-k. this section of this form 10-k generally discusses 2019 and 2018 items and year-to-year comparisons between 2019 and 2018. discussions of 2017 items and year-to-year comparisons between 2018 and 2017 that are not included in this form 10-k can be found in “ management 's discussion and analysis of financial condition and results of operations ” in part ii , item 7 of the company 's annual report on form 10-k for the year ended december 31 , 2018. introduction we are a commercial real estate finance company externally managed by tpg re finance trust management , l.p. and sponsored by tpg . we directly originate , acquire and manage commercial mortgage loans and other commercial real estate-related debt instruments in north america for our balance sheet . we operate our business as one segment . we have made an election to be taxed as a reit for u.s. federal income tax purposes , commencing with our initial taxable year ended december 31 , 2014. we have been organized and have operated in conformity with the requirements for qualification and taxation as a reit under the internal revenue code and we believe that our organization and current and intended manner of operation will enable us to continue to meet the requirements for qualification and taxation as a reit . as a reit , we generally are not subject to u.s. federal income tax on our reit taxable income that we distribute currently to our stockholders . we operate our business in a manner that permits us to maintain an exclusion or exemption from registration under the investment company act . 2019 highlights story_separator_special_tag share of $ 1.73 , declared dividends of $ 1.72 per share , and reported core earnings per share of $ 1.76. in addition , our book value per common share as of december 31 , 2019 was $ 19.78. as further described below , core earnings is a measure that is not prepared in accordance with gaap . we use core earnings to evaluate our performance excluding the effects of certain transactions and gaap adjustments that we believe are not necessarily indicative of our current loan activity and operations . earnings per common share and dividends declared per common share the following table sets forth the calculation of basic and diluted net income per share and dividends declared per share ( in thousands , except share and per share data ) : replace_table_token_7_th ( 1 ) represents net income attributable to holders of our common stock and class a common stock after deducting preferred stock dividends . ( 2 ) weighted average number of common shares outstanding , earnings per common share and dividends declared per common share includes common stock and class a common stock . core earnings we use core earnings to evaluate our performance excluding the effects of certain transactions and gaap adjustments we believe are not necessarily indicative of our current loan activity and operations . core earnings is a non-gaap measure , which we define as gaap net income ( loss ) attributable to our stockholders , including realized gains and losses not otherwise included in gaap net income ( loss ) , and excluding ( i ) non-cash equity compensation expense , ( ii ) depreciation and amortization , ( iii ) unrealized gains ( losses ) , and ( iv ) certain non-cash items . core earnings may also be adjusted from time to time to exclude one-time events pursuant to changes in gaap and certain other non-cash charges as determined by our manager , subject to approval by a majority of our independent directors . the exclusion of depreciation and amortization from the calculation of core earnings only applies to debt investments related to real estate to the extent we foreclose upon the property or properties underlying such debt investments . we believe that core earnings provides meaningful information to consider in addition to our net income and cash flow from operating activities determined in accordance with gaap . although pursuant to our management agreement we calculate the incentive and base management fees due to our manager using core earnings before incentive fee expense , we report core earnings after incentive fee expense , because we believe this is a more meaningful presentation of the economic performance of our common and class a common stock . core earnings does not represent net income or cash generated from operating activities and should not be considered as an alternative to gaap net income , or an indication of our gaap cash flows from operations , a measure of our liquidity , or an indication of funds available for our cash needs . in addition , our methodology for calculating core earnings may differ from the methodologies employed by other companies to calculate the same or similar supplemental performance measures , and accordingly , our reported core earnings may not be comparable to the core earnings reported by other companies . for additional information on the fees we pay our manager , see note 10 to our consolidated financial statements included in this form 10-k. 61 the following tables provide a reconciliation of gaap net income attributable to common stockholders to core earnings ( in thousands , except share and per share data ) : replace_table_token_8_th ( 1 ) represents gaap net income attributable to our common and class a common stockholders after deducting dividends paid on participating securities . for more information regarding the calculation of earnings per share using the two class method , see note 11 to our consolidated financial statements in this form 10-k. ( 2 ) weighted average number of shares outstanding includes common stock and class a common stock . story_separator_special_tag as of december 31 , 2019 , our cre debt securities investment portfolio consisted of one fixed rate and thirty seven floating rate securities , the underlying collateral of which consists of first mortgage loans secured by commercial real estate properties . the underlying real estate collateral is located across the united states , primarily in texas and california , with no state representing more than 15.72 % of an investment 's current face amount . our cre debt securities carry ratings of bbb- to aaa ; our sole unrated cre debt security has a gse guarantee with respect to payment of interest and principal . our cre clo investments are floating rate securities with an expected weighted average life of 3.2 years . the following table provides selected statistics for our cre debt securities portfolio as of december 31 , 2019 ( dollars in thousands ) : replace_table_token_12_th ( 1 ) cre debt securities exclude the company 's holdings of trtx 2018-fl2 notes with a current face value of $ 14.7 million which is eliminated in consolidation . for more information regarding trtx 2018-fl2 , see note 5 to our consolidated financial statements in this form 10-k. current face amount is weighted by estimated fair value as of december 31 , 2019 . ( 2 ) weighted average coupon includes libor of 1.76 % as of december 31 , 2019. amounts disclosed are before giving effect to unamortized purchase price premium and discount and unrealized gains or losses . ( 3 ) weighted average yield to expected maturity based on expected principal repayment window . ( 4 ) based on current repayment scenarios . ( 5 ) one of our cmbs investments is unrated ; however , principal and interest on this cmbs investment is guaranteed by a u.s. government sponsored enterprise ( “ gse ” ) . the cmbs was issued by fannie mae and is backed by a mortgage loan on a multifamily property that satisfies gse program requirements . the two other cmbs investments in our cre debt securities portfolio are rated a- and aa- . for information regarding our holdings in cre debt securities by ratings , geographic concentration and property type as of december 31 , 2019 , see item 1 - “ business – investment portfolio – cre debt securities portfolio ” in this form 10-k. asset management we actively manage the assets in our portfolio from closing to final repayment . we are party to an agreement with situs , one of the largest commercial mortgage loan servicers , pursuant to which situs provides us with dedicated asset management employees for performing asset management services pursuant to our proprietary guidelines . following the closing of an investment , this dedicated asset management team rigorously monitors the investment under our manager 's oversight , with an emphasis on ongoing financial , legal and quantitative analyses . through the final repayment of an investment , the asset management team maintains regular contact with borrowers , servicers and local market experts monitoring performance of the collateral , anticipating borrower , property and market issues , and enforcing our rights and remedies when appropriate . 64 our manager reviews our entire loan portfolio quarterly , undertakes an assessment of the performance of each loan , and assigns it a risk rating between “ 1 ” and “ 5 , ” from least risk to greatest risk , respectively . see notes 2 and 3 to our consolidated financial statements included in this form 10-k for a discussion regarding the risk rating system that we use in connection with our portfolio . the following table allocates the carrying value of our loan portfolio as of december 31 , 201 9 and december 31 , 201 8 based on our internal risk ratings ( dollars in thousands ) : replace_table_token_13_th for the period ended december 31 , 2019 and december 31 , 2018 , the weighted average risk rating of our total loan exposure based on carrying value was 2.9 and 2.8 , respectively . investment portfolio financing our portfolio financing arrangements during the years ended december 31 , 2019 and december 31 , 2018 included collateralized loan obligations , secured revolving repurchase agreements , senior secured and secured credit agreements , and asset-specific financing arrangements . at december 31 , 2018 , our portfolio financing arrangements also included one term loan facility . we had one outstanding non-consolidated senior interest at december 31 , 2019 , with a total loan commitment of $ 132.0 million . we did not have any non-consolidated senior interests outstanding at december 31 , 2018. the following table details our portfolio financing arrangements at december 31 , 2019 and december 31 , 2018 ( dollars in thousands ) : replace_table_token_14_th ( 1 ) the term loan financing was terminated in october 2019 . ( 2 ) excludes deferred financing costs of $ 25.6 million and $ 23.8 million as of december 31 , 2019 and december 31 , 2018 , respectively . secured revolving repurchase agreements as of december 31 , 2019 , aggregate borrowings outstanding under our secured revolving repurchase agreements totaled $ 2.3 billion , of which $ 1.6 billion related to our mortgage loan investments . as of december 31 , 2019 , for our secured revolving repurchase agreements related to our mortgage loan investments , the weighted average interest rate was libor plus 1.72 % per annum , and the weighted average approved advance rate was 78.6 % . as of december 31 , 2019 , outstanding borrowings under these agreements for our mortgage loan investments had a weighted average term to extended maturity of 2.9 years ( assuming we have exercised all extension options and term-out provisions ) . the morgan stanley secured revolving repurchase agreement has an initial maturity date of may 4 , 2020 and can be extended for additional successive one-year periods , subject to approval by the lender . the number of extension options is not limited by the terms of this agreement .
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operating results : generated gaap net income of $ 126.3 million , or $ 1.73 per share , an increase of $ 19.4 million , or 18.1 % , as compared to the year ended december 31 , 2018. increased core earnings to $ 128.2 million , or $ 1.76 per share , an increase of $ 20.8 million , or 19.4 % , as compared to the year ended december 31 , 2018. declared dividends of $ 128.4 million , or $ 1.72 per share , representing a dividend yield of 8.7 % on a book value per common share of $ 19.78 as of december 31 , 2019. investment portfolio activity : originated thirty two loans with an aggregate commitment of $ 2.9 billion , an initial unpaid principal balance of $ 2.4 billion , unfunded commitments upon closing of $ 439.5 million , and a weighted average interest rate of libor plus 3.35 % , including a $ 132.0 million non-consolidated senior interest . funded $ 235.2 million in future funding obligations associated with existing loans . received cash proceeds of $ 1.9 billion from principal repayments , including $ 59.6 million from a loan sale . acquired $ 785.1 million of primarily investment grade-rated cre debt securities , sold $ 46.6 million of cre debt securities and received principal repayments of $ 26.7 million on our cre debt securities investments . 59 financing activity : closed trtx 2019-fl3 , a collateralized loan obligation totaling $ 1.2 billion , financing twenty two existing first mortgage loan investments , comprised of twenty pari passu participation interests and two whole loans , significantly reducing our cost of funds and increasing non mark-to-market , non-recourse , matched-term financing of the loan portfolio to more than 50 % of funded debt .
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during 2015 , the company executed against the strategic phase of the growth game plan , investing in core activity systems critical to the company 's success , unlocking trapped capacity for growth through project renewal , investing in new capabilities and the company 's brands for accelerated growth , and beginning to leverage an operating company structure to release the full potential of the business . the company expects to transition to the acceleration phase of the growth game plan during 2016. the company is driving the growth game plan into action and simplifying its structure through the execution of project renewal , making sharper portfolio choices and investing in new marketing and innovation to accelerate performance . in the growth game plan operating model , the company has two core activity systems , development and delivery , supported by three business partnering functions , human resources , finance/it and legal , and four winning capabilities in design , marketing & insight , supply chain and customer development , all in service to drive accelerated performance in the company 's five segments . the company 's five segments and the key brands included in each segment are as follows : segment key brands description of primary products writing sharpie ® , paper mate ® , expo ® , prismacolor ® , mr. sketch ® , elmer 's ® , x-acto ® , parker ® , waterman ® , dymo ® office writing instruments , including markers and highlighters , pens and pencils ; art products ; activity-based adhesive and cutting products ; fine writing instruments ; labeling solutions home solutions rubbermaid ® , contigo ® , bubba ® , calphalon ® , levolor ® , goody ® indoor/outdoor organization , food storage and home storage products ; durable beverage containers ; gourmet cookware , bakeware and cutlery ; window treatments ; hair care accessories tools irwin ® , lenox ® , hilmor , dymo ® industrial hand tools and power tool accessories ; industrial bandsaw blades ; tools for hvac systems ; label makers and printers for industrial use commercial products rubbermaid commercial products ® cleaning and refuse products ; hygiene systems ; material handling solutions baby & parenting graco ® , baby jogger ® , aprica ® , teutonia ® infant and juvenile products such as car seats , strollers , highchairs and playards in october 2015 , the company acquired elmer 's products , inc. ( “ elmer 's ” ) for a purchase price of $ 570.1 million . elmer 's , whose brands include elmer 's ® , krazy glue ® and x-acto ® , is a provider of activity-based adhesive and cutting products that inspire creativity in the classroom , at home , in the office , in the workshop and at the craft table . the acquisition was accounted for using the purchase method of accounting , and accordingly , elmer 's results of operations were included in the company 's statement of operations since the acquisition date , including net sales of $ 36.3 million . elmer 's is reported as part of our writing segment . based on the company 's strategy to allocate resources to its businesses relative to each business ' growth potential and , in particular , those businesses with the greater right to win in the marketplace , during 2015 the company divested its rubbermaid medical cart 27 business and initiated a process to divest its levolor ® and kirsch ® window coverings brands ( “ décor ” ) . the rubbermaid medical cart business focuses on optimizing nurse work flow and medical records processing in hospitals and was included in the commercial products segment . the company sold substantially all of the assets of the rubbermaid medical cart business in august 2015. the rubbermaid medical cart business was included in the company 's consolidated results from continuing operations , including net sales of $ 26.5 million , until it was sold in august 2015. décor will continue to be reported in our results from continuing operations as part of our home solutions segment until the business is sold , which is expected in 2016. in 2015 , décor generated $ 300.8 million of net sales . the assets and liabilities of décor that are subject to divestiture are classified as current assets held for sale and current liabilities held for sale in the consolidated balance sheet as of december 31 , 2015. the endicia on-line postage and the culinary electrics and retail businesses have been classified as discontinued operations since the company committed in 2014 to sell these businesses . endicia was included in our writing segment , and the culinary businesses were included in our home solutions segment . during 2015 , the company sold endicia for a sales price of $ 208.7 million , subject to customary working capital adjustments . during 2015 , the company ceased operations in its culinary electrics and retail businesses . proposed acquisition of jarden corporation on december 13 , 2015 , the company entered into an agreement and plan of merger ( the “ merger agreement ” ) to acquire jarden corporation ( “ jarden ” ) . jarden is a leading , global consumer products company with leading brands , such as yankee candle , crock-pot , foodsaver , mr. coffee , oster , coleman , first alert , rawlings , jostens , k2 , marker , marmot , volkl , and many others . the merger is expected to create a consumer goods company with estimated annual sales of $ 16 billion to be named newell brands inc. ( “ newell brands ” ) , with a portfolio of leading brands in large , growing , unconsolidated , global markets . newell rubbermaid anticipates significant annualized cost synergies will be realized by newell brands , driven by efficiencies of scale and efficiencies in procurement , cost to serve and infrastructure . story_separator_special_tag accordingly , the impact of planned and completed divestitures includes the divested rubbermaid medical cart business for the entire year and décor for the period july 1 , 2015 through december 31 , 2015. core sales is determined by applying a fixed exchange rate , calculated as the 12-month average in the prior year , to the current and prior year local currency sales amounts , with the difference , after removing the impact of acquisitions and planned and completed divestitures , equal to changes in core sales , and the difference between the change in reported net sales and the change in total constant-currency sales , calculated using the 12-month average exchange rate in the prior year , being attributable to currency . core sales increased 9.4 % in the company 's win bigger businesses , which includes writing & creative expression in the writing segment , food & beverage in the home solutions segment , and the tools and commercial products segments . net sales in the company 's win bigger businesses increased 7.2 % , which includes a 490 basis point contribution from acquisitions and a 710 basis point adverse impact from foreign currency . gross margin was 39.0 % , up 50 basis points compared to the prior year . the improvement was driven by productivity , pricing , lower input costs ( including resin ) and the comparison to the prior year period which reflected the impacts of the graco harness buckle recall , which more than offset unfavorable foreign currency and sourced product , labor and other input cost inflation . unfavorable foreign currency resulted in a 150 basis point decrease in gross margin , and the adverse impact of the cost of products sold associated with the graco product recall in the prior year 's results contributed 20 basis points of improvement . selling , general and administrative expenses ( “ sg & a ” ) increased $ 93.4 million to $ 1,573.9 million , due primarily to increased advertising and promotion in support of the company 's brands and innovation , costs associated with the graco product recall , sg & a of acquired businesses ( ignite , bubba and baby jogger ) , costs associated with due diligence for the jarden transaction , increased annual incentive compensation and increased costs associated with project renewal transformation initiatives , partially offset by a reduction in overhead costs due to project renewal initiatives and the impacts of foreign currency . the company 's advertising and promotion strategy is to invest behind innovation , including new product launches , and in building brands . during 2015 , the company increased advertising and promotion investments by $ 42.3 million , representing an incremental 60 basis points as a percentage of net sales to 4.9 % . the company 's investments in brand-building and consumer demand creation and commercialization activities in 2015 included the following : continued advertising campaigns supporting the new line of sharpie ® highlighters called sharpie clear view ® , which have a unique , see-through tip for more precise highlighting ; continued investment in inkjoy ® advertising in the north america , europe and latin america markets ; continued advertising for mr. sketch ® scented markers in the u.s. market ; advertising support for parker ® in china , japan , hong kong and the united kingdom ; advertising support behind dymo ® office , supporting the why write campaign in the europe and u.s. markets ; 29 advertising campaigns supporting easy find lids ® and lunchblox ® kids , making it easier for parents to pack healthy lunches for kids ' lunch bags ; advertising for calphalon ® self-sharpening cutlery with sharpin tm technology in north america ; advertising support behind irwin brazil 's 240 cart tool box campaign ; advertising for irwin 's vise-grip ® family of hand tools ; continued advertising in north america , china and brazil for brute ® , slim jim ® step-on , rubbermaid hygen tm disposable microfiber , wavebrake ® mop buckets and maximizer ® mops in the commercial products segment ; advertising for graco 4ever ® all-in-one convertible car seat ; and advertising for the graco nautilus ® plus 3-in-1 car seat . the company plans to continue increasing advertising and promotion in support of its brands to drive growth . settled u.s. pension liabilities with plan assets for certain participants which resulted in a $ 52.1 million non-cash settlement charge in the fourth quarter of 2015. continued execution of project renewal to simplify the business , reduce structural costs and increase investment in the most significant growth platforms within the business by taking significant steps in implementing activities centered around project renewal 's five workstreams , resulting in $ 74.0 million of restructuring costs in 2015. realized a $ 9.2 million foreign exchange loss during 2015 for the company 's venezuelan operations associated with declines in the sicad exchange rate for the venezuela bolivar throughout the year and recognized a $ 172.7 million pretax charge ( $ 165.1 million after tax ) upon deconsolidation of the company 's venezuela subsidiary on december 31 , 2015. reported a 23.2 % effective tax rate for 2015 , compared to an effective tax rate of 19.3 % for 2014. during 2015 , the company 's effective tax rate was adversely impacted by the geographical mix of earnings , the strengthening of the u.s. dollar against foreign currencies and the implied tax rate associated with the $ 7.6 million income tax benefit on the $ 172.7 million venezuela deconsolidation charge , which were partially offset by benefits from the impact of increased foreign tax credits . during 2014 , the company recognized discrete income tax benefits of $ 15.5 million related to the resolution of certain tax contingencies and $ 18.4 million of income tax benefits associated with the net reduction of valuation allowances on certain international deferred tax assets .
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business segment operating results : 2015 vs. 2014 business segment operating results net sales by segment were as follows for the years ended december 31 , ( in millions , except percentages ) : replace_table_token_9_th the following table sets forth an analysis of changes in net sales in each segment for 2015 as compared to 2014 : replace_table_token_10_th operating income ( loss ) by segment was as follows for the years ended december 31 , ( in millions , except percentages ) : replace_table_token_11_th 38 ( 1 ) for 2015 , includes $ 3.5 million of project-related costs associated with project renewal , $ 2.6 million of costs associated with venezuelan inventory resulting from changes in the exchange rate for the venezuelan bolivar , and $ 1.2 million of acquisition and integration costs . for 2014 , includes $ 5.2 million of costs associated with venezuelan inventory resulting from changes in the exchange rate for the venezuelan bolivar . ( 2 ) for 2015 , includes $ 2.3 million of project-related costs associated with project renewal and $ 1.5 million of acquisition , integration and divestiture costs . for 2014 , includes $ 4.2 million of acquisition and integration costs associated with the ignite and bubba acquisitions . ( 3 ) includes $ 0.5 million and $ 1.7 million for 2015 and 2014 , respectively , of project-related costs associated with project renewal . ( 4 ) includes $ 4.7 million and $ 0.4 million for 2015 and 2014 , respectively , of project-related costs associated with project renewal . ( 5 ) includes $ 1.7 million and $ 1.3 million for 2015 and 2014 , respectively , of acquisition and integration costs associated with the baby jogger acquisition and $ 10.2 million and $ 15.0 million of charges relating to the graco harness buckle recall for 2015 and 2014 , respectively .
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this guidance is only applicable to the covid-19 pandemic related lease concessions that do not result in a substantial increase in the rights of the lessor or the obligations of the lessee . we have elected this option relating to qualifying rent deferral and rent abatement agreements . for qualifying lease modifications with rent deferrals , this results in no story_separator_special_tag this section generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this form 10-k can be found in “ management 's discussion and analysis of financial condition and results of operations ” in part ii , item 7 of our annual report on form 10-k for the fiscal year ended december 31 , 2019 filed with the securities and exchange commission on february 10 , 2020. forward-looking statements certain statements in this section or elsewhere in this report may be deemed “ forward-looking statements ” . see “ item 1a . risk factors ” in this report for important information regarding these forward-looking statements and certain risk and uncertainties that may affect us . the following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing in “ item 8. financial statements and supplementary data ” of this report . overview we are an equity real estate investment trust ( `` reit '' ) specializing in the ownership , management , and redevelopment of high quality retail and mixed-use properties located primarily in densely populated and affluent communities in strategically selected metropolitan markets in the northeast and mid-atlantic regions of the united states , california , and south florida . as of december 31 , 2020 , we owned or had a majority interest in community and neighborhood shopping centers and mixed-use properties which are operated as 101 predominantly retail real estate projects comprising approximately 23.4 million square feet . in total , the real estate projects were 92.2 % leased and 90.2 % occupied at december 31 , 2020. we have paid quarterly dividends to our shareholders continuously since our founding in 1962 and have increased our dividends per common share for 53 consecutive years . summary financial information the following table includes select financial information that is helpful in understanding the trends in financial condition and the results of operations discussed throughout this item 7. and “ item 8. financial statements and supplementary data. ” 30 replace_table_token_10_th replace_table_token_11_th ( 1 ) property operating income is a non-gaap measure . see `` results of operations '' in this item 7. for further discussion . ( 2 ) funds from operations `` ffo '' is a supplemental non-gaap measure . see `` liquidity and capital resources '' in this item 7. for further discussion . ( 3 ) ebitda for real estate ( `` ebitdare '' ) is a non-gaap measure that nareit defines as : net income computed in accordance with gaap plus net interest expense , income tax expense , depreciation and amortization , gain or loss on sale of real estate , impairments of real estate , and adjustments to reflect the entity 's share of ebitdare of unconsolidated affiliates . we calculate ebitdare consistent with the nareit definition . as ebitda is a widely known and understood measure of performance , management believes ebitdare represents an additional non-gaap performance measure , independent of a company 's capital structure that will provide investors with a uniform basis to measure the enterprise value of a company . ebitdare also approximates a key performance measure in our debt covenants , but it should not be considered an alternative measure of operating results or cash flow from operations as determined in accordance with gaap . the reconciliation of net income to ebitdare for the periods presented is as follows : 31 replace_table_token_12_th ( 4 ) fixed charges consist of interest on borrowed funds ( including capitalized interest ) , amortization of debt discount/ premiums and debt costs , costs related to the early extinguishment of debt , and the portion of rent expense representing an interest factor . excluding the $ 11.2 million early extinguishment of debt charge from fixed charges in 2020 , the ratio of ebitdare to combined fixed charges and preferred share dividends is 2.9x . excluding the $ 11.9 million charge related to the buyout of the kmart lease at assembly square marketplace in 2019 , our ratio of ebitdare to combined fixed charges and preferred share dividends remained 4.2x . impacts of covid-19 pandemic we continue to monitor and address risks related to the covid-19 pandemic . in march 2020 , the world health organization characterized covid-19 as a global pandemic and in response to the rapid spread of the virus , state , and local governments issued orders and recommendations to attempt to reduce the further spread of the disease . such orders included shelter-in-place orders , travel restrictions , limitations on public gatherings , school closures , social distancing requirements and the closure of all but critical and essential businesses and services . these orders required closure of all of our corporate offices as non-essential businesses . except for those employees who were critical to providing the necessary day-to-day property management functions required to keep our properties open and operating for essential businesses such as grocery stores and drug stores , and a few employees who were needed to carry out critical corporate functions , we transitioned our entire workforce to remote work in march 2020. although some of our corporate offices have reopened with capacity limitations , approximately 75 % of our workforce continues to work remotely on a regular basis . we have not laid off , furloughed , or terminated any employees nor have we modified the compensation of any or our employees as a result of covid-19 , and the transition to a largely remote workforce has not had any material adverse impact on our financial reporting systems , our internal controls , or disclosure controls and procedures . story_separator_special_tag critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america , referred to as “ gaap ” , requires management to make estimates and assumptions that in certain circumstances affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities , and revenues and expenses . these estimates are prepared using management 's best judgment , after considering past and current events and economic conditions . in addition , information relied upon by management in preparing such estimates includes internally generated financial and operating information , external market information , when available , and when necessary , information obtained from consultations with third party experts . actual results could differ from these estimates . a discussion of possible risks which may affect these estimates is included in “ item 1a . risk factors ” of this report . management considers an accounting estimate to be critical if changes in the estimate could have a material impact on our consolidated results of operations or financial condition . our significant accounting policies are more fully described in note 2 to the consolidated financial statements ; however , the most critical accounting policies , which involve the use of estimates and assumptions as to future uncertainties and , therefore , may result in actual amounts that differ from estimates , are as follows : revenue recognition and accounts receivable our leases with our tenants are classified as operating leases . when collection of substantially all lease payments during the lease term is considered probable , the lease qualifies for accrual accounting . lease payments are recognized on a straight-line 33 basis from the point in time when the tenant controls the space through the term of the related lease . variable lease payments relating to percentage rent are recognized at the end of the lease year or earlier if we have determined the required sales level is achieved . real estate tax and other cost reimbursements are recognized on an accrual basis over the periods in which the related expenditures are incurred . many of our leases contain tenant options that enable the tenant to extend the term of the lease at expiration at pre-established rental rates that often include fixed rent increases , consumer price index adjustments or other market rate adjustments from the prior base rent . for a tenant to terminate its lease agreement prior to the end of the agreed term , we may require that they pay a fee to cancel the lease agreement . lease termination fees are generally recognized on the termination date if the tenant has relinquished control of the space . when a lease is terminated early but the tenant continues to control the space under a modified lease agreement , the lease termination fee is generally recognized evenly over the remaining term of the modified lease agreement . lease concessions ( unrelated to the covid-19 pandemic ) are evaluated to determine whether the concession represents a modification of the original lease contract . modifications generally result in a reassessment of the lease term and lease classification , and remeasurement of lease payments received . remeasured lease payments are recognized on a straight-line basis over the remaining term of the modified lease contract . in april 2020 , the financial accounting standards board ( `` fasb '' ) issued interpretive guidance relating to the accounting for lease concessions provided as a result of the covid-19 pandemic that allows entities to treat the concession as if it was a part of the existing contract instead of applying lease modification accounting . this guidance is only applicable to the covid-19 pandemic related lease concessions that do not result in a substantial increase in the rights of the lessor or the obligations of the lessee . we have elected this option relating to qualifying rent deferral and rent abatement agreements . for qualifying lease modifications with rent deferrals , this results in no change to our revenue recognition but an increase in the lease receivable balance until the deferred rent has been repaid . for qualifying lease modifications that include rent abatement concessions , this results in a direct reduction of rental income in the current period . as of december 31 , 2020 , we have entered into rent deferral agreements and rent abatement agreements related to the covid-19 pandemic representing approximately $ 36 million and $ 35 million , respectively , of rent otherwise owed during the year ended december 31 , 2020 , and continue negotiations with other tenants . when collection of substantially all lease payments during the lease term is not considered probable , total lease revenue is limited to the lesser of revenue recognized under accrual accounting or cash received . determining the probability of collection of substantially all lease payments during a lease term requires significant judgment . this determination is impacted by numerous factors including our assessment of the tenant 's credit worthiness , economic conditions , tenant sales productivity in that location , historical experience with the tenant and tenants operating in the same industry , future prospects for the tenant and the industry in which it operates , and the length of the lease term . if leases currently classified as probable are subsequently reclassified as not probable , any outstanding lease receivables ( including straight-line rent receivables ) would be written-off with a corresponding decrease in rental income . for example , in the event that our collectibility determinations were not accurate and we were required to write off additional receivables equaling 1 % of rental income , our rental income and net income would decrease by $ 8.3 million . if leases currently classified as not probable are subsequently changed to probable , any lease receivables ( including straight-line rent receivables ) are re-instated with a corresponding increase to rental income . since march 2020 , federal , state , and local governments have taken various actions to mitigate the spread of covid-19 .
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summary of cash flows replace_table_token_15_th net cash provided by operating activities decreased $ 92.0 million to $ 369.9 million during 2020 from $ 461.9 million during 2019. the decrease was primarily attributable to lower net income before non-cash items and the timing of cash receipts , both largely driven by impacts of the covid-19 pandemic and payments of annual real estate tax recovery billings . net cash used in investing activities increased $ 51.9 million to $ 368.4 million during 2020 from $ 316.5 million during 2019. the increase was primarily attributable to : a $ 138.5 million decrease in proceeds from sales of real estate , resulting from the sale of three properties , one building , and the two remaining condominium units at our pike & rose property in 2020 , as compared to the sale under the threat of condemnation of a portion of san antonio center and the sale of three properties , one land parcel , and the sale of 43 condominiums at our assembly row and pike & rose properties in 2019 , a $ 81.6 million increase in capital expenditures and leasing costs as we continue to invest in pike & rose , assembly row , santana row and other redevelopments , $ 12.9 million for net costs paid in 2020 relating to the partial sale under threat of condemnation at san antonio center in 2019 , and a $ 9.6 million acquisition of two loans secured by a shopping center in rockville , maryland , that is owned by a third party , partially offset by a $ 194.9 million decrease in acquisitions of real estate , primarily due to the acquisitions of georgetowne shopping center , 37 mixed-use buildings in hoboken , new jersey , and fairfax junction in 2019 , partially offset by the acquisition of two additional buildings in hoboken , new jersey in 2020. net cash provided by financing
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60 note 3 - goodwill and other intangible assets the table below presents changes in the carrying amount of goodwill and our accumulated impairment losses ( in thousands ) : replace_table_token_40_th in october 2017 and october 2016 story_separator_special_tag for a discussion of our base business calculations , see the results of operations section below . 2017 financial overview story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; font-size:10pt ; '' > while we estimate that new pool construction increased to approximately 75,000 new units in 2017 from the historically low levels experienced during the economic downturn , construction levels are still down approximately 65 % compared to peak historical levels and down approximately 50 % to 55 % from what we consider normal levels . favorable weather plays a role in industry growth by accelerating growth in any given year , while unfavorable weather impedes growth . in 2017 specifically , our industry experienced modestly favorable weather overall , despite the severe storms that impacted our industry in texas and florida in september and october . due to the repairs required following major storms , sales mostly recovered by the end of the year . in 2016 , an earlier start to the pool season due to warmer than usual temperatures and overall favorable weather throughout the rest of the year benefited the industry as a whole . in 2015 , excessive precipitation impacted our industry in the second quarter ; however a mild fall and delayed winter alleviated any contraction in industry growth rates . in establishing our outlook each year , we base our growth assumptions on normal weather conditions and do not incorporate alternative weather predictions into our guidance . we believe there is potential for continued market recovery over the next several years . the great recession created a build-up of deferred replacement and remodeling activity , which we have largely fulfilled over the past seven years . we expect that new pool and irrigation construction levels will continue to grow incrementally , but we believe that consumer investments in outdoor living spaces beyond the swimming pool will generate greater growth over the next four to seven years . additionally , we believe favorable demographics from an aging population and southern migration are ideal for increased residential outdoor living investment . we expect that market conditions in the united states will continue to improve , enabling further replacement , remodeling and new construction activity and that the industry will realize an annual growth rate of approximately 4 % to 7 % over this time period . as economic trends indicate that consumer spending has largely recovered and that residential construction activities will likely continue to improve , we believe that we are well positioned to take advantage of both the market expansion and the inherent long‑term growth opportunities in our industry . we established our initial outlook for 2018 based on reasonable expectations of organic market share growth , ongoing leverage of infrastructure and continuous process improvements . for 2018 , we expect the macroeconomic environment in the united states will be quite similar to 2017 . we expect to continue to gain market share through our comprehensive service and product offerings , which we continually diversify through internal sourcing initiatives and expansion into new markets . we also plan to broaden our geographic presence by opening 4 to 6 new sales centers in 2018 and by making selective acquisitions when appropriate opportunities arise . the following section summarizes our outlook for 2018 : we expect sales growth of 6 % to 7 % , impacted by the following factors and assumptions : ◦ assumed normal weather patterns for 2018 ; ◦ anticipated continued growth from replacement , remodeling and construction activity and market expansion through newer product offerings like hardscapes and commercial pools ; ◦ estimated 1 % growth from acquisitions completed throughout 2017 ; ◦ inflationary product cost increases of approximately 1 % to 2 % ; and ◦ one additional selling day for the full year for 2018 compared to 2017 due to an extra selling day in the fourth quarter ( neutral selling days for all other quarters ) . we project relatively neutral gross margin trends for the full year , as we believe our sales growth will continue to be weighted toward sales of lower margin discretionary products . adverse margin impacts should be offset by benefits from our efforts in supply chain management and internal pricing initiatives . we expect operating expenses will grow at approximately 60 % of the rate of our gross profit growth , reflecting inflationary increases and incremental costs to support our sales growth expectations . the main challenges in achieving this metric include managing people and facility costs in tight labor and real estate markets . however , we continue to see significant opportunity to leverage our existing infrastructure to achieve this goal . 20 our provision for income taxes for 2017 was impacted by both u.s. tax reform and asu 2016-09. as a result of the recently enacted tax legislation , we recorded a provisional tax benefit of $ 12.0 million in the fourth quarter of 2017 , which primarily reflects the re-measurement of our net deferred tax liability . in 2018 , we expect our effective tax rate to approximate 25.5 % , which is a reduction from our historical rate of approximately 38.5 % , both of which exclude the impact of asu 2016-09. as discussed further in critical accounting estimates below , we have not finalized our accounting for the tax effects of tax reform ; however , our net benefit is based on reasonable estimates for those tax effects . our effective tax rate is dependent upon our results of operations and may change if actual results are different from our current expectations , particularly any significant changes in our geographic mix . story_separator_special_tag if the balance of the accounts receivable reserve increased or decreased by 20 % at december 31 , 2017 , pretax income would change by approximately $ 0.8 million and earnings per share would change by approximately $ 0.01 per diluted share ( based on the number of weighted average diluted shares outstanding for the year ended december 31 , 2017 ) . inventory obsolescence product inventories represent the largest asset on our balance sheet . our goal is to manage our inventory such that we minimize stock-outs to provide the highest level of service to our customers . to do this , we maintain at each sales center an adequate inventory of stock keeping units ( skus ) with the highest sales volumes . at the same time , we continuously strive to better manage our slower moving classes of inventory , which are not as critical to our customers and thus , inherently turn at slower rates . we classify products into 13 classes at the sales center level based on sales at each location over the expected sellable period , which is the previous 12 months for most products . all inventory is included in these classes , except for special order non-stock items that lack a sku in our system and products with less than 12 months of usage . the table below presents a description of these inventory classes : class 0 new products with less than 12 months usage classes 1-4 highest sales value items , which represent approximately 80 % of net sales at the sales center classes 5-12 lower sales value items , which we keep in stock to provide a high level of customer service class 13 products with no sales for the past 12 months at the local sales center level , excluding special order products not yet delivered to the customer null class non-stock special order items 22 there is little risk of obsolescence for products in classes 1-4 because products in these classes generally turn quickly . we establish our reserve for inventory obsolescence based on inventory classes 5-13 , which we believe represent some exposure to inventory obsolescence , with particular emphasis on skus with the least sales over the previous 12 months . the reserve is intended to reflect the value of inventory at net realizable value . we provide a reserve of 5 % for inventory in classes 5-13 and non-stock inventory as determined at the sales center level . we also provide an additional 5 % reserve for excess inventory in classes 5-12 and an additional 45 % reserve for excess inventory in class 13. we determine excess inventory , which is defined as the amount of inventory on hand in excess of the previous 12 months ' usage , on a company-wide basis . we also evaluate whether the calculated reserve provides sufficient coverage of the total class 13 inventory . in evaluating the adequacy of our reserve for inventory obsolescence , we consider a combination of factors including : the level of inventory in relation to historical sales by product , including inventory usage by class based on product sales at both the sales center and on a company-wide basis ; changes in customer preferences or regulatory requirements ; seasonal fluctuations in inventory levels ; geographic location ; and superseded products and new product offerings . we periodically adjust our reserve for inventory obsolescence as changes occur in the above-identified factors . at the end of each fiscal year , we prepare a hindsight analysis by comparing the prior year-end obsolescence reserve balance to ( i ) current year inventory write-offs and ( ii ) the value of products with no sales for the past 12 months that remain in inventory . based on our hindsight analysis , we concluded that our prior year reserve was within a range of acceptable estimates and that our reserve methodology is appropriate . if the balance of our inventory reserve increased or decreased by 20 % at december 31 , 2017 , pretax income would change by approximately $ 1.3 million and earnings per share would change by approximately $ 0.02 per diluted share ( based on the number of weighted average diluted shares outstanding for the year ended december 31 , 2017 ) . vendor programs many of our vendor arrangements provide for us to receive specified amounts of consideration when we achieve any of a number of measures . these measures generally relate to the volume level of purchases from our vendors and may include negotiated pricing arrangements . we account for vendor programs as a reduction of the prices of the vendor 's products and therefore a reduction of inventory until we sell the product , at which time we recognize such consideration as a reduction of cost of sales in our income statement . throughout the year , we estimate the amount earned based on our estimate of total purchases for the fiscal year relative to the purchase levels that mark our progress toward the attainment of various levels within certain vendor programs . we accrue vendor program benefits on a monthly basis using these estimates provided that we determine they are probable and reasonably estimable . our estimates for annual purchases , future inventory levels and sales of qualifying products are driven by our sales projections , which can be significantly impacted by a number of external factors including weather and changes in economic conditions . changes in our purchasing mix also impact our estimates , as certain program rates can vary depending on our volume of purchases from specific vendors . we continually revise these estimates throughout the year to reflect actual purchase levels and identifiable trends . as a result , our estimated quarterly vendor program benefits accrual may include cumulative catch-up adjustments to reflect any changes in our estimates between reporting periods .
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financial results we generated strong results in 2017 , on top of excellent performance and favorable weather last year . we produced sales growth of 8 % in 2017 on top of sales growth of 9 % in 2016 and converted this into solid earnings growth , primarily due to executing our strategies in pursuit of our mission every day . net sales in creased 8 % for the year ended december 31 , 2017 compared to 2016 . pool remodeling , equipment replacement and the expansion of building materials and commercial products were the major contributors to base business sales growth of 7 % for the year . gross profit in creased 9 % for the year ended december 31 , 2017 compared to 2016 . gross profit as a percentage of net sales ( gross margin ) grew 10 basis points to 28.9 % for 2017 compared to 28.8 % in 2016 . selling and administrative expenses ( operating expenses ) in creased 7 % compared to 2016 , with base business operating expenses up 5 % over last year . the increase in base business operating expenses was primarily due to higher growth-driven labor and freight expenses , as well as greater employee benefit costs , equity-based compensation , and technology spending . as a percentage of net sales , operating expenses declined 20 basis points . operating income for the year increased 11 % to $ 284.4 million , up from $ 255.9 million in 2016 . operating income as a percentage of net sales ( operating margin ) increased to 10.2 % in 2017 compared to 10.0 % in 2016 . our provision for income taxes for 2017 was impacted by both u.s. tax reform and accounting standards update ( asu ) 2016-09 , improvements to employee share-based payment accounting .
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stock-based compensation expense recognized under fasb asc 718 for the years ended december 31 , 2019 and 2018 consisted of stock-based compensation expense related to stock options , the employee stock purchase plan , and the restricted stock units and was recorded as a component of cost of product revenues , sales and marketing expenses , general and administrative expenses , research and development expenses and discontinued operations . refer to note 13 for further details . f- 13 ( s ) recent accounting pronouncements accounting pronouncements to be adopted in june 2016 , the fasb issued asu no . 2016-13 , financial instruments—credit losses story_separator_special_tag forward-looking statements the following section of this annual report on form 10-k entitled “ management 's discussion and analysis of financial condition and results of operations ” contains statements that are not statements of historical fact and are forward-looking statements within the meaning of federal securities laws . these statements involve known and unknown risks , uncertainties and other factors that may cause our actual results , performance or achievements to be materially different from any future results , performance or achievements expressed or implied by the forward-looking statements . these statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties . factors that may cause our actual results to differ materially from those in the forward-looking statements include those factors described in “ item 1a . risk factors ” beginning on page 7 of this annual report on form 10-k. you should carefully review all of these factors , as well as the comprehensive discussion of forward-looking statements on page 1 of this annual report on form 10-k. overview harvard bioscience , inc. , a delaware corporation , is a leading developer , manufacturer and seller of technologies , products and services that enable fundamental research , discovery , and pre-clinical testing for drug development . our customers range from renowned academic institutions and government laboratories , to the world 's leading pharmaceutical , biotechnology and clinical research organizations . with operations in north america and europe , we sell through a combination of direct and distribution channels to customers around the world . in january 2018 , we acquired data sciences international , inc. ( dsi ) for approximately $ 71.1 million . dsi , a st. paul , minnesota-based life science research company , is a recognized leader in physiologic monitoring focused on delivering preclinical products , systems , services and solutions to its customers . its customers include pharmaceutical and biotechnology companies , as well as contract research organizations , academic labs and government researchers . this acquisition diversifies our customer base into the biopharmaceutical and contract research organization markets and offers revenue and cost synergies . the acquisition also helped to increase our gross profit margins . see part i , item 1. of this report “ our history and strategy ” for a discussion of recent significant acquisitions , divestitures and other developments . 20 in the table below , we provide an overview of selected operating metrics . replace_table_token_2_th components of operating income on january 22 , 2018 , we sold substantially all the assets of our operating subsidiary , denville . the sale of denville represented a strategic shift that had a major effect on our operations and financial results . as such and pursuant to the accounting standards , the operating results of denville for the year ended december 31 , 2018 have been presented in discontinued operations in the consolidated statements of operations . therefore , the amounts and percentages discussed below exclude the revenues and expenses of denville unless otherwise described . revenues . we generate revenues by selling apparatus , instruments , devices , systems , software and consumables through our distributors , direct sales force , websites and catalogs . these product lines include both proprietary manufactured products and complementary products from various suppliers . our reputation as a leading producer in many of our manufactured products creates traffic to our website , enables cross-selling and facilitates the introduction of new products . we have field sales teams in the u.s. , canada , the united kingdom , germany , france , spain and china . in those regions where we do not have a direct sales team , we use distributors . revenues from direct sales to end users included in continuing operations represented approximately 70 % and 59 % of our revenues for the years ended december 31 , 2019 and 2018 , respectively . our products consist of instruments , consumables , and systems that are made up of several individual products . sales prices of these products range from under $ 100 to over $ 100,000 , although are mostly priced in the range of $ 5,000 to $ 15,000. they are mainly scientific instruments like spectrophotometers and plate readers that analyze light to detect and quantify a wide range of molecular and cellular processes , or apparatus like gel electrophoresis units . our products and services also include wireless monitors , data acquisition and analysis products and software , and ancillary services including post-contract customer support , training and installation . we use distributors for both our catalog products and our higher priced products , as well as for sales in locations where we do not have subsidiaries or where we have existing distributors in place from acquired businesses . for the years ended december 31 , 2019 and 2018 , approximately 30 % and 41 % of our total revenues from continuing operations , respectively , were derived from sales to distributors . for the years ended december 31 , 2019 and 2018 , approximately 84 % and 85 % of our revenues from continuing operations , respectively , were derived from products we manufacture and approximately 16 % and 15 % , respectively , were derived from complementary products we distribute in order to provide the researcher with a single source for all equipment needed to conduct a particular experiment . story_separator_special_tag our liquidity requirements arise primarily from investing activities , including funding of acquisitions , and other capital expenditures . on january 22 , 2018 , we sold the operations of denville , and received approximately $ 15.8 million , net of cash on hand . simultaneously , we retired the existing debt balances of approximately $ 11.9 million . on january 31 , 2018 , we entered into the financing agreement , which comprised of a $ 64.0 million term loan and up to a $ 25.0 million line of credit . finally , on january 31 , 2018 , we acquired dsi for approximately $ 68.0 million , net of cash acquired . as of december 31 , 2019 , we held cash and cash equivalents of $ 8.3 million , compared with $ 8.2 million at december 31 , 2018. as of december 31 , 2019 and december 31 , 2018 , we had $ 55.0 million and $ 62.4 million of borrowings outstanding under our credit facility , respectively . total debt , net of cash and cash equivalents was $ 46.7 million at december 31 , 2019 , compared to $ 54.2 million at december 31 , 2018. in addition , we have a united kingdom pension obligation that was overfunded ( underfunded ) by approximately $ 1.1 million and $ ( 0.9 ) million as of december 31 , 2019 and december 31 , 2018 , respectively . as of december 31 , 2019 and december 31 , 2018 , cash and cash equivalents held by our foreign subsidiaries was $ 3.5 million and $ 3.2 million , respectively . as a result of the 2017 tax act , post-2017 dividends from qualifying controlled foreign corporations are no longer taxed in the u.s. however , any dividends to the u.s. must still be assessed for withholding tax liability as well as income state tax liability . as a result of our assertion , we determined the potential state income tax liability related to available cash balances at foreign subsidiaries would be immaterial in both 2019 and 2018 . 24 condensed consolidated cash flow statements ( unaudited , in thousands ) replace_table_token_3_th our operating activities provided cash of $ 8.0 million and $ 2.9 million for the year ended december 31 , 2019 and 2018 , respectively . the increase in net cash flow from operations was primarily due to the effect of reductions in inventory levels in 2019 and to deal fees , integration costs and other payments associated with the dsi acquisition and denville sale in the first half of 2018. our investing activities used cash of $ ( 0.2 ) million and $ ( 53.8 ) million for the years ended december 31 , 2019 and 2018 , respectively . investing activities during the year ended december 31 , 2019 primarily consisted of cash used for capital expenditures , and the receipt of $ 1.0 million in connection with the release of an escrow amount associated with the denville transaction . investing activities during the year ended december 31 , 2018 primarily consisted of $ 68.5 million paid for the acquisition of dsi and $ 15.8 million received from the disposition of denville . we spent $ 1.2 million and $ 1.0 million on capital expenditures during the year ended december 31 , 2019 and 2018 , respectively . our financing activities have historically consisted of borrowings and repayments under our revolving credit facility and term loans , payments of debt issuance costs and the issuance of common stock . during the year ended december 31 , 2019 , financing activities used cash of $ 7.6 million , compared with $ 53.1 million of cash provided by financing activities for the year ended december 31 , 2018. during the year ended december 31 , 2019 , we borrowed $ 4.3 million and repaid $ 11.7 million of debt , including an excess cash flow payment of $ 4.0 million and a payment of $ 1.0 million in connection with the release of an escrow amount associated with the denville transaction as required by the financing agreement , and ended the year with $ 55.0 million of borrowings . during the year ended december 31 , 2018 wev borrowed $ 70.7 million , repaid $ 20.2 million of debt and ended the year with $ 62.4 million of borrowings . net cash paid for tax withholdings from the issuance from common stock related to the vesting of restricted stock units was $ 0.2 million for the year ended december 31 , 2019. net cash proceeds from the issuance of common stock for the year ended december 31 , 2018 was $ 4.6 million . borrowing arrangements on january 31 , 2018 , we entered into a financing agreement with cerberus business finance , llc , as agent and lender ( the financing agreement ) . the obligations under the financing agreement and related guarantees are secured on a first-priority basis ( subject to certain liens permitted under the financing agreement ) by a lien on substantially all the tangible and intangible assets of our company and the subsidiary guarantors , including all of the capital stock held by such obligors , subject to a 65 % limitation on pledges of capital stock of certain foreign subsidiaries and certain other exceptions . see note 14 in the consolidated financial statements included in part iv , item 15. of this report “ exhibits , financial statement schedules ” for additional details regarding the financing agreement and our credit facilities . 25 as of december 31 , 2019 and december 31 , 2018 , we had borrowings of $ 55.0 million and $ 62.4 million respectively , outstanding . we had available borrowing capacity under the revolving line of credit of $ 8.7 million as of december 31 , 2019. as of december 31 , 2019 , the weighted effective interest rate , net of the impact of our interest rate swap , on our borrowings was 8.5 % .
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selected results of operations year ended december 31 , 2019 compared to year ended december 31 , 2018 unless otherwise described , the amounts and percentages in the table above and those amounts and percentages discussed below exclude the revenues and expenses of denville . revenues revenues for the year ended december 31 , 2019 were $ 116.2 million , a decrease of ( 3.8 ) % , or $ 4.6 million , compared to revenues of $ 120.8 million for the same period in 2018. the decrease in revenue for the year ended december 31 , 2019 is due to lower sales volume in europe as well as lower volume with contract research organizations due to customer consolidation . these reductions were partially offset by growth in sales of cellular and molecular discovery technologies in north america . additionally , revenues for the year ended december 31 , 2019 included twelve months of revenues from dsi as compared to eleven months of revenues from dsi included in the year ended december 31 , 2018. the impact of currency translation negatively impacted revenues in the year ended december 31 , 2019 by approximately $ 1.8 million . 22 cost of revenues cost of revenues decreased $ 5.7 million , or 10.0 % , to $ 51.9 million for the year ended december 31 , 2019 compared with $ 57.6 million for the year ended december 31 , 2018. gross margin as a percentage of revenues increased to 55.4 % for the year ended december 31 , 2019 compared with 52.3 % for the year ended december 31 , 2018. cost of revenues for the year ended december 31 , 2018 included approximately $ 3.8 million related to a purchase accounting inventory fair value step up amortization . this inventory fair value step-up was fully recognized into cost of revenues over one inventory turn , or approximately six months .
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story_separator_special_tag business overview crocs , inc. and its consolidated subsidiaries ( collectively , the “ company , ” “ crocs , ” “ we , ” “ our , ” or “ us ” ) are engaged in the design , development , manufacturing , worldwide marketing , distribution , and sale of casual lifestyle footwear and accessories for men , women , and children . we strive to be the global leader in the sale of molded footwear characterized by functionality , comfort , color , and lightweight design . all of our products utilize our proprietary closed-cell resin , called croslite tm , along with a range of other materials . the broad appeal of our footwear has allowed us to market our products through a wide range of distribution channels . we currently sell our products in more than 90 countries , through three distribution channels : wholesale , retail , and e-commerce . our wholesale channel includes domestic wholesalers as well as international wholesalers and distributors ; our retail channel includes company-operated stores ; and our e-commerce channel includes company-operated e-commerce sites . known or anticipated trends based on our recent operating results and current perspectives on our operating environment , we anticipate certain trends to impact our operating results : consumer spending preferences continue to shift toward e-commerce and away from brick and mortar stores . this has resulted in continued sales growth in our e-commerce channel , as well as on various e-tail sites operated by wholesalers , and contributed to declining foot traffic in our retail locations . we anticipate lower retail revenues and selling , general and administrative expenses ( “ sg & a ” ) as we close less productive stores as leases expire and transfer select company-operated stores to distributors . distributor revenues are reported within our wholesale channel . a cautious retail environment may negatively affect customer purchasing trends . foreign exchange rate volatility may continue to impact our reported u.s. dollar results from our foreign operations . in 2017 we identified annual reductions in sg & a in the amount of $ 75 to $ 85 million which , once implemented , are projected to generate an annual $ 30 to $ 35 million improvement in earnings before interest and taxes by 2019 , compared to 2016. we achieved approximately $ 23 million of these sg & a reductions in 2017 while incurring approximately $ 10 million of costs to re-set our variable compensation . we remain on track to achieve the targeted sg & a reductions by 2019. we incurred $ 11 million in non-recurring charges to achieve these sg & a reductions in 2017 and expect to incur approximately $ 5 million in non-recurring charges in 2018 , for a total of $ 16 million of non-recurring charges associated with our sg & a reduction plan . we reduced our company-operated retail stores in 2017 by 111 and anticipate an additional reduction of approximately 50 company-operated retail stores in 2018 , thereby reducing our total store count to approximately 400 from 558 over a two year period . the majority of company-operated store closures are occurring as store leases expire . use of non-gaap financial measures in addition to financial measures presented on the basis of accounting principles generally accepted in the united states of america ( “ u.s . gaap ” ) , we present certain information related to our current period results of operations through “ constant currency , ” which is a non-gaap financial measure and should be viewed as a supplement to our results of operations and presentation of reportable segments under u.s. gaap . constant currency represents current period results that have been retranslated using prior year average foreign exchange rates for the comparative period to enhance the visibility of the underlying business trends excluding the impact of foreign currency exchange rate fluctuations . management uses constant currency to assist in comparing business trends from period to period on a consistent basis in communications with the board , stockholders , analysts , and investors concerning our financial performance . we believe constant currency is useful to investors and other users of our consolidated financial statements as an additional tool to evaluate operating performance . we believe it also provides a useful baseline for analyzing trends in our operations . investors should not consider constant currency in isolation from , or as a substitute for , financial information prepared in accordance with u.s. gaap . 27 2017 financial highlights revenues were $ 1,023.5 million for the year ended december 31 , 2017 , a 1.2 % decrease compared to the year ended december 31 , 2016. the decrease in 2017 revenues compared to 2016 revenues was due to the net effects of : ( i ) higher sales volumes , despite a net reduction of 111 company-operated retail stores , which increased revenues by $ 39.6 million , or 3.8 % ; ( ii ) lower average selling prices as our product and channel mix continued to change , which decreased revenues by $ 57.2 million , or 5.5 % ; and ( iii ) favorable changes in exchange rates , which increased revenues by $ 4.8 million , or 0.5 % . the following were significant developments in our businesses during the year ended december 31 , 2017 : we sold 57.9 million pairs of shoes worldwide , an increase of 3.1 % from 56.1 million pairs in 2016 . gross margin improved 220 basis points compared to 2016 to 50.5 % for the year ended december 31 , 2017 . we drove this improvement by continuing to prioritize high margin molded product , improving our go to market capabilities , and better managing promotions . sg & a was $ 494.6 million , a decrease of $ 8.6 million , or 1.7 % , compared to 2016 . story_separator_special_tag during 2017 , the effect of rate differences resulted in an $ 11.8 million tax benefit , or 64.7 % favorable rate impact , compared to a $ 12.6 million tax benefit , or 175 % favorable rate impact , in 2016. the change was driven primarily by tax expense relative to profitable jurisdictions , partially offset by operating losses in certain jurisdictions where the company has determined that it is not more likely than not to realize the associated tax benefits . further , we employ a tax planning strategy that directly impacts the total tax expense directly attributable to the level of foreign earnings in the specific jurisdictions . however , we note that the impact on the effective tax rate is different due to book earnings recorded in 2017 compared to 2016. through 31 at least 2019 , we expect to continue to have an equivalent favorable impact on the tax provision and effective tax rate based on the specific foreign earnings . ‘ non-deductible/non-taxable items ' resulted in a $ 6.0 million tax expense in 2017 , representing an unfavorable rate impact of 33.0 % , compared to a $ 2.7 million tax expense in 2016 , representing an unfavorable rate impact of 37.4 % . the expense recognized in 2017 primarily relates to non-deductible executive and foreign share-based compensation , which we anticipate will recur in the foreseeable future , and the write-off of non-deductible goodwill , which we do not expect to recur in the foreseeable future . we continue to evaluate the realizability of our deferred tax assets . the impact of changes in valuation accounts to the effective tax rate was $ 24.4 million recorded on deferred tax assets that are not anticipated to be realized , equating to a 134.2 % unfavorable impact . the specific circumstances regarding management 's assertion of the realizability of certain deferred tax assets is discussed as part of the disclosures in note 11 — income taxes . we maintain total valuation allowances of approximately $ 119.5 million as of december 31 , 2017 , which may be reduced in the future depending upon the achieved or sustained profitability of certain entities . during both 2017 and 2016 , we recorded tax expense for audits settled during the year of $ 0.4 million and $ 0.3 million , respectively . the amount included in settlements during 2017 is netted against total uncertain tax position releases during the same period relating to the same positions . furthermore , in note 11 — income taxes the ‘ uncertain tax benefits ' line item in 2017 includes net accruals related to current year positions recorded , and is consistent with amounts accrued during prior years . we have released a significant portion of historical uncertain tax benefits based on effective and actual settlements . there is not currently an expectation that uncertain tax positions will significantly impact our tax expense on an ongoing basis . we incur state income tax losses during the period due to net operating losses recorded in the u.s. , as well as applicable state modifications related to the taxability of foreign dividends . the tax provision benefit of these losses are offset by a valuation allowance . we are subject to certain minimal state income taxes . in 2017 , we began operating under a tax holiday in one of our foreign jurisdictions . this tax holiday is in effect through 2022 , and may be extended if certain additional requirements are met . the tax holiday is conditional upon our meeting certain employment and investment thresholds . the impact of the tax holiday in 2017 decreased tax expense in that jurisdiction by approximately $ 0.1 million and had no impact to our reported earnings per diluted share . 32 revenues by channel replace_table_token_8_th ( 1 ) reflects year over year change as if the current period results were in “ constant currency , ” which is a non-gaap financial measure . see “ use of non-gaap financial measures ” for more information . wholesale channel revenues . during the year ended december 31 , 2017 , revenues from our wholesale channel decreased $ 9.9 million , or 1.8 % , compared to the year ended december 31 , 2016 . a $ 35.1 million , or 6.4 % , decrease was due to lower average selling prices as we shifted to higher margin , lower-priced molded product . higher sales volumes increased revenues by approximately $ 21.9 million , or 4.0 % , despite the impact of strategic reductions in sales via discount channels in our europe operating segment as well as the decline in our wholesale business in japan while we strengthen our wholesale network . the effect of foreign currency translation was an increase of $ 3.3 million , or 0.6 % , to revenues . during the year ended december 31 , 2016 , revenues from our wholesale channel decreased $ 45.0 million , or 7.6 % , compared to the same period in 2015 . the decrease in wholesale channel revenues was primarily due to the net impact of : ( i ) a $ 42.0 million , or 7.1 % , decrease in sales volumes , ( ii ) a $ 3.6 million , or 1.0 % , decrease due to a lower average selling price , and ( iii ) a $ 1.5 million , or 0.4 % , decrease due to the unfavorable impact of foreign currency translation . sales volumes for the year ended december 31 , 2016 were negatively impacted by approximately $ 8.4 million as a result of the sale of our south africa operations , which was completed on april 15 , 2016. retail channel revenues . during the year ended december 31 , 2017 , revenues from our retail channel decreased $ 21.4 million , or 5.9 % , compared to the year ended december 31 , 2016 .
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results of operations comparison of the years ended december 31 , 2017 , 2016 , and 2015 replace_table_token_6_th ( 1 ) changes for gross margin and operating margin are shown in basis points ( “ bp ” ) . revenues . revenues decrease d $ 12.8 million , or 1.2 % , during the year ended december 31 , 2017 , compared to the same period in 2016. the revenues decreased primarily due to the sale of our taiwan business in the fourth quarter of 2016 , the sale of our middle east business in the second quarter of 2017 , reductions in the number of company-operated retail stores , and additional actions taken to optimize our wholesale , retail , and e-commerce channels . the revenue decline associated with store closures and transfers was approximately $ 39.1 million . higher sales volumes increased revenues by $ 39.6 million , or 3.8 % , offset by lower average footwear selling prices , which decreased revenues by approximately $ 57.2 million , or 5.5 % , as our product and channel mix continued to change . favorable exchange rate activity drove an increase of $ 4.8 million , or 0.5 % . 29 during the year ended december 31 , 2016 , revenues decreased 5.0 % compared to the same period in 2015. the decrease in revenues is due to the net impact of ( i ) a $ 46.3 million , or 4.2 % , decrease associated with lower sales volumes , ( ii ) a $ 4.7 million , or 0.5 % , decrease associated with lower average selling prices per pair , and ( iii ) a $ 3.4 million , or 0.3 % , decrease associated with unfavorable changes in foreign currency rates . cost of sales . during the year ended december 31 , 2017 , cost of sales decreased by $ 29.8 million , or 5.6 % , compared to the same period in 2016 .
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in 2015 , we began investing in credit risk transfer agreements ( “ crt agreements ” ) on certain of the mortgage loans acquired through our correspondent production activity . our assets are transitioning away from distressed mortgage loans to investments obtained through our correspondent production such as crt and msrs . we have also invested in excess servicing spread ( “ ess ” ) on msrs acquired by pennymac loan services , llc ( “ pls ” ) , mortgage-backed securities ( “ mbs ” ) , and commercial real estate loans that finance multifamily and other commercial real estate . we are externally managed by pnmac capital management , llc ( “ pcm ” ) , an investment adviser that specializes in and focuses , on u.s. mortgage assets . most of our mortgage loan portfolio is serviced by pls . during the year ended december 31 , 2016 , we purchased newly originated prime credit quality mortgage loans with fair values totaling $ 66.1 billion , as compared to $ 46.4 billion for the same period in 2015 , in furtherance of our correspondent production business . to the extent that we purchase mortgage loans that are insured by the u.s. department of housing and urban development ( “ hud ” ) through the federal housing administration ( the “ fha ” ) , or insured or guaranteed by the veterans administration ( the “ va ” ) or u.s. department of agriculture ( “ usda ” ) , we and pls have agreed that pls will fulfill and purchase such mortgage loans , as pls is a ginnie mae-approved issuer and we are not . this arrangement has enabled us to compete with other correspondent aggregators that purchase both government and conventional mortgage loans . we receive a sourcing fee from pls ranging from two to three and one-half basis points , generally based on the average number of calendar days that mortgage loans are held by us prior to purchase by pls , on the unpaid principal balance ( “ upb ” ) of each mortgage loan that we sell to pls under such arrangement , and earn interest income on the mortgage loan for the period we hold the mortgage loan prior to the sale to pls . during the year ended december 31 , 2016 , we received sourcing fees totaling $ 12.0 million , relating to $ 39.9 billion in upb of mortgage loans at fair value that we sold to pls . during the year ended december 31 , 2016 , we received msrs with fair values at initial recognition totaling $ 275.1 million and held msrs with a carrying value totaling $ 656.6 million at december 31 , 2016. we believe that crt agreements are a long-term investment that can produce attractive risk-adjusted returns through our own mortgage production while aligning with fannie mae 's strategic goal to attract private capital investment in gse credit risk . we believe there is significant potential for investment in front-end credit risk transfer and msrs that result from our correspondent production activities as we redeploy capital from the liquidation of distressed whole loans . during the year ended december 31 , 2016 , we made investments in crt agreements totaling $ 306.5 million , and held crt related investments ( composed of restricted cash and derivative financial instruments ) totaling $ 465.7 million at december 31 , 2016. we have invested in distressed mortgage loans through direct acquisitions of mortgage loan portfolios from institutions such as banks and mortgage companies . we seek to maximize the fair value of the distressed mortgage loans that we acquired using means that are appropriate for the particular loan , including both proprietary and nonproprietary loan modification programs , special servicing and other initiatives focused on avoiding foreclosure , when possible . when we are unable to effect a cure for a mortgage loan delinquency , our objective is timely acquisition and or liquidation of the property securing the mortgage loan through the use , in part , of short sales and deed-in-lieu-of-foreclosure programs . we may elect to hold certain real estate acquired in settlement of loans ( “ reo ” ) as income-producing properties for extended periods as a means of maximizing our returns on such properties . in addition to individual loan and property resolutions , we consider bulk sale opportunities from our existing distressed portfolio investments . during the year ended december 31 , 2016 , we completed bulk sales totaling $ 483.8 million in fair value of distressed mortgage loans . during the year ended december 31 , 2016 , we did not acquire distressed mortgage loans and we received proceeds from liquidation , payoffs , paydowns and sales from our portfolio of distressed mortgage loans and reo totaling $ 947.7 million . we also participate in other mortgage-related activities , including : acquisition of reit-eligible mortgage-backed or mortgage-related securities . we held mbs with fair values totaling $ 865.1 million at december 31 , 2016. acquisition of ess relating to msrs held by pfsi . during the year ended december 31 , 2016 , we did not purchase any ess from pfsi . pursuant to a recapture agreement with pls we received ess with fair value totaling $ 6.6 million . we sold $ 59.0 million of ess relating to freddie mac and fannie mae msrs back to pls . we held ess with a fair value totaling $ 288.7 million at december 31 , 2016. acquisition of small balance ( typically under $ 10 million ) commercial real estate loans . during the year ended december 31 , 2016 , we acquired $ 18.1 million in fair value of small balance commercial real estate loans . at december 31 , 2016 , we held $ 9.0 million at fair value of such mortgage loans . 46 to the extent that we transfer correspondent production loans into private label securitizations , retention of a portion of the securities created in the securitization transaction . story_separator_special_tag 47 critical accounting policies preparation of financial statements in compliance with accounting principles generally accepted in the united states ( “ gaap ” ) requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , and revenues and expenses during the reporting period . certain of these estimates significantly influence the portrayal of our financial condition and results , and they require our manager to make difficult , subjective or complex judgments . our critical accounting policies primarily relate to our fair value estimates . fair value we group financial statement items measured at or based on fair value in three levels based on the markets in which the assets are traded and the observability of the inputs used to determine fair value . these levels are : at december 31 , 2016 level description carrying value of assets measured ( 1 ) % total assets % shareholders ' equity ( in thousands ) level 1 : prices determined using quoted prices in active markets for identical assets or liabilities . $ 124,620 2 % 9 % level 2 : prices determined using other significant observable inputs . observable inputs are inputs that other market participants would use in pricing an asset or liability and are developed based on market data obtained from sources independent of us . these may include quoted prices for similar assets or liabilities , interest rates , prepayment speeds , credit risk and others . 2,951,224 46 % 218 % level 3 : prices determined using significant unobservable inputs . in situations where quoted prices or observable inputs are unavailable , unobservable inputs may be used . unobservable inputs reflect our manager 's judgments about the factors that market participants use in pricing an asset or ability , and are based on the best information available in the circumstances . 2,596,556 41 % 192 % total assets measured at or based on fair value $ 5,672,400 89 % 420 % total assets $ 6,357,502 total shareholders ' equity $ 1,351,114 ( 1 ) includes assets measured on both a recurring and nonrecurring basis based on the accounting principles applicable to the specific asset and whether we have elected to carry the item at its fair value . for assets carried at lower of amortized cost or fair value , carrying value represents the asset 's amortized cost reduced by any applicable valuation allowance ; for assets carried at fair value , carrying value is represented by such assets ' fair value . our consolidated balance sheet is substantially comprised of assets that are measured at or based on their fair values . at december 31 , 2016 , $ 4.8 billion or 75 % of our total assets were carried at fair value and $ 866.5 million or 14 % were carried based on their fair values ( primarily reo and certain of our msrs , both of which are carried at the lower of cost or fair value ) . of these assets carried at or based on fair value , $ 2.6 billion or 41 % of total assets are measured using “ level 3 ” fair value inputs – significant inputs that are difficult to observe due to illiquidity of the markets in which the assets are traded . changes in inputs to measurement of these financial statement items can have a significant effect on the amounts reported for these items including their reported balances and their effects on our net income . as a result of the difficulty in observing certain significant valuation inputs affecting “ level 3 ” fair value assets and liabilities , our manager is required to make judgments regarding these items ' fair values . different persons in possession of the same facts may reasonably arrive at different conclusions as to the inputs to be applied in estimating the fair value of these fair value assets and liabilities . likewise , due to the general illiquidity of some of these fair value assets and liabilities , subsequent transactions may be at values significantly different from those reported . because the fair value of “ level 3 ” fair value assets and liabilities is difficult to estimate , our manager 's valuation process is conducted by specialized staffs and receives significant executive management oversight . our manager has assigned the responsibility for estimating the fair values of our “ level 3 ” fair value assets and liabilities , except for interest rate lock commitments ( “ irlcs ” ) , to 48 its financial analysis and valuation group ( the “ fav group ” ) . our manager 's fav group submits the results of its valuations to pcm 's valuation committee , which oversees and approves the fair values that are included in our periodic financial statements . during 2016 , pcm 's valuation committee included the chief executive , financial , risk , business development and asset/liability management officers of pfsi . the fair value of our irlcs is developed by our manager 's capital markets risk management staff and is reviewed by our manager 's capital markets operations group in the exercise of their internal control activities . following is a discussion relating to our manager 's approach to measuring the assets and liabilities that are most affected by “ level 3 ” fair value estimates . interest rate lock commitments our net gain on mortgage loans acquired for sale includes our estimates of gains or losses we expect to realize upon the sale of mortgage loans we have committed to purchase but have not yet purchased or sold . therefore , we recognize a substantial portion of our net gain on mortgage loans acquired for sale at fair value before we purchase the mortgage loan . in the course of our correspondent production activities , we make contractual commitments to correspondent lenders to purchase mortgage loans at specified terms . we call these commitments irlcs .
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results of operations the following is a summary of our key performance measures : replace_table_token_10_th during the year ended december 31 , 2016 , we recorded net income of $ 75.8 million , or $ 1.08 per diluted share . during the year ended december 31 , 2015 , we recorded net income of $ 90.1 million , or $ 1.16 per diluted share . during the year ended december 31 , 2014 , we recorded net income of $ 194.5 million , or $ 2.47 per diluted share . our net income decreased during the year ended december 31 , 2016 , as compared to the same period in 2015 , primarily due to a decrease in pretax income in our investment activities segment of $ 49.1 million . pretax income in the investment activities segment was $ 40.4 million during the year ended december 31 , 2015 compared to a pretax loss of $ 8.7 million for the same period in 2016. during the year ended december 31 , 2016 , our investment activities segment recognized net investment income totaling $ 103.4 million , a decrease of $ 45.4 million from $ 148.8 million during the same period in 2015 , primarily due to losses from our investments in ess and mortgage loans at fair value , which reflect the effects of increased prepayment expectations for the portfolios of msrs underlying our investments in ess and the effects of our expectations of longer liquidation periods and lower home price appreciation for certain of our nonperforming loans and higher redefault expectations for our reperforming mortgage loans . longer liquidation periods have the effect of increasing holding costs , which in turn reduce our cash flow expectations from the mortgage loans , and decrease the present value of the expected cash flows upon which the determination of fair value is based .
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a fundamental change was defined in the certificate of designations for the series a preferred stock as any consolidation or merger of the company or similar transaction or any sale , lease or other transfer of all or substantially all the assets of the company , pursuant to which its common stock was converted into , or received story_separator_special_tag on october 14 , 2020 , we acquired legacy curiositystream . the business combination was accounted for as a reverse recapitalization in accordance with accounting standards codification ( “ asc ” ) 805 , business combinations . under this method of accounting , software acquisition group inc. , which was the legal acquirer in the business combination , was treated as the “ acquired ” company for financial reporting purposes and legacy curiositystream was treated as the accounting acquirer . except as otherwise provided herein , our financial statements presentation includes ( 1 ) the results of legacy curiositystream as our accounting predecessor for periods prior to the completion of the business combination , and ( 2 ) the results of the company for periods after the completion of the business combination . the following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our results of operations and financial condition . the following discussion should be read in conjunction with the company 's financial statements and notes thereto included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements which involve risks and uncertainties . our actual results could differ materially from those anticipated in these forward-looking statements for many reasons , including the risks faced by us described in “ risk factors ” and elsewhere in this annual report on form 10-k. unless the context otherwise requires , references in this “ management 's discussion and analysis of financial condition and results of operations ” to “ we , ” “ us , ” “ our , ” and “ the company ” are intended to mean the business and operations of legacy curiositystream prior to the business combination and to curiositystream inc. following the closing of the business combination . overview curiositystream is a media and entertainment company that offers premium video programming across the entire category of factual entertainment , including science , history , society , nature , lifestyle and technology . our mission is to provide premium factual entertainment that informs , enchants and inspires . we are seeking to meet demand for high-quality factual entertainment via svod platforms , as well as via bundled content licenses for svod and linear offerings , partner bulk sales , brand partnerships and content sales . we are well-positioned for growth as a digital-native video platform monetizing content across this broad revenue stack . we operate our business as a single operating segment that provides premium streaming content through multiple channels , including the use of various applications , partnerships and affiliate relationships . we generate our revenue through six lines of business : direct to consumer , partner direct business , bundled distribution , program sales , corporate & association partnerships and sponsorships . for the year ended december 31 , 2020 , direct to consumer and corporate & association partnerships together represented approximately 42 % of our revenue as of december 31 , 2020 , followed by bundled distribution ( approximately 35 % of our revenue ) and partner direct business ( approximately 7 % of our revenue ) , program sales ( approximately 15 % of our revenue ) and sponsorships ( approximately 1 % of our revenue ) . our product and service lines and channels through which we generate revenue are described in further detail below . our content library features more than 3,100 nonfiction episodes , including more than 1,000 original , commissioned or co-produced documentaries , of short-form , mid-form and long-form duration , with an estimated $ 1 billion in original production value . our content , approximately one-third of which is originally produced and the other two-thirds of which is licensed programming , is available directly through our o & o service and app services . our app services enable access to curiositystream on almost every major consumer device , including streaming media players like roku , apple tv and amazon fire tv , all major smart tv brands ( e.g. , lg , vizio , samsung , sony ) and gaming consoles like xbox . our direct service is available to any household in the world with a broadband connection for $ 2.99 per month or $ 19.99 per year for high definition resolution , or $ 9.99 per month or $ 69.99 per year for service in 4k . the mvpd , vmvpd and digital distributor partners making up our partner direct business pay us a license fee for sales to individuals who subscribe to curiositystream via the partners ' respective platforms . we have affiliate agreement relationships with , and our service is available directly from , major mvpds that include comcast , cox , dish and vmvpds and digital distributors that include amazon prime video channels , roku channels , sling tv and youtube tv . 37 in addition to our direct and partner direct businesses , we have affiliate relationships with mvpds and bundled mvpd partners to whom we can offer a broad scope sets of rights , including 24/7 “ linear ” channels , our on-demand content library , mobile rights and pricing and packaging flexibility , in exchange for an annual fixed fee or fee per subscriber . our corporate & association partnerships business to date has been comprised primarily of selling subscriptions in bulk to companies and organizations that in turn offer these subscriptions to their employees and members as an employment benefit or “ gift of curiosity. ” to date , over 30 companies have purchased annual subscriptions at bulk discounts for their employees . in the future , we hope to enter into multi-year integrated partnerships where we create and distribute content in support of these partners ' csr and membership initiatives . story_separator_special_tag in particular , we believe that the following factors significantly affected our results of operations over the last two fiscal years and are expected to continue to have such significant effects : revenues currently , the main sources of our revenue are ( i ) subscriber fees from direct business and direct subscribers , ( ii ) license fees from affiliates who receive subscriber fees for curiositystream from such affiliates ' subscribers ( “ partner direct business ” and “ partner direct subscribers ” ) , ( iii ) bundled license fees from distribution affiliates ( “ bundled mvpd business ” and “ bundled mvpd subscribers ” ) , and ( iv ) license fees from program sales arrangements . as of december 31 , 2020 , we had approximately 15 million total paying subscribers , including direct subscribers , partner direct subscribers and bundled mvpd subscribers . since our founding in 2015 , we have generated the majority of our revenues from direct subscribers in the form of monthly or annual subscription plans . we charge $ 2.99 per month or $ 19.99 dollars per year for our direct service in high-definition resolution , or $ 9.99 per month or $ 69.99 per year for service in 4k . the mvpd , vmvpd and digital distributor partners making up our partner direct business pay us a license fee . we recognize subscription revenues ratably during each subscriber 's monthly or yearly subscription period . we pay a fixed percentage distribution fee to our partners for subscribers accessing our platform via app services to compensate these partners for access to their customer and subscriber bases . our mvpd , vmvpd and digital distributor partners host and stream our content to their customers via their own platforms , such as set top boxes in the case of most mvpds . we do not incur billing , streaming or backend costs associated with content distribution through our mvpd , vmvpd and digital distributor partners . operating costs our primary operating costs relate to the cost of producing and acquiring our content , the costs of advertising and marketing our service , personnel costs , and distribution fees . as of december 31 , 2020 , licensed content represented 2,041 titles and original titles represented 949 titles . producing and co-producing content and commissioned content is generally more costly than content acquired through licenses . the company 's business model is subscription based as opposed to a model generating revenues at a specific title level . content assets ( licensed and produced ) are predominantly monetized as a group and therefore are reviewed in aggregate at a group level when an event or change in circumstances indicates a change in the expected usefulness of the content or that the fair value may be less than unamortized cost . if such changes are identified , the aggregated content library will be stated at the lower of unamortized cost or fair value . in addition , unamortized costs for assets that have been , or are expected to be , abandoned are written off . for a discussion of the accounting policies for content impairment write-down and management estimates involved therein , see “ — critical accounting policies and estimates ” below . 39 further , our advertising and marketing expenditures and personnel costs constitute primary operating costs for our business . these costs may fluctuate based on advertising and marketing objectives and personnel needs . in general , we intend to focus marketing dollars on efficient customer acquisition . with respect to personnel costs , for the first several years of our existence , we invested heavily in engineering , marketing and programming staff to build the company and its service offering . beginning in 2019 , however , we began to focus on sales staff and other revenue-generating personnel . story_separator_special_tag black 1.5pt solid '' > 41 net loss net loss for the years ended december 31 , 2020 and 2019 was $ 38.6 million and $ 42.5 million , respectively . the decrease of $ 3.9 million , or 9 % , resulted primarily from the increase in revenue , offset by a smaller increase in operating expenses and a decrease in interest and other income ( expense ) , in each case during the year ended december 31 , 2020 as compared to the year ended december 31 , 2019 , as described above . liquidity and capital resources as of december 31 , 2020 , we had cash and cash equivalents , including restricted cash , of $ 17.4 million . for the year ended december 31 , 2020 , we incurred a net loss of $ 38.6 million and used $ 52.9 million of net cash in operating activities , while investing activities provided $ 25.5 million of net cash and financing activities provided $ 36.0 million of net cash . during the year ended december 31 , 2019 and through the date of the merger , we have financed our operations primarily from the net proceeds of our sale of series a preferred stock in november and december 2018. an additional source of liquidity includes borrowings under our line of credit facility with a bank ( the “ line of credit ” ) . this line of credit provides for borrowings of up to $ 4.5 million with interest-only monthly payments at a rate equal to the libor daily floating rate plus 2.25 % . the line of credit carries an unused fee of 0.25 % annually on all committed but unused capital , payable quarterly in arrears . the entire unpaid principal balance is due when the line of credit matures on february 28 , 2022 , following the execution of a one year extension during february 2021. the line of credit is collateralized by cash of $ 4.5 million that is held in restricted cash in current assets on the consolidated balance sheet .
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results of operations the financial data in the following table sets forth selected financial information derived from our audited financial statements for the years ended december 31 , 2020 and 2019 and shows our results of operations as a percentage of revenue or as a percentage of costs , as applicable , for the periods indicated . we conduct business through one operating segment , curiositystream . replace_table_token_1_th nm – percentage not meaningful revenue revenue for the years ended december 31 , 2020 and 2019 was $ 39.6 million and $ 18 million , respectively . the increase of $ 21.6 million , or 120 % is due to a $ 6.7 million increase in subscription revenue , a $ 14.3 million increase in license fee revenue , and $ 0.6 million increase in other revenue . the increase in subscription revenue of $ 6.7 million resulted from a $ 5.6 million increase in subscriber fees received by us from direct subscribers for annual plans which resulted from increased brand awareness from greater advertising and marketing spending , as well as a $ 1.1 million increase in corporate & association partnership sales . the increase of $ 14.3 million in license fees resulted primarily from a $ 8.4 million increase in revenue from bundled mvpd partners mainly due to third-party affiliate agreements entered into during late 2019 , and a $ 0.6 million increase in license fees from partner direct business , in each case as a result of an increase in the number of users and or subscribers for our service , as well as a $ 5.2 million increase in license fees received by us related to program sales contracts . the increase in other revenue of $ 0.6 million is due to new sponsorship revenue deals with customers . 40 operating expenses operating expenses for the years ended december 31 , 2020 and 2019 were $ 78.6 million and $ 62.5 million , respectively . this increase of $ 16.1
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the value of a business is subject to uncertainties and contingencies that are difficult to predict and will fluctuate with changes in factors affecting the prospects of such a business . as a result , the estimates set forth herein are not necessarily indicative of actual outcomes , which may be significantly more or less favorable than those set forth herein . these estimates assume that the company will continue as the owner and operator of these businesses and related assets and that such businesses and assets will be operated in accordance with wmmrc 's historical business practices , which is the basis for financial projections . the financial projections are based on projected market conditions and other estimates and assumptions including , but not limited to , general business , economic , competitive , regulatory , market and financial conditions , all of which are difficult to predict and generally beyond the company 's control . depending on the actual results of such factors , operations or changes in financial markets , these valuation estimates may differ significantly from that disclosed herein . the company 's equity value was first allocated to its tangible assets and identifiable intangible assets and the excess ( if any ) of reorganization value over the fair value of tangible and identifiable intangible assets would be recorded as goodwill . liabilities existing as of the effective date , other than deferred taxes , were recorded at the present value of amounts expected to be paid using appropriate risk adjusted interest rates . the only intangible asset identified related to reinsurance contracts which were held by wmmrc . the contracts were evaluated to determine whether the value attributable to such contracts was either above market or in a loss contract position . after taking such evaluation into consideration , a loss contract fair market value reserve totaling $ 63.1 million was recorded . wmmrc 's deferred taxes were determined in conformity with applicable income tax accounting standards . material differences exist with respect to the pre-petition operations and financial position of wmi and its subsidiaries as compared with the post-emergence operations and financial position of the company . in order to address such differences , in preparing these and future financial statements , management has concluded that it is appropriate to use the financial information of the company 's wholly-owned subsidiary , wmmrc . information in the accompanying consolidated financial statements labeled as predecessor refers to periods prior to the adoption of fresh start reporting , while those labeled as successor refer to periods following the company 's reorganization and emergence from bankruptcy . results of operations for the years ended december 31 , 2012 , 2011 and 2010 as discussed in note 3 : significant accounting policies to the consolidated financial statements in item 8 of this annual report on form 10-k , the financial statements prior to march 19 , 2012 , are not necessarily comparable with the financial statements for periods on or after march 19 , 2012 ; however , while there is a different basis of accounting post-emergence , substantially all of the operating assets and liabilities remain consistent between predecessor and successor . accordingly , the results of operations below are made on a comparative basis for the years ended december 31 , 2012 , 2011 and 2010. for the year ended december 31 , 2012 , we reported a net loss of $ 15.8 million , as compared to a net loss of $ 10.9 million and a net profit of $ 5.4 million reported for the same period in 2011 and 2010 respectively . the total revenue for the year ended december 31 , 2012 was $ 30.6 million , compared to total revenue of $ 43.4 million and $ 65.4 million for the same periods in 2011 and 2010 respectively . the $ 12.8 million revenue decrease between 2011 and 2012 and the $ 34.8 million decreases in revenue comparing 2010 and 2012 are 28 largely attributable to the operations of wmmrc in runoff mode . no new business is being undertaken and the revenues are expected to continue to decrease . underwriting expenses ( defined as losses , loss adjustment expenses and ceding commission expenses ) totaled $ 32.4 million for the year ending december 31 , 2012. a decrease of $ 19.3 million and $ 33.3 million , respectively , compared to underwriting expenses of $ 51.7 million and $ 65.7 million , respectively , for the years ending december 31 , 2011 and 2010. this trend is consistent with the runoff nature of the wmmrc subsidiary and is expected to continue . as more fully described in note 3 : significant accounting policies to the consolidated financial statements in item 8 of this annual report on form 10-k , due to the current condition of the mortgage insurance market , wmmrc has recorded reserves at the higher of ( a ) reserves estimated by the consulting actuary for each primary mortgage guaranty carrier and ( b ) ceded case reserves and ibnr loss levels reported by the primary mortgage guaranty carriers as of each reporting period . management believes that its aggregate liability for unpaid losses and loss adjustment expenses at period end represents its best estimate , based upon the available data , of the amount necessary to cover the current cost of losses . as of december 31 , 2012 , the loss contract fair market value reserve was analyzed and determined to have a fair market value of $ 52.2 million . the fair market value of this reserve was $ 0 at december 31 , 2011 ( as it was established at a value of $ 63.1 million as a result of our reorganization ( described in note 4 : fresh start accounting to the consolidated financial statements in item 8 of this annual report on form 10-k ) ) . the decrease in the loss contract fair market story_separator_special_tag the value of a business is subject to uncertainties and contingencies that are difficult to predict and will fluctuate with changes in factors affecting the prospects of such a business . as a result , the estimates set forth herein are not necessarily indicative of actual outcomes , which may be significantly more or less favorable than those set forth herein . these estimates assume that the company will continue as the owner and operator of these businesses and related assets and that such businesses and assets will be operated in accordance with wmmrc 's historical business practices , which is the basis for financial projections . the financial projections are based on projected market conditions and other estimates and assumptions including , but not limited to , general business , economic , competitive , regulatory , market and financial conditions , all of which are difficult to predict and generally beyond the company 's control . depending on the actual results of such factors , operations or changes in financial markets , these valuation estimates may differ significantly from that disclosed herein . the company 's equity value was first allocated to its tangible assets and identifiable intangible assets and the excess ( if any ) of reorganization value over the fair value of tangible and identifiable intangible assets would be recorded as goodwill . liabilities existing as of the effective date , other than deferred taxes , were recorded at the present value of amounts expected to be paid using appropriate risk adjusted interest rates . the only intangible asset identified related to reinsurance contracts which were held by wmmrc . the contracts were evaluated to determine whether the value attributable to such contracts was either above market or in a loss contract position . after taking such evaluation into consideration , a loss contract fair market value reserve totaling $ 63.1 million was recorded . wmmrc 's deferred taxes were determined in conformity with applicable income tax accounting standards . material differences exist with respect to the pre-petition operations and financial position of wmi and its subsidiaries as compared with the post-emergence operations and financial position of the company . in order to address such differences , in preparing these and future financial statements , management has concluded that it is appropriate to use the financial information of the company 's wholly-owned subsidiary , wmmrc . information in the accompanying consolidated financial statements labeled as predecessor refers to periods prior to the adoption of fresh start reporting , while those labeled as successor refer to periods following the company 's reorganization and emergence from bankruptcy . results of operations for the years ended december 31 , 2012 , 2011 and 2010 as discussed in note 3 : significant accounting policies to the consolidated financial statements in item 8 of this annual report on form 10-k , the financial statements prior to march 19 , 2012 , are not necessarily comparable with the financial statements for periods on or after march 19 , 2012 ; however , while there is a different basis of accounting post-emergence , substantially all of the operating assets and liabilities remain consistent between predecessor and successor . accordingly , the results of operations below are made on a comparative basis for the years ended december 31 , 2012 , 2011 and 2010. for the year ended december 31 , 2012 , we reported a net loss of $ 15.8 million , as compared to a net loss of $ 10.9 million and a net profit of $ 5.4 million reported for the same period in 2011 and 2010 respectively . the total revenue for the year ended december 31 , 2012 was $ 30.6 million , compared to total revenue of $ 43.4 million and $ 65.4 million for the same periods in 2011 and 2010 respectively . the $ 12.8 million revenue decrease between 2011 and 2012 and the $ 34.8 million decreases in revenue comparing 2010 and 2012 are 28 largely attributable to the operations of wmmrc in runoff mode . no new business is being undertaken and the revenues are expected to continue to decrease . underwriting expenses ( defined as losses , loss adjustment expenses and ceding commission expenses ) totaled $ 32.4 million for the year ending december 31 , 2012. a decrease of $ 19.3 million and $ 33.3 million , respectively , compared to underwriting expenses of $ 51.7 million and $ 65.7 million , respectively , for the years ending december 31 , 2011 and 2010. this trend is consistent with the runoff nature of the wmmrc subsidiary and is expected to continue . as more fully described in note 3 : significant accounting policies to the consolidated financial statements in item 8 of this annual report on form 10-k , due to the current condition of the mortgage insurance market , wmmrc has recorded reserves at the higher of ( a ) reserves estimated by the consulting actuary for each primary mortgage guaranty carrier and ( b ) ceded case reserves and ibnr loss levels reported by the primary mortgage guaranty carriers as of each reporting period . management believes that its aggregate liability for unpaid losses and loss adjustment expenses at period end represents its best estimate , based upon the available data , of the amount necessary to cover the current cost of losses . as of december 31 , 2012 , the loss contract fair market value reserve was analyzed and determined to have a fair market value of $ 52.2 million . the fair market value of this reserve was $ 0 at december 31 , 2011 ( as it was established at a value of $ 63.1 million as a result of our reorganization ( described in note 4 : fresh start accounting to the consolidated financial statements in item 8 of this annual report on form 10-k ) ) . the decrease in the loss contract fair market
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general and administrative expenses for the year ended december 31 , 2012 , our general and administrative expenses totaled $ 5.2 million , compared to $ 2.6 million and $ 6.9 million during the same periods in 2011 and 2010. this is an increase in general and administrative expenses totaling $ 2.5 million for the same period in 2011 and a decrease of $ 1.8 million from general and administrative expenses in 2010. the increase in these expenses comparing 2012 to 2011 is primarily attributable to resuming public company financial reporting and filing of periodic reports under the exchange act after emerging from bankruptcy earlier this year . for the period ending december 31 , 2010 these costs included a $ 4.0 million class action settlement which is described in note 12 : pending litigation to the consolidated financial statements in item 8 of this annual report on form 10-k. interest expense for the year ended december 31 , 2012 , we incurred $ 13.5 million of interest expense which is payable on the runoff notes . no such interest expense was incurred during the same period in 2011 due to the fact that the runoff notes were not issued and outstanding then . interest expense of $ 0.5 million is reflected for the same period in 2010 , this interest relates to interest payable to wmmrc 's parent under intercompany loans , this does not eliminate under our current financial reporting as wmmrc is considered the predecessor company as of december 31 , 2010. because sufficient runoff proceeds ( as such term is defined in the indentures ) have not always been available to pay accrued interest on the runoff notes , a portion of our obligation to pay interest on the runoff notes has been satisfied using the pay-in-kind or pik feature available under the indentures .
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upon conversion , the notes will be settled in cash , shares of the company 's common stock , or any combination thereof , at the company 's option . the notes were not subject to conversion or repurchase as of december 31 , 2017 . however , holders of the notes may convert their notes at any story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) should be read in conjunction with our annual consolidated financial statements and notes thereto appearing elsewhere in this annual report on form 10-k. overview servicesource international , inc. is a global leader in outsourced , performance-based customer success and revenue growth solutions . through our people , processes and technology , we grow and retain revenue on behalf of our clients—some of the world 's leading business-to-business companies — in more than 45 languages . our solutions help our clients strengthen their customer relationships , drive improved customer adoption , expansion and retention and minimize churn . our technology platform and best-practice business processes combined with our highly-trained , client-focused revenue delivery professionals and data from nearly 20 years of operating experience enable us to provide our clients greater value for our customer success services than attained by our clients ' in-house customer success teams . our ceo manages and allocates resources on a company-wide basis as a single segment that is focused on service offerings which integrate data , processes and cloud technologies . key business metrics in assessing the performance of our business , we consider a variety of business metrics in addition to the financial metrics discussed below under “ basis of presentation. ” these key metrics include opportunity under management and number of engagements , both of which are operational metrics . opportunity under management . for the year ended december 31 , 2017 , our opportunity under management in our managed services business was approximately $ 11.0 billion . opportunity under management is an operational metric that represents our estimate of the value of all end customer service contracts that we have the opportunity to sell on behalf of our clients over a designated period of time , the value of the customer engagements we manage on behalf of our clients and the bookings we deliver under our inside sales solution . opportunity under management is not a measure of our expected revenue or backlog . opportunity under management reflects our estimate over a designated period of time and should not be used to estimate our opportunity for any particular quarter within that period . also , the value of end customer contracts actually delivered during a given period should not be expected to be realized in full or to occur in even quarterly increments due to seasonality and other factors impacting our clients and their end customers . we estimate the value of our end customer contracts based on a combination of factors , including the value of end customer contracts made available to us by our clients in past periods , the minimum value of end customer contracts that our clients are required to give us the opportunity to sell pursuant to the terms of our contracts with them , periodic internal business reviews of our expectations as to the value of end customer contracts that will be made available to us by our clients , the value of end customer contracts included in the service performance analysis that we conduct with our clients during the sales process the value of the customer relationships we manage , the bookings we deliver under our inside sales solution , and collaborative discussions with our clients assessing their expectations as to the value of service contracts that they make available to us for sale . although the minimum value of end customer contracts that our clients are required to give us represents a portion of our estimated opportunity under management , a significant portion of the opportunity under management is estimated based on the other factors described above . as our experience with our business , our clients and their contracts has grown , we have continually refined the process , improved the assumptions and expanded the data related to our calculation of opportunity under management . when estimating opportunity under management , we rely on our assumptions described above , which may prove incorrect . these assumptions are inherently subject to significant business and economic uncertainties and contingencies , many of which are beyond our control . our estimates therefore may prove inaccurate , and the actual value of end customer contracts delivered to us in a given period to differ from our estimate of opportunity under management . these business and economic uncertainties and contingencies include : the extent to which clients deliver a greater or lesser value of end customer contracts than may be required or otherwise expected ; changes in the pricing or terms of service contracts offered by our clients ; increases or decreases in the end customer base of our clients ; 25 the extent to which the renewal rates we achieve on behalf of a client early in an engagement affect the amount of opportunity that the client makes available to us later in the engagement ; client cancellations of their contracts with us ; and changes in our clients ' businesses , sales organizations , management , sales processes or priorities ; as well as other factors discussed in `` item 1.a . entitled risk factors '' of this annual report on form 10-k. our revenue also depends on our booking rates , commissions , and other fees . our bookings represent the total amount of opportunity under management that we renew on behalf of our clients or sell under our inside sales solution . our commission rate is an agreed-upon percentage of the renewal value of end customer contracts or net new sales that we sell on behalf of our clients . story_separator_special_tag accordingly , in a given quarter , an increase in new clients , and , to a lesser extent , an increase in engagements with existing clients , or a significant increase in the contract value associated with such new clients and engagements , will negatively impact our gross margin and operating margins until we begin to achieve anticipated sales levels associated with the new engagements , which is typically two to three quarters after we begin selling contracts on behalf of our clients . although we expect new client engagements to contribute to our operating profitability over time , in the initial periods of a client relationship , the near term impact on our profitability can be negatively impacted by slower-than anticipated growth in revenues for these engagements as well as the impact of the upfront costs we incur , the lower initial level of associated service sales team productivity and lack of mature data and technology integration with the client . as a result , an increase in the mix of new clients as a percentage of total clients may initially have a negative impact on our operating results . similarly , a decline in the ratio of new clients to total clients may positively impact our near-term operating results . contract terms . a significant portion of our revenue comes from our pay-for-performance model . under our pay-for-performance model , we earn commissions based on the value of service contracts we sell on behalf of our clients . in some cases , we earn additional performance-based commissions for exceeding pre-determined service renewal targets . our new client contracts typically have an initial term between two and four years . our contracts generally require our clients to deliver a minimum value of qualifying service revenue contracts for us to renew on their behalf during a specified period . to the extent that our clients do not meet their minimum contractual commitments over a specified period , they may be subject to fees for the shortfall . our client contracts are cancelable on relatively short notice , subject in most cases to the payment of an early termination fee by the client . the amount of this fee is based on the length of the remaining term and value of the contract . we invoice our clients on a monthly basis based on commissions we earn during the prior month , and with respect to performance-based commissions , on a quarterly basis based on our overall performance during the prior quarter . revenue is recognized in the period in which our services are performed or , in the case of performance commissions , when the performance condition is achieved . because the invoicing for our services generally coincides with or immediately follows the sale of service contracts on behalf of our clients , we do not generate or report a significant deferred revenue balance . however , the combination of factors including minimum contractual commitments , the performance improvement potential , our success in generating improved renewal rates for our clients , and our clients ' historical renewal rates may all affect our performance favorably or unfavorably . merger and acquisition activity . our clients , particularly those in the technology sector , participate in an active environment for mergers and acquisitions . large technology companies have maintained active acquisition programs to increase the breadth and depth of their product and service offerings and small and mid-sized companies have combined to better compete with large technology companies . a number of our clients have merged , purchased other companies or been acquired by other companies . we expect merger and acquisition activity to continue to occur in the future . the impact of these transactions on our business can vary . acquisitions of other companies by our clients can provide us with the opportunity to pursue additional business to the extent the acquired company is not already one of our clients . similarly , when a client is acquired , we may be able to use our relationship with the acquired company to build a relationship with the acquirer . in some cases , we have been able to maintain our relationship with an acquired client even where the acquiring company handles its other service contract renewals through internal resources . in other cases , however , acquirers have elected to terminate or not renew our contract with the acquired company . seasonality . we experience a seasonal variance in our revenue which is typically higher in the fourth quarter when many of our clients ' products come up for renewal , and for the third quarter of the year which is typically lower as a result of lower or flat renewal volume corresponding to the timing of our customers ' product sales particularly in the international regions . the impact of this seasonal fluctuation can be amplified if the economy as a whole is experiencing disruption or uncertainty , leading to deferral of some renewal decisions . 27 basis of presentation net revenue substantially all of our net revenue is attributable to commissions we earn from the sale of renewals of maintenance , support and subscription agreements on behalf of our clients . we generally invoice our clients for our services in arrears on a monthly basis for sales commissions , and on a quarterly basis for certain performance sales commissions ; accordingly , we typically have no deferred revenue related to these services . we do not set the price , terms or scope of services in the service contracts with end customers and do not have any obligations related to the underlying service contracts between our clients and their end customers . historically , we earned revenue from the sale of subscriptions to our cloud based applications . to date , subscription revenue has been a small percentage of total revenue .
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results of operations the following table sets forth our operating results as a percentage of net revenue : replace_table_token_6_th year ended december 31 , 2017 compared to december 31 , 2016 net revenue , cost of revenue , and gross profit replace_table_token_7_th net revenue decreased by $ 13.8 million , or 5 % , for the year ended december 31 , 2017 compared to the same period in 2016 , due to contractions and lower production with certain existing clients and the bankruptcy of one of our top 10 clients , partially offset by production related to expansion of business with our existing client base and new business in 2017 . cost of revenue decreased $ 1.4 million , or 1 % , for the year ended december 31 , 2017 compared to the same period in 2016 , primarily due to the following : $ 2.8 million decrease in employee costs related to operational improvements in our business that resulted in a reduction in headcount and increased productivity from our revenue generating employees , and shifting headcount to lower cost locations , all of which are part of our continuous efforts to better align employee costs with revenue ; $ 2.0 million decrease in temporary labor and consulting costs ; $ 1.7 million decrease in information technology costs ; and $ 0.8 million decrease in recruitment services ; partially offset by $ 3.5 million increase in depreciation and amortization expense ; and $ 2.6 million increase in net overhead allocations from other departments . gross profit decreased $ 12.4 million , or 14 % , for the year ended december 31 , 2017 compared to the same period in 2016 , which is in line with the decrease in revenue .
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the warrant was originally scheduled to expire on august 23 , 2014 , but the completion of the acquisition of the taxact business on january 31 , 2012 , as discussed in note 10 , was an event under the warrant 's terms that extended the expiration date to the earlier of august 23 , 2017 or the effective date of a change of control of infospace . note 6 : stock-based compensation expense for the years ended december 31 , 2011 , 2010 , and 2009 , the company recognized compensation expense related to stock options , rsus and msus of $ 7.7 million , $ 13.9 story_separator_special_tag you should read the following discussion and analysis in conjunction with the selected consolidated financial data and our consolidated financial statements and notes thereto included elsewhere in this report . overview infospace 's 2011 revenues were primarily generated by our search business . using our metasearch technology and relationships with major search content providers , we offer web search products both directly to consumers and through our network of distribution partners . our metasearch technology selects search results from several search engine content providers , including google , yahoo ! , and bing , among others , and aggregates , filters , and prioritizes the results . this combination provides a more relevant search results page and leverages the investments made by our search customers ( as defined below ) to continually improve the user experience . revenue from our search business is primarily generated when end users of our services click on paid search results from our own branded websites or those of our distribution partners . these paid search results are provided to us by some of our search content providers , primarily google and yahoo ! , who share the revenue generated by those paid clicks with us . we refer to those providers as our search customers . our search business consists of our owned and operated web properties and our distribution business , which provides search services to the web properties of our network of distribution partners . we use the term properties to refer to the methods used by end users to access our search services , which are typically websites and downloadable applications belonging to us or our distribution partners . our owned and operated web properties such as dogpile.com , webcrawler.com , metacrawler.com , and webfetch.com , offer search services directly to consumers . our distribution business , which constitutes a growing percentage of our search business and contributed 79 % of our revenue in 2011 , provides search services through the web properties of distribution partners . partner versions of our web offerings are generally private-labeled and delivered with each distribution partner 's unique requirements . we generate revenue when an end user of our services clicks on a paid search link provided by a search customer and displayed on one of our owned and operated web properties or on a distribution partner 's web property . the search customer that provided the paid search link receives a fee from the advertiser who paid for the click and the search customer pays us a portion of that fee . if the click originated from one of our distribution partners ' web properties , we share a portion of the fee we receive with such partner . revenue is recognized in the period in which such paid clicks occur and is based on the amounts earned and remitted to us by our search customers for such clicks . revenues from google and yahoo ! jointly account for over 95 % of our total revenues for both 2011 and 2010 , with google providing the dominant majority of that amount . on april 1 , 2010 , we purchased assets consisting of web properties and licenses for content and technology from make the web better , one of our search distribution partners . this purchase contributed $ 8.2 million ( or 18 % ) to our search revenue generated through our owned and operated properties in 2011. in 2010 , this purchase contributed $ 16.4 million ( or 26 % ) to our search revenue generated through our owned and operated properties and , because make the web better had been a distribution partner in 2010 , there was a corresponding decrease of $ 9.4 million in distribution revenue from 2010 to 2011. as we anticipated at the time of this purchase , the revenue generated by the operation of the acquired make the web better assets has steadily declined since we acquired them , as the end-user base of those assets continues to decrease , revenue will decline by 20 % to 25 % in each quarter when compared to the prior quarterly period . our ability to increase our revenue generated from distribution partners depends on growth in the revenues generated by our existing distribution partners ' web properties and the addition of new distribution partners who can successfully generate revenue . revenue from distribution partners may be affected by the quality of the search traffic provided by those distribution partners and in previous periods , revenue from certain distribution partners has been adversely affected by our determination that certain search traffic did not meet our minimum standards of quality or the guidelines of our search customers , who may require certain of our distribution 33 partners to alter the tactics they use to acquire end-users . in an effort to drive quality traffic to our search customers , we continue to invest in research and development to expand the online search services we offer on our owned and operated web properties and those of our distribution partners . in recent periods ( excluding the revenue from the make the web better purchased assets ) we experienced an overall decline in revenue generated through our owned and operated properties . this trend is a result of fewer retained users on our metasearch engine sites and , therefore , fewer paid clicks from these sites . story_separator_special_tag 37 cost of sales cost of sales consists of distribution and content costs related to revenue sharing arrangements with our search distribution partners and usage-based content fees , amortization of acquired intangible assets , and certain costs associated with the operation of the data centers that serve our search business , which include personnel expenses ( which include salaries , benefits and other employee related costs , and stock-based compensation expense ) and bandwidth costs , and depreciation . additionally , cost of sales includes costs directly identifiable to our development-stage business initiatives . cost of sales in total dollars ( in thousands ) and as a percentage of associated and total revenues for the years ended december 31 , 2011 , 2010 , and 2009 are presented below : replace_table_token_9_th the dollar increase in cost of sales for 2011 as compared to 2010 is primarily due to the increase in revenue sharing expenses related to an increase in revenue generated through the web properties of our distribution partners , and was partially offset by the effect of no longer paying distribution expense for revenue generated by make the web better 's assets after we acquired them on april 1 , 2010 , by the decrease in the amortization of acquired intangible assets acquired from make the web better , and by the decline in cost of sales for our haggle business , which we suspended the operation of in 2010. the dollar increase in cost of sales for 2010 as compared to 2009 is primarily due to the amortization of intangible assets acquired from make the web better and the cost of sales for our haggle business , classified in other cost of sales , partially offset by the decrease in revenue sharing expense resulting from our acquisition of make the web better . we anticipate that revenue sharing expenses paid to our distribution partners will increase in dollars if revenue increases through growth in existing arrangements with our distribution partners or we add new distribution partners or renew our contracts with our distribution partners at higher rates . we expect search revenue generated through our distribution partners ' web properties to increase at a greater rate than revenue generated through our owned and operated web properties , and consequently expect that revenue sharing expenses with our distribution partners as a percentage of revenues will increase . as a result of our acquisition of assets from make the web better in april 2010 , we experienced a decrease in cost of sales as a percentage of revenues , and a corresponding increase in our gross profit percentage on our revenues . that effect has been declining as expected as the revenue has declined from the make the web better assets . we expect that revenue from searches conducted by end users on sites of our distribution partners will become a greater portion of our search revenue . engineering and technology expenses . engineering and technology expenses are associated with the research , development , support , and ongoing enhancements of our offerings , including personnel expenses ( which include salaries , stock-based compensation expense , and benefits and other employee related costs ) , costs for temporary help and contractors to augment our staffing , software support and maintenance , and professional service fees . engineering and technology expenses in total dollars ( in thousands ) and as a percentage of total revenues for the years ended december 31 , 2011 , 2010 , and 2009 are presented below : replace_table_token_10_th 38 the dollar decrease for 2011 as compared to 2010 was primarily attributable to decreases in stock-based compensation expense of $ 477,000 and software support and maintenance costs of $ 394,000. the dollar decrease for 2010 compared to 2009 was primarily comprised of decreases of $ 567,000 in employee separation costs and a decrease of $ 374,000 in software support and maintenance . these decreases were partially offset by an increase of $ 440,000 in professional services costs . sales and marketing expenses . sales and marketing expenses consist principally of personnel costs ( which include salaries , stock-based compensation expense , and benefits and other employee related costs ) , the cost of temporary help and contractors to augment our staffing , and marketing expenses associated with our owned and operated websites ( which consist of agency fees , brand promotion expense , market research expense , and online direct marketing expense associated with traffic acquisition , including fees paid to search engines ) . sales and marketing expenses in total dollars ( in thousands ) and as a percentage of total revenues for the years ended december 31 , 2011 , 2010 , and 2009 are presented below : replace_table_token_11_th the dollar decrease for 2011 as compared to 2010 was primarily attributable to decreases of $ 4.1 million in advertising costs for our direct marketing initiatives associated with traffic acquisition , stock-based compensation expense of $ 1.6 million , and personnel-related costs , not including stock-based compensation expense and including costs for temporary help and contractors to augment our staffing , of $ 741,000. the dollar increase for 2010 compared to 2009 was primarily attributable to an increase of $ 3.1 million in advertising costs for our direct marketing initiatives associated with traffic acquisition , and an increase of $ 592,000 in stock-based compensation expense . these increases were partially offset by a decrease of $ 358,000 in marketing research expenses and a decrease of $ 326,000 in public relations expense . to the extent we achieve returns on marketing expenditures , we will continue to invest in our direct marketing initiatives to drive traffic to an owned and operated web property . general and administrative expenses .
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overview of 2011 operating results the following is an overview of our operating results for the year ended december 31 , 2011 compared to the prior year . a more detailed discussion of our operating results , comparing our operating results for the years ended december 31 , 2011 , 2010 , and 2009 , is included under the heading historical results of operations in this management 's discussion and analysis of financial condition and results of operations . because infospace did not own the taxact business until january 31 , 2012 , financial results for taxact are not included in our operating results for the years presented in this management 's discussion and analysis of financial condition and results of operations . 34 several of our key operating financial measures for the years ended december 31 , 2011 and 2010 in total dollars ( in thousands ) and as a percentage of segment revenue are presented below . replace_table_token_6_th ( 1 ) adjusted ebitda is a non-gaap measure , defined below in non-gaap financial measures. search revenue excludes revenue from early-stage business initiatives , which was de minimis for 2011. revenue increased from 2010 to 2011 due to growth in revenue from our distribution partners . this growth was partially offset by declining revenue from our owned and operated properties . we generated 47 % and 35 % of our search revenue through our top five distribution partners for 2011 and 2010 , respectively . the web properties of our top five distribution partners for 2011 generated 32 % of our search revenue for 2010. the decrease in gross profit as a percent of search revenue , for 2011 as compared to 2010 , was primarily due to an increase in revenue generated through the web properties of our distribution partners , with whom we share our search revenue , and a decrease in revenue generated through our owned and operated properties .
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amounts allocated to a material right are not recognized as revenue until , at the earliest , the story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes to those consolidated financial statements included in item 15 of this annual report on form 10-k. this discussion contains forward-looking statements that involve significant risks and uncertainties . as a result of many factors , such as those set forth under `` risk factors '' and elsewhere in this annual report on form 10-k , our actual results may differ materially from those anticipated in these forward-looking statements . please also refer to the section under heading `` forward-looking statements . '' overview we are a biopharmaceutical company dedicated to the discovery , development and commercialization of therapeutics to treat serious and rare diseases . our research focuses on key natural regulators of cellular growth and repair , particularly the transforming growth factor-beta , or tgf-beta , protein superfamily . by combining our discovery and development expertise , including our proprietary knowledge of the tgf-beta superfamily , and our internal protein engineering and manufacturing capabilities , we generate innovative therapeutic candidates , all of which encompass novel potential first-in-class mechanisms of action . if successful , these candidates could have the potential to significantly improve clinical outcomes for patients across these areas of high , unmet need . we focus and prioritize our commercialization , research and development activities within two key therapeutic areas : pulmonary and hematology . pulmonary we are actively developing our lead pulmonary program , sotatercept , for the treatment of patients with pulmonary arterial hypertension , or pah . sotatercept is generally partnered with bristol myers squibb , or bms ( which acquired celgene corporation in november 2019 ) , but we retain the exclusive rights to fund , develop , and lead the global commercialization of sotatercept in pulmonary hypertension , which we refer to as the ph field , and that includes pah . pah is a rare and chronic , rapidly progressing disorder characterized by the constriction of small pulmonary arteries , resulting in abnormally high blood pressure in the pulmonary arteries . in june 2020 , we presented results of the pulsar phase 2 trial of sotatercept in patients with pah on stable background pah-specific therapies during the `` breaking news : clinical trials in pulmonary medicine '' session of the american thoracic society , or ats , 2020 virtual conference . study investigators reported that the trial met its primary endpoint , pulmonary vascular resistance , and its key secondary endpoint , six-minute walk distance , and showed concordance of results across multiple additional endpoints and regardless of baseline characteristics . sotatercept was generally well tolerated in the trial and adverse events observed in the study were generally consistent with previously published data on sotatercept in clinical trials in other patient populations . we presented additional cardiac and pulmonary function data at the virtual 2020 american heart association scientific sessions in november 2020 showing improvement in right ventricular-pulmonary arterial ( rv-pa ) coupling , which represents the match between the output of the rv and the resistance of the pulmonary vasculature , as well as improvement in rv function . the 18-month extension period of the pulsar trial is ongoing and we initiated our registrational phase 3 trial , the stellar trial , in patients with pah at the end of 2020. in mid 2021 , we also plan to initiate the early intervention phase 3 hyperion trial in patients with pah , and the later intervention phase 3 zenith trial in world health organization ( who ) functional class iv pah patients . we have completed enrollment in an exploratory study called spectra to provide us with greater understanding of sotatercept 's potential impact on pah . we presented preliminary interim results in november 2020 at the virtual 2020 american heart association scientific sessions , and we expect to announce additional results in the first half of 2021. we also previously announced that the u.s. food and drug administration , or fda , has granted breakthrough therapy designation to sotatercept for the treatment of patients with pah , and that the european medicines agency , or ema , has granted priority medicines , or prime , designation to sotatercept for the treatment of patients with pah . in december 2020 , the european commission granted orphan drug designation to sotatercept for the treatment of patients with pah . if sotatercept is approved and commercialized to treat pah , then we will recognize revenue from global net sales and owe bms a royalty in the low 20 % range . in addition to sotatercept , we are currently advancing our second pulmonary therapeutic candidate , ace-1334 . ace-1334 is a wholly owned tgf-beta superfamily-based ligand trap designed to bind and inhibit tgf-beta 1 and 3 ligands but not tgf-beta 2. we recently completed an ascending-dose phase 1 clinical trial in healthy volunteers , and the fda has granted fast track designation to ace-1334 in patients with systemic sclerosis-associated interstitial lung disease , or ssc-ild , as well as orphan drug designation for the treatment of systemic sclerosis . ssc-ild is a rare , progressive , autoimmune connective tissue 54 disorder characterized by immune dysregulation . we intend to initiate a phase 1b/phase 2 clinical trial with ace-1334 in patients with ssc-ild in 2021. hematology our first commercial product , reblozyl® ( luspatercept-aamt ) , is a first-in-class erythroid maturation agent designed to promote red blood cell , or rbc , production through a novel mechanism , and is partnered with bms . reblozyl is currently approved to treat certain adult patients with beta-thalassemia or mds in the united states , european union and canada , as further described in `` business '' above . story_separator_special_tag for a discussion of the risks presented by the covid-19 pandemic to our results , see risk factors in part i , item 1a elsewhere in this annual report on form 10-k. revenue collaboration revenue our revenue to date has been predominantly derived from collaboration revenue , which includes license and milestone revenue , cost-sharing revenue , and royalties , generated through collaboration and license agreements with partners for the development and commercialization of our therapeutic candidates . cost-sharing revenue represents amounts reimbursed by our collaboration partners for expenses incurred by us for research and development activities and co-promotion activities under our collaboration agreements . cost-sharing revenue is recognized in the period that the related activities are performed . royalty revenue is recognized in the period that the related sales occur . costs and expenses research and development expenses research and development expenses consist primarily of costs directly incurred by us for the development of our therapeutic candidates , which include : direct employee-related expenses , including salaries , benefits , travel and stock-based compensation expense of our research and development personnel ; expenses incurred under agreements with clinical research organizations , or cros , and investigative sites that will conduct our clinical trials ; the cost of acquiring and manufacturing preclinical and clinical study materials and developing manufacturing processes ; allocated facilities , depreciation , and other expenses , which include rent and maintenance of facilities , insurance and other supplies ; expenses associated with obtaining and maintaining patents ; and costs associated with preclinical activities and regulatory compliance . research and development costs are expensed as incurred . costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites . 56 we can not determine with certainty the duration and completion costs of the current or future clinical trials of our therapeutic candidates or if , when , or to what extent we will generate revenues from the commercialization and sale of any of our therapeutic candidates for which we or any partner obtain regulatory approval . we or our partners may never succeed in achieving regulatory approval for any of our therapeutic candidates beyond the initial approvals of reblozyl . the duration , costs and timing of clinical trials and development of therapeutic candidates will depend on a variety of factors , including : the scope , rate of progress , and expense of our ongoing , as well as any additional , clinical trials and other research and development activities ; future clinical trial results ; potential changes in government regulation ; and the timing and receipt of any regulatory approvals . a change in the outcome of any of these variables with respect to the development of a therapeutic candidate could mean a significant change in the costs and timing associated with the development of that therapeutic 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 the clinical development of therapeutic candidates , or if we experience significant delays in the enrollment in any clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development . from inception through december 31 , 2020 , we have incurred $ 986.6 million in research and development expenses . we plan to increase our research and development expenses for the foreseeable future as we continue the development of our tgf-beta platform therapeutic candidates , the discovery and development of preclinical therapeutic candidates , and the development of our clinical programs . research and development expenses associated with luspatercept-aamt , and outside of the ph field , sotatercept , are generally reimbursed 100 % by bms . these reimbursements are recorded as revenue . we are expensing the costs of phase 2 clinical trials for luspatercept-aamt , sotatercept , ace-1334 , and ace-083 , of which the luspatercept-aamt clinical trials are reimbursed by bms . our phase 2 clinical trial for ace-083 was discontinued and all remaining material expenses were incurred as of the end of 2020. with respect to the luspatercept-aamt clinical trials directly conducted by bms , we do not incur and are not reimbursed for expenses related to these development activities . we manage certain activities such as clinical trial operations , manufacture of therapeutic candidates , and preclinical animal toxicology studies through third-party cros . the only costs we track by each therapeutic candidate are external costs such as services provided to us by cros , manufacturing of preclinical and clinical drug product , and other outsourced research and development expenses . we do not assign or allocate to individual development programs internal costs such as salaries and benefits , facilities costs , lab supplies and the costs of preclinical research and studies , except for luspatercept-aamt costs for the purposes of billing bms . our external research and development expenses during the years ended december 31 , 2020 , 2019 and 2018 , were as follows : replace_table_token_2_th _ ( 1 ) these expenses associated with luspatercept-aamt are reimbursed 100 % by bms . ( 2 ) these expenses are associated with our development of sotatercept in pah . ( 3 ) development of ace-083 was discontinued . all remaining material expenses were incurred as of the end of 2020 . ( 4 ) these expenses are associated with our development of ace-1334 in ssc-ild . 57 ( 5 ) other expenses include employee and unallocated contractor-related expenses , facility expenses , lab supplies and miscellaneous expenses , including expenses associated with preclinical and other development programs . selling , general and administrative expenses selling , general and administrative expenses consist primarily of salaries and related costs for personnel , including stock-based compensation and travel expenses for our employees in executive , commercial , operational , finance and human resource functions .
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results of operations comparison of the years ended december 31 , 2020 and 2019 60 replace_table_token_3_th revenue . we recognized revenue of $ 92.5 million in the year ended december 31 , 2020 , compared to $ 74.0 million in the year ended december 31 , 2019. all of the revenue in both periods was derived from the bms agreements . this increase in revenue of $ 18.5 million is primarily due to the following factors : an increase in royalty revenue from reblozyl sales of $ 54.8 million ; offset by a decrease in milestone revenue of $ 35.0 million due to the recognition of multiple milestones in 2019 from bms ( then celgene ) for the acceptance of the bla and validation of the maa , as well as approval of the bla for reblozyl , compared to the recognition of one milestone in 2020 for the approval by the ema ; and a decrease in cost-sharing revenue of $ 1.3 million primarily due to a decrease in trial management fees and development costs , offset by an increase in reimbursable commercial fees as we continue to expand our commercial footprint . research and development expenses . research and development expenses were $ 173.9 million in the year ended december 31 , 2020 , compared to $ 154.0 million in the year ended december 31 , 2019. this $ 19.9 million increase was primarily related to growth in order to support our wholly-owned therapeutic candidates and preclinical programs and includes : an increase in personnel and facilities-related expense of $ 14.1 million related to increased headcount to support our growth ; an increase in contract manufacturing , drug supply , and development expenses of $ 20.3 million related to our ongoing clinical and preclinical programs ; and an increase in miscellaneous research expense of $ 4.1 million ; offset by a decrease in external clinical trial expense of $ 9.2 million due to the
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throughout the md & a , we refer to various notes to our consolidated financial statements which appear in item 8 of this 2016 form 10-k , and the information contained in such notes is incorporated by reference into the md & a in the places where such references are made . executive overview with revenues of $ 6.4 billion , we are a leading provider of business process services with expertise in transaction-intensive processing , analytics and automation . we serve as a trusted business partner in both the front office and back office , enabling personalized , seamless interactions on a massive scale that improve end-user experience . our addressable market size in the global business process service industry is estimated at nearly $ 260 billion . headquartered in florham park , new jersey , the 96,000 people of conduent , as of december 31 , 2016 , serve customers in more than 40 countries . in 2016 , 11 % of our revenue was generated outside the u.s. we organize our business around three main reportable segments : commercial industries , healthcare and public sector . our commercial industries segment is comprised of business process services and customized solutions offered to clients in a variety of industries ( other than healthcare ) . our healthcare segment is comprised of industry-centric business process services offered to clients across the healthcare industry , including providers , payers , employers , pharmaceutical and life science companies and government agencies . our public sector segment is comprised of government-centric business process services offered to u.s. federal , state and local governments , as well as foreign . separation on december 31 , 2016 , conduent incorporated completed its separation from xerox corporation and is now an independent public company trading on the new york stock exchange under the symbol `` cndt '' . in connection with the separation from xerox , conduent entered into several agreements to ( 1 ) affect the legal and structural separation of conduent and xerox , ( 2 ) govern the relationship between conduent and xerox up to and after the completion of the separation and ( 3 ) allocate between conduent and xerox various assets , liabilities and obligations , including , among other things , employee benefits and tax-related assets and liabilities . the agreements entered into include a separation and distribution agreement , a transition services agreement , a tax matters agreement , an employee matters agreement , an intellectual property agreement and a trademark license agreement . significant 2016 charges goodwill impairment charge as required by asc 350 intangibles - goodwill and other , we annually test the goodwill of our reporting units for impairment . for step 1 of the test , as in prior years , we determined the fair value of our reporting units utilizing a combination of both an income approach and a market approach to calculate fair value for each reporting units . we then compare the fair value of each reporting unit to its carrying value . the income approach utilizes a discounted cash flow analysis based upon the forecasted future business results of each reporting units . the market approach conduent inc. 2016 annual report 24 utilizes the guideline public company method . we apply a two-thirds and one-third weighting to the results of the income approach and the market approach , respectively , to calculate the fair value of each reporting units . our commercial industries reporting units operating results declined in 2016 versus our expectations , including a weak fourth quarter 2016. in performing step 1 of our annual impairment test during the fourth quarter of 2016 , we determined that the carrying value of the commercial industries reporting unit exceeded fair value by 53 % , indicating an impairment and ; therefore , we performed step 2 of the test . our healthcare and public sector reporting units passed step 1 with fair value exceeding carrying value by 19 % and 14 % , respectively , and , therefore , we were not required to perform step 2 of the test . step 2 for the commercial industries reporting unit required a hypothetical purchase price allocation and the calculation of the implied fair value of goodwill . as a result of performing step 2 , we calculated a goodwill impairment of $ 935 million . this has been presented as goodwill impairment , a separate line item in the consolidated statements of income ( loss ) . refer to note 7 - goodwill and intangible assets , net in the consolidated financial statements for additional information . our annual test relies upon key assumptions about revenue and profitability , including the impact of significant planned cost reductions from our strategic transformation program . as with any forecast , there is an element of uncertainty and management has considered this when performing the annual impairment test . key assumptions like the discount rate we use to calculate the present value of the forecasted cash flows for each reporting unit were risk adjusted to reflect these uncertainties . if our actual operating results do not achieve the risk-adjusted forecast of revenue and profitability , or delays in achieving the benefits from the cost reductions assumed in our strategic transformation program occur , there is the risk of future goodwill impairments . as a result of the significant impact of the goodwill impairment charge on our reported revenues , earnings and key metrics for the period , we also discuss our results excluding the impact of this charge . the adjusted results are noted as “ adjusted ” in the discussion below . refer to the “ non-gaap financial measures ” section for a reconciliation and explanation of these non-gaap financial measures . ny mmis charge in february 2017 , we determined that it is probable that we will not fully complete our new york medicaid management information system ( `` ny mmis '' ) project in its current form . story_separator_special_tag we are on track to achieve these cumulative savings through 2018 . _ ( 1 ) refer to the `` non-gaap financial measures '' section for an explanation of the non-gaap financial measure . conduent inc. 2016 annual report 26 2017 outlook revenues - for 2017 , we expect total revenues to decline similar to 2016 levels with stabilization in 2018 and building growth momentum later in the year . investments - we plan to balance investments in the business with margin expansion and will focus on capturing market growth opportunities by aligning our businesses by industry verticals , increasing our salesforce in targeted growth areas , investing in platforms and technology and considering potential acquisitions . currency impact to understand the trends in our business , we believe that it is helpful to analyze the impact of changes in the translation of foreign currencies into u.s. dollars on revenue and expenses . we refer to this analysis as “ currency impact ” or “ the impact from currency ” or `` constant currency '' . in 2016 , 2015 and 2014 , this impact is calculated by translating current period activity in local currency using the comparable prior year period 's currency translation rate . application of critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america ( u.s. gaap ) requires us to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and notes thereto . in preparing our consolidated financial statements , we have made our best estimates and judgments of certain amounts included in the consolidated financial statements giving due consideration to materiality . however , application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and , as a result , actual results could differ from these estimates . senior management has discussed the development and selection of the critical accounting policies , estimates and related disclosures included herein with the audit committee of the board of directors . we consider these as critical to understanding our consolidated financial statements , as their application places the most significant demands on management 's judgment , since financial reporting results rely on estimates of the effects of matters that are inherently uncertain . in instances where different estimates could have reasonably been used , we disclosed the impact of these different estimates on our operations . in certain instances , the accounting rules are prescriptive ; therefore , it would not have been possible to reasonably use different estimates . changes in assumptions and estimates are reflected in the period in which they occur . the impact of such changes could be material to our results of operations and financial condition in any quarterly or annual period . specific risks associated with these critical accounting policies are discussed throughout the md & a , where such policies affect our reported and expected financial results . for a detailed discussion of the application of these and other accounting policies , refer to note 1 - basis of presentation and summary of significant accounting policies in the consolidated financial statements . revenue recognition application of the various accounting principles in u.s. gaap related to the measurement and recognition of revenue requires us to make judgments and estimates . complex arrangements with nonstandard terms and conditions may require significant contract interpretation to determine the appropriate accounting . refer to note 1 - basis of presentation and summary of significant accounting policies - new accounting standards and accounting changes - revenue recognition in the consolidated financial statements for additional information regarding our revenue recognition policies . conduent inc. 2016 annual report 27 a significant portion of our revenue is recognized based on objective criteria that do not require significant estimates or uncertainties . for example , transaction volumes , time and material and cost reimbursable arrangements are based on specific , objective criteria under the contracts . accordingly , revenues recognized under these contracts do not require the use of significant estimates that are susceptible to change . revenue recognized using the percentage-of completion ( poc ) accounting method does require the use of estimates and judgment as discussed below . we recognize revenues when we have persuasive evidence of an arrangement , the services have been provided , the transaction price is fixed or determinable and collectability is reasonably assured . during 2016 , approximately 81 % of our revenue was recognized based on transaction volumes , approximately 7 % was recognized on a fixed fee basis ( wherein our revenue is earned as we fulfill our performance obligations under the arrangement ) , approximately 2 % was related to cost reimbursable contracts , approximately 4 % recognized using poc accounting and the remaining 6 % was related to time and material contracts . our revenue mix is subject to change due to the impact of changing customer requirements , acquisitions , divestitures , new business and lost business . revenue recognition - percentage-of-completion : a portion of our revenue ( approximately 4 % ) is recognized using the percentage-of-completion ( poc ) accounting method . this method requires the use of estimates and judgment . although not significant to total revenue , the poc methodology is normally applied to certain of our larger and longer term outsourcing contracts involving system development and implementation , primarily in government healthcare and certain government transportation contracts . in addition , we had unbilled receivables totaling $ 279 million and $ 289 million at december 31 , 2016 and 2015 , respectively , representing revenues recognized but not yet billable under the terms of our poc contracts . the poc accounting methodology involves recognizing probable and reasonably estimable revenue using the percentage of services completed based on a current cumulative cost incurred to estimated total cost basis and a reasonably consistent profit margin over the period . due to the long-term nature of these arrangements , developing the estimates of cost often requires significant judgment .
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revenue results summary total revenue revenue for the three years ended december 31 , 2016 was as follows : replace_table_token_1_th _ cc - refer to the `` non-gaap financial measures '' section for description of constant currency ( 1 ) refer to the `` non-gaap financial measures '' section for an explanation of this non-gaap financial measure . revenue 2016 total revenues decreased 4 % compared to the prior year with a 1-percentage point negative impact from currency . on an adjusted 1 basis , excluding the ny mmis charge , total revenue decreased 4 % with a 1-percentage point negative impact from currency . overall non-u.s. revenues represented approximately 11 % of total revenues ( pound sterling-denominated revenues represented approximately 2 % of total revenues ) . the decline was driven by lower volumes , delayed ramping of new business and contract exits , primarily in customer care contracts within our commercial industries and healthcare segments , the run off of our student loan business and overall price declines that were consistent with prior-period trends . partially offsetting these declines were new contracts in the public sector . revenue 2015 total revenues decreased 4 % compared to 2014 with a 2-percentage point negative impact from currency . on an adjusted 1 basis , excluding the he charge , total revenues decreased 2 % , with a 2-percentage point negative impact from currency . the negative impact from currency reflects the significant weakening of our major foreign currencies against the u.s. dollar as compared to prior year . the decline in total revenues was primarily driven by the run-off of the student loan business , the termination of the texas medicaid contract and the impact of our determination in the third quarter of 2015 to not fully complete the he platform implementations in california and montana , which combined had approximately a 4.8-percentage point negative impact on revenue growth .
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our products are marketed to consumers shopping in specialty stores , upscale and traditional department stores , national chains , mass merchants and our own direct-to-consumer operations . vf is organized by groupings of businesses called coalitions . the five coalitions are outdoor & action sports , jeanswear , imagewear , sportswear and contemporary brands . these coalitions are our reportable segments for financial reporting purposes . vf operates and reports using a 52/53 week fiscal year ending on the saturday closest to december 31 of each year . all references to 2014 , 2013 and 2012 relate to the 53-week fiscal year ended january 3 , 2015 , and the 52-week fiscal years ended december 28 , 2013 and december 29 , 2012 , respectively . story_separator_special_tag style= '' margin-top:0px ; margin-bottom:0px '' > 31 the following tables present a summary of the changes in coalition revenues and coalition profit during the last two years : replace_table_token_6_th the following section discusses the changes in revenues and profitability by coalition : outdoor & action sports replace_table_token_7_th the outdoor & action sports coalition includes the following brands : the north face ® , vans ® , timberland ® , kipling ® ( outside of north america ) , napapijri ® , jansport ® , reef ® , smartwool ® , eastpak ® , lucy ® and eagle creek ® . the outdoor & action sports coalition revenues increased 13 % in 2014 over 2013 primarily due to growth in the north face ® , vans ® and timberland ® brands , which achieved global revenue growth of 11 % , 17 % and 13 % , respectively . revenues in the americas , european and asia pacific regions increased 14 % , 9 % and 17 % , respectively . direct-to-consumer revenues rose 22 % in 2014 driven by increases of 31 % and 24 % for the north 32 face ® and vans ® brands , respectively . new store openings , comparable store growth and an expanding e-commerce business all contributed to the direct-to-consumer revenue growth . foreign currency translation negatively impacted revenues by $ 43.1 million in 2014. the outdoor & action sports coalition revenues increased 9 % in 2013 over 2012 primarily due to an increase in unit volume . the north face ® , vans ® , and timberland ® brands achieved global revenue growth of 7 % , 17 % and 5 % , respectively . u.s. revenues increased 7 % in 2013 and international revenues increased 10 % with balanced growth in europe and asia pacific . direct-to-consumer revenues rose 15 % in 2013 driven by increases of 28 % and 15 % for the north face ® and vans ® brands , respectively . new store openings , comparable store growth and an expanding e-commerce business all contributed to the direct-to-consumer revenue growth . foreign currency translation positively impacted revenues by $ 53.4 million in 2013. operating margin increased 90 basis points in 2014 driven by a shift in business mix towards higher margin businesses and the leverage of operating expenses on higher revenues , partially offset by increased investments in direct-to-consumer businesses and marketing . the decrease in operating margin for 2013 compared with 2012 was primarily due to additional marketing and direct-to-consumer investments for the coalition 's three largest brands , the north face ® , vans ® and timberland ® , partially offset by increased leverage of operating expenses on higher revenues . jeanswear replace_table_token_8_th the jeanswear coalition consists of the global jeanswear businesses , led by the wrangler ® and lee ® brands . global jeanswear revenues were flat in 2014 over 2013 , as an increase in global wrangler ® brand revenues was offset by decreases in global lee ® ( driven by declines in the u.s. ) and rock & republic ® brand revenues . foreign currency translation negatively impacted revenues by $ 43.0 million in 2014. revenues in the americas region declined 3 % . lee ® brand revenues in the americas region declined 9 % in 2014 , due to ongoing pressure in the u.s. mid-tier and department store channels , and unfavorable consumer trends in women 's denim . wrangler ® brand revenues in the americas region increased 2 % in 2014 driven by increases in both the western specialty and mass businesses . partially offsetting the decrease in the americas region were increases in europe and the asia pacific region of 5 % and 14 % , respectively . the increases in both europe and the asia pacific region were primarily due to wholesale and direct-to-consumer growth in the lee ® brand . revenues in the americas ( non-u.s. ) region declined 5 % in 2014 compared with 2013 , due to the $ 37.6 million negative impact of foreign currency translation . global jeanswear revenues increased 1 % in 2013 over 2012 , driven by 2 % growth in the u.s. within the combined mass , western specialty and lee ® brand businesses , despite continued weakness in the mid-tier channel and a slowdown in the mass business . international jeanswear revenues decreased 1 % in 2013 driven by an 8 % decrease in asia pacific , where the wrangler ® brand in china converted from direct wholesale to a licensing model , and the lee ® brand in china was impacted by an industry-wide inventory build-up that began during the 33 latter part of 2012. partially offsetting the decrease in asia pacific revenues was a 2 % increase in jeanswear europe primarily resulting from the benefit of foreign currency translation gains . revenues in the americas ( non-u.s. ) region were about flat in 2013 compared with 2012. operating margin declined 60 basis points in 2014 over 2013 , primarily due to initiatives to liquidate excess inventory , and lower sales volume in north america , partially offset by effective control of operating expenses . operating margin improved 270 basis points in 2013 over 2012 , primarily driven by lower product costs and improvement in international performance . story_separator_special_tag this charge was excluded from the coalition profit of contemporary brands since it is not part of the ongoing operations of the business . for additional information , see notes f , g and t to the consolidated financial statements and the critical accounting policies and estimates section . other replace_table_token_12_th vf outlet ® stores in the u.s. sell vf products at prices that are generally higher than what could be realized through external wholesale channels , as well as other non-vf products . revenues and profits of vf products sold in these stores are reported as part of the operating results of the applicable coalition , while revenues and profits of non-vf products are reported in this other category . reconciliation of coalition profit to consolidated income before income taxes there are three types of costs necessary to reconcile total coalition profit to consolidated income before income taxes . these costs are ( i ) noncash impairment of goodwill and intangible assets , which is excluded from coalition profit because these costs are not part of the ongoing operations of the respective businesses , ( ii ) interest expense , net , which is excluded from coalition profit because substantially all financing costs are managed at the corporate office and are not under the control of coalition management , and ( iii ) corporate and other expenses , which are excluded from coalition profit to the extent they are not allocated to the coalitions . impairment of goodwill and intangible assets and net interest expense are discussed in the consolidated statements of income section . the corporate and other expenses are summarized as follows : replace_table_token_13_th information systems and shared services these costs include management information systems and the centralized finance , supply chain , human resources , direct-to-consumer and customer management functions that support worldwide operations . operating costs of information systems and shared services are charged to the coalitions based on utilization of those services . costs to develop new computer applications are generally not allocated to the coalitions . the increases in information systems and shared services costs in 2014 and 2013 resulted from the overall growth of the 36 businesses and costs associated with expanded software implementations and upgrades . information systems and shared services costs in 2012 also included increased information systems spending related to the integration of timberland . corporate headquarters ' costs headquarters ' costs include compensation and benefits of corporate management and staff , legal and professional fees and general and administrative expenses that have not been allocated to the coalitions . the increase in corporate headquarters ' costs in 2014 over 2013 was primarily driven by increases in cash and stock-based compensation , resulting from corporate performance in excess of established goals and increases in vf 's share price . the increase in corporate headquarters ' costs in 2013 over 2012 was primarily due to an increase in charitable contributions . other this category includes ( i ) costs of corporate programs or corporate-managed decisions that are not allocated to the coalitions , ( ii ) costs of registering , maintaining and enforcing certain of vf 's trademarks , and ( iii ) miscellaneous consolidated costs , the most significant of which is related to the expense of vf 's centrally-managed u.s. defined benefit pension plans . the current year service cost component of pension expense is allocated to the coalitions , while the remaining cost components totaling $ 32.0 million for 2014 , $ 60.9 million for 2013 and $ 67.2 million for 2012 , are reported in corporate and other expenses . the decrease in other expenses in 2014 compared with 2013 was driven by lower pension expense in 2014 compared with 2013. the increase in other expenses in 2013 compared with 2012 was driven by the $ 42.0 million gain on the sale of john varvatos , which was recorded as an offset to other expense in 2012. in addition , an increase in deferred compensation expense in 2013 was partially offset by lower pension expense compared with 2012. international operations international revenues grew 9 % in 2014 compared with 2013. revenues in europe rose 8 % with positive results from most vf brands sold in that region . in the asia pacific region , revenues increased 17 % primarily driven by growth in china . revenues in the americas ( non-u.s. ) region increased 5 % . international revenues represented 38 % of total vf revenues in both 2014 and 2013. foreign currency translation negatively impacted international revenues by $ 90.6 million in 2014. direct-to-consumer operations direct-to-consumer revenues grew 19 % in 2014 with double-digit increases in all regions and growth in nearly every vf brand with a retail format . new store openings , comparable store growth and an expanding e-commerce business all contributed to the direct-to-consumer revenue growth . vf opened 188 stores in 2014 , bringing the total number of vf-owned retail stores to 1,401 at december 2014. direct-to-consumer revenues were 26 % of total vf revenues in 2014 compared with 24 % in 2013 ( 22 % in 2013 prior to the concession classification change discussed below ) . concessions are retail store locations , which are all outside the u.s. , where vf is responsible for all aspects of operations without ownership of the retail space . under typical concession arrangements , vf pays a concession fee for use of the space based on a percentage of retail sales . beginning in 2014 , we have included all revenues from concession retail stores in our direct-to-consumer revenues . in addition , we began classifying all concession fees as a component of selling , general and administrative expenses instead of the previous treatment as an offset to revenue in the consolidated statements of income . we made these changes to better represent the operations of our direct-to-consumer business . these changes in classification did not impact operating income . the 2013 and 2012 reported balances have not been restated in the consolidated statements of income because the impact is immaterial .
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highlights of 2014 all per share amounts are presented on a diluted basis . all percentages shown in the tables below and the discussion that follows have been calculated using unrounded numbers : revenues grew to a record $ 12.3 billion , an 8 % increase over 2013. international revenues rose 9 % and accounted for 38 % of vf 's total revenues in 2014 . 28 direct-to-consumer revenues increased 19 % over 2013 and accounted for 26 % of vf 's total revenues in 2014. vf opened 188 retail stores in 2014. gross margin improved 70 basis points to 48.8 % in 2014. cash flow from operations reached nearly $ 1.7 billion in 2014. earnings per share declined 12 % to $ 2.38 in 2014 from $ 2.71 in 2013 , reflecting improved operating performance and a $ 0.70 per share noncash impairment charge in the fourth quarter of 2014 resulting from vf 's annual impairment testing of goodwill and intangible assets . vf increased the quarterly dividend rate by 22 % in the fourth quarter , marking the 42 nd consecutive year of increase in the rate of dividends paid per share . vf repurchased $ 727.8 million of its common stock and paid $ 478.9 million in cash dividends , returning more than $ 1.2 billion to stockholders . analysis of results of operations consolidated statements of income the following table presents a summary of the changes in total revenues during the last two years : replace_table_token_4_th vf reported revenue growth of 8 % in 2014. this revenue growth was driven by a 13 % increase in the outdoor & action sports coalition , and continued strength in the international and direct-to-consumer businesses which grew revenues by 9 % and 19 % , respectively .
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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 . signature title date david cohen chief executive officer and director ( principal executive officer , principal financial officer and april 10 , 2017 david cohen principal accounting officer ) alexander bafer chairman of the board and chief development officer april 10 , 2017 alexander bafer bradley albert president , chief creative officer and director april 10 , 2017 bradley albert justin morris chief operating officer and director april 10 , 2017 justin morris frank esposito director april 10 , 2017 frank esposito 32 carolco pictures , inc. december 31 , 2016 and 2015 index to the consolidated financial statements replace_table_token_6_th 33 report of independent registered public accounting firm to the board of directors and stockholders of carolco pictures inc. we have audited the accompanying consolidated balance sheets of carolco pictures inc. and subsidiaries ( the “ company “ ) as of december 31 , 2016 and 2015 and the related consolidated statements of operations , stockholders ' equity ( deficit ) and cash flows for the years then ended . these consolidated financial statements are the responsibility of the company 's management . our responsibility is to express an opinion on these financial statements based on our audits . we conducted our audits in accordance with the standards of the public company accounting oversight board ( united states ) . those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement . the company is not required to have , nor were we engaged to perform , an audit of its internal control over financial reporting . our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances , but not for the purposes of expressing an opinion on the effectiveness of the company 's internal control over financial reporting . accordingly , we express no such opinion . an audit includes examining on a test basis , evidence supporting the amount and disclosures in the consolidated financial statements . an audit also includes assessing the accounting principles used and significant estimates made by management , as well as evaluating the overall financial statement presentation . we believe that our audits provide a reasonable basis for our opinion . in our opinion , the consolidated financial statements referred to above present fairly , in all material respects , the consolidated financial position of the company as of december 31 , 2016 and 2015 , and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the united states of america . the accompanying consolidated financial statements have been prepared assuming that the company will continue as a going concern . as discussed in note 1 to the consolidated financial statements , the company has a stockholders ' deficit at december 31 , 2016 and incurred a net loss and used cash in operating activities for the year then ended . these conditions raise substantial doubt about the company 's ability to continue as a going concern . management 's plans in regards to these matters are also described in note 1. the consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty . weinberg & company , p.a . los angeles , california april 10 , 2017 f- 1 carolco pictures , inc. consolidated balance sheets replace_table_token_7_th see accompanying notes to consolidated financial statements f- 2 carolco pictures inc. consolidated statements of operations replace_table_token_8_th see accompanying notes to the consolidated financial statements . f- 3 carolco pictures inc. statements of stockholders ' equity ( deficit ) for the years ended december 31 , 2016 and 2015 common shares , series a preferred , series b preferred , series c preferred , $ .0001 par value per share $ .0001 par value per share $ .0001 par value per share $ .0001 par value per share additional common non total shares shares shares shares paid-in stock accumulated controlling equity issued amount issued amount issued amount issued amount capital receivable deficit interest ( deficit ) balance december 31 , 2014 5,424 $ - $ - $ - $ - $ 4,178,000 $ ( 8,000 ) $ ( 4,017,000 ) $ ( 124,000 ) $ 29,000 common stock issued for cash 384 0 191,000 191,000 common stock issued for non-employee services 168 0 1,040,000 1,040,000 fv warrant issued for employee services 900,000 story_separator_special_tag story_separator_special_tag on the same date , the company redeemed 2,500,000 shares of the company 's series a preferred stock ( the “ series a stock ” ) in exchange for the payment to south centre of $ 0.0001 per share . the company undertook the redemption for the purposes of obtaining the shares of series a stock so that such shares could be paid to certain third parties in connection with the contribution agreement as disclosed below . also pursuant to the redemption agreement , on the same date , the company issued to south centre 12,750,000 shares of newly designated series c preferred stock of the company ( the “ series c stock ” ) in exchange for payment to the company of $ 1,000. on july 25 , 2016 , the company entered into a contribution agreement ( the “ contribution agreement ” ) by and between the company , recall , south centre and various other shareholders of recall ( the “ recall shareholders ” ) . story_separator_special_tag the agreement also provides that frank esposito , the managing member of esposito partners , shall be named as a director of the company and shall also serve as the company 's chief legal officer and secretary . on december 28 , 2016 , the company issued an unsecured convertible promissory note in the principal amount of $ 50,000 to james lux ( the “ lender ” ) . the note bore interest at 5 % per annum , and due upon demand . results of operations for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 replace_table_token_2_th 14 revenues for the year ended december 31 , 2016 were $ 208,000 as compared to $ 964,000 for the year ended december 31 , 2015. the decrease of $ 756,000 in revenue was due to the slowdown in production activities during the change in the company 's ownership in june 2016. the company continues to focus much of its efforts in the area of productions related to televised awards programming where it believes it has the expertise to grow in this sector . revenue recognition is deferred until product is delivered and accepted by our customers . our future revenue plan is , in part , dependent on our ability to effectively market the doorman pilot and close new viable acquisitions of film rights . cost of goods sold for the year ended december 31 , 2016 were $ 113,000 as compared to $ 792,000 for the year ended december 31 , 2015. this decrease was directly related to the 78 % decrease in revenues due to the acquisition and transition periods . operating expenses for the year ended december 31 , 2016 totaled $ 1,720,000 compared to $ 3,218,000 for the year ended december 31 , 2015. the decrease of 47 % was primarily attributable to a decrease in compensation expense , and professional fees due to the transitional period during the transfer of ownership . the company has realized a net loss of $ 10,136,000 for the year ended december 31 , 2016 compared to a net loss of $ 7,609,000 for the year ended december 31 , 2015. the increase in net loss of approximately $ 2,527,000 is primarily due to the change in fair value of derivatives of $ 8,870,000 , which is partially offset by a gain on extinguishment of derivative liability of $ 558,000. liquidity and capital resources replace_table_token_3_th as of december 31 , 2016 , our total assets were $ 115,000 and our total liabilities were $ 14,370,000 and we had negative working capital of ( $ 14,255,000 ) . our financial statements report a net loss of $ 10,136,000 for the year ended december 31 , 2016 and a net loss of $ 7,609,000 for the year ended december 31 , 2015. we have suffered recurring losses from operations . the continuation of our company is dependent upon our company attaining and maintaining profitable operations and raising additional capital as needed . in this regard , we have raised additional capital through equity offerings and loan transactions , and , in the short term , will seek to raise additional capital in such manners to fund our operations . we do not currently have any third-party financing available in the form of loans , advances , or commitments . our officers and shareholders have not made any written or oral agreement to provide us additional financing . there can be no assurance that we will be able to continue to raise capital on terms and conditions that are deemed acceptable to us . off-balance sheet arrangements as of december 31 , 2016 , there were no off-balance sheet arrangements . going concern the accompanying consolidated financial statements have been prepared assuming that the company will continue as a going concern , which contemplates continuity of operations , realization of assets , and liquidation of liabilities in the normal course of business . 15 as reflected in the accompanying consolidated financial statements , the company had a stockholders ' deficit at december 31 , 2016 , incurred a net loss and used cash in operating activities for the year then ended . these conditions raise substantial doubt about its ability to continue as a going concern within one year from the date that the financial statements are issued . the company is attempting to produce sufficient revenue ; however , the company 's cash position may not be sufficient to support its daily operations . while the company believes in the viability of its strategy to produce sufficient revenue and in its ability to raise additional funds , there can be no assurances to that effect . the ability of the company to continue as a going concern is dependent upon its ability to further implement its business plan and generate sufficient revenues and in its ability to raise additional funds . in addition , the company 's independent registered public accounting firm , in its report on the company 's december 31 , 2016 consolidated financial statements , has raised substantial doubt about the company 's ability to continue as a going concern . the consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the company be unable to continue as a going concern . critical accounting policies our discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america .
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overview we were incorporated on february 20 , 2009 , in the state of florida , under the name york entertainment , inc. on october 5 , 2010 , we amended our articles of incorporation to change our name to brick top productions , inc. effective december 31 , 2015 , we amended our articles of incorporation to change our name to carolco pictures , inc. we are an award-winning feature film and television specials production company . we seek to finance , produce and distribute one or more television series and feature films to be licensed for exploitation in domestic and international theatrical , television , cable , home video and pay per view markets . through our subsidiary that we acquired in december 2013 , high five entertainment , we specialize in the development and presentation of quality television programming including live events and award shows . through our subsidiary that we acquired in july 2016 , recall studios , we focus on virtual reality content , filling the demand attendant to the increased production of virtual reality viewing devices absent a corresponding increase in content production . this acquisition was a related party transaction due to the common ownership interest by alex bafer , the company 's chairman of the board of directors and chief development officer . recent developments on june 22 , 2016 , the company entered into a stock purchase agreement ( the “ spa ” ) by and between the company , tarek kirschen , the then-chief executive officer and a director of the company and south centre , a firm owned solely by david cohen , a then-unrelated individual .
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these forward-looking statements are subject to numerous risks and uncertainties , including , but not limited to , the risks and uncertainties described in item 1a , risk factors and cautionary note regarding forward-looking statements. our actual results may differ materially from those contained in or implied by any forward-looking statements . we operate on a fiscal calendar widely used by the retail industry that results in a given fiscal year consisting of a 52- or 53-week period ending on the saturday closest to january 31 of the following year . references to fiscal year 2015 refer to the fiscal year ended january 30 , 2016 , references to fiscal year 2014 refer to the fiscal year ended january 31 , 2015 , and references to fiscal year 2013 refer to the fiscal year ended february 1 , 2014. each of fiscal years 2015 , 2014 and 2013 consisted of a 52-week period . overview ollie 's is a highly differentiated and fast-growing , extreme value retailer of brand name merchandise at drastically reduced prices . known for our assortment of products offered good stuff cheap ® we offer customers a broad selection of brand name products , including food , housewares , books and stationery , bed and bath , floor coverings , hardware and toys . our differentiated go-to market strategy is characterized by a unique , fun and engaging treasure hunt shopping experience , compelling customer value proposition and witty , humorous in-store signage and advertising campaigns . these attributes have driven our rapid growth and strong and consistent store performance as evidenced by our store base expansion from 95 stores to 203 stores , net sales growth from $ 335.7 million to $ 762.4 million and average net sales per store ranging from $ 3.7 million to $ 4.0 million between fiscal year 2010 and fiscal year 2015. furthermore , our comparable store sales increased from $ 604.1 million in fiscal year 2014 to $ 640.6 million in fiscal year 2015 , or 6.0 % , and our non-comparable store sales increased from $ 33.9 million in fiscal year 2014 to $ 121.8 million in fiscal year 2015 . 37 our growth strategy since the founding of ollie 's in 1982 , we have grown organically by backfilling existing markets and leveraging our brand awareness , marketing and infrastructure to expand into new markets in contiguous states . in 2003 , mark butler , our co-founder , assumed his current role as president and chief executive officer . under mr. butler 's leadership , we expanded from 28 stores located in three states at the end of fiscal year 2003 to 203 stores located in 17 states as of january 30 , 2016. our stores are supported by two distribution centers , one in york , pa and one in commerce , ga , which we believe can support between 375 to 400 stores . we have invested in our associates , infrastructure , distribution network and information systems to allow us to continue to rapidly grow our store footprint , including : growing our merchant buying team to increase our access to brand name/closeout merchandise ; adding members to our senior management team ; opening two new distribution centers since 2011 with a total capacity of approximately 1.6 million square feet ; and investing in information technology , accounting , and warehouse management systems . our business model has produced consistent and predictable store growth over the past several years , during both strong and weaker economic cycles . we plan to continue to enhance our competitive positioning and drive growth in sales and profitability by executing on the following strategies : growing our store base ; increasing our offerings of great bargains ; and leveraging and expanding ollie 's army . we have a proven portable , flexible , and highly profitable store model that has produced consistent financial results and returns . our new store model targets a store size between 25,000 to 35,000 square feet and an average initial cash investment of $ 1.0 million , which includes store fixtures and equipment , store-level and distribution center inventory ( net of payables ) and pre-opening expenses . we target new stores sales of $ 3.7 million and an expected cash-on-cash return of approximately 55 % in the first 12 months of operations and payback of approximately two years . new stores opened from fiscal year 2010 to fiscal year 2014 produced average cash-on-cash returns of 63 % in their first 12 months of operations . while we are focused on driving comparable store sales and managing our expenses , our revenue and profitability growth will primarily come from opening new stores . the core elements of our business model are procuring great deals , offering extreme values to our customers and creating consistent , predictable store growth and margins . in addition , our new stores generally open strong , immediately contributing to the growth in net sales and profitability of our business . our new stores traditionally reach normalized sales after three years of full operations . from 2010 to 2015 , net sales grew at a cagr of 17.5 % . we plan to achieve continued net sales growth , including comparable stores sales , by adding additional stores to our store base and by continuing to provide quality merchandise at a value for our customers as we scale and gain more access to purchase directly from major manufacturers . we also plan to leverage and expand our ollie 's army database marketing strategies . in addition , we plan to continue to manage our selling , general and administrative expenses by continuing to make process improvements and by maintaining our standard policy of reviewing our operating costs . 38 our ability to grow and our results of operations may be impacted by additional factors and uncertainties , such as consumer spending habits , which are subject to macroeconomic conditions and changes in discretionary income . story_separator_special_tag gross margin is gross profit as a percentage of our net sales . gross margin is a measure used by management to indicate whether we are selling merchandise at an appropriate gross profit . in addition , our gross profit margin is impacted by product mix , as some products generally provide higher gross margins , by our merchandise mix and availability , and by our merchandise cost , which can vary . our gross profit is variable in nature and generally follows changes in net sales . we regularly analyze the components of gross profit , as well as gross profit as a percentage of sales . specifically , our product margin and merchandise mix is reviewed by our merchant team and senior management , ensuring strict adherence to internal margin goals . our disciplined buying approach has produced consistent gross margins and we believe helps to mitigate adverse impacts on gross profit and results of operation . the components of our cost of sales may not be comparable to the components of cost of sales or similar measures of our competitors and other retailers . as a result , our gross profit and gross margin may not be comparable to similar data made available by our competitors and other retailers . 40 selling , general and administrative expenses selling , general and administrative expenses are comprised of payroll and benefits for store , field support and support center associates . selling , general and administrative expenses also include marketing and advertising , occupancy , utilities , supplies , credit card processing fees , insurance and professional services . the components of our selling , general and administrative expense remain relatively consistent per store and for each new store opening . consolidated selling , general and administrative expenses generally increase as we grow our store base and as our net sales increase . a significant portion of our expenses is primarily fixed in nature , and we expect to continue to maintain strict discipline while carefully monitoring selling , general and administrative expenses as a percentage of net sales . the components of our selling , general and administrative expenses may not be comparable to the components of similar measures of other retailers . we expect that our selling , general and administrative expenses will increase in future periods with future growth and in part due to additional legal , accounting , insurance , and other expenses as a result of being a public company , including compliance with the sarbanes-oxley act and related rules and regulations . pre-opening expenses pre-opening expenses consist of expenses of opening new stores and distribution centers . for new stores , pre-opening expenses include grand opening advertising costs , payroll expenses , travel expenses , employee training costs , rent expenses and store setup costs . pre-opening expenses for new stores are expensed as they are incurred , which is typically within 30 to 45 days of opening a new store . for distribution centers , pre-opening expenses primarily include inventory transportation costs , employee travel expenses and occupancy costs . operating income operating income is gross profit less selling , general and administrative expenses , depreciation and amortization and pre-opening expenses . operating income excludes interest expense , net and income tax expense . we use operating income as an indicator of the productivity of our business and our ability to manage expenses . depreciation and amortization expenses property and equipment are stated at original cost less accumulated depreciation and amortization . depreciation and amortization are calculated over the estimated useful lives of the related assets , or in the case of leasehold improvements , the lesser of the useful lives or the remaining term of the lease . expenditures for additions , renewals , and betterments are capitalized ; expenditures for maintenance and repairs are charged to expense as incurred . depreciation is computed on the straight-line method for financial reporting purposes . depreciation as it relates to our distribution centers is included within cost of sales on the consolidated statements of income . ebitda and adjusted ebitda ebitda and adjusted ebitda are key metrics used by management and our board to assess our financial performance . ebitda and adjusted ebitda are also frequently used by analysts , investors and other interested parties to evaluate companies in our industry . we use adjusted ebitda to supplement gaap measures of performance to evaluate the effectiveness of our business strategies , to make budgeting decisions , to evaluate our performance in connection with compensation decisions and to compare our performance against that of other peer companies using similar measures . we define ebitda as net income before net interest expense , loss on extinguishment of debt , depreciation and amortization expenses and income taxes . adjusted ebitda represents ebitda as further adjusted for non-cash stock based compensation 41 expense , pre-opening expenses , non-cash purchase accounting items , debt financing expenses and other expenses , which we do not consider representative of our ongoing operating performance . ebitda and adjusted ebitda are non-gaap measures and may not be comparable to similar measures reported by other companies . ebitda and adjusted ebitda have limitations as analytical tools , and you should not consider them in isolation , or as a substitute for analysis of our results as reported under gaap . in the future we may incur expenses or charges such as those added back to calculate adjusted ebitda . our presentation of adjusted ebitda should not be construed as an inference that our future results will be unaffected by these items . for further discussion of ebitda and adjusted ebitda and for reconciliations of ebitda and adjusted ebitda to net income , the most directly comparable gaap measure , see results of operations. factors affecting the comparability of our results of operations our results over the past three years have been affected by the following events , which must be understood in order to assess the comparability of our period-to-period financial performance and condition .
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historical results historical results are not necessarily indicative of the results to be expected for any future period . ccmp acquisition adjustments in connection with the ccmp acquisition , as described in item 1 , business hereto , our subsidiaries entered into the senior secured credit facilities . the ccmp acquisition and borrowings and subsequent amendments to our senior secured credit facilities impacted our fiscal year 2015 , 2014 and 2013 consolidated statements of operations . our consolidated statements of income reflected various non-cash purchase accounting adjustments related to the ccmp acquisition , net of tax , of $ 0.2 million , $ 0.4 million and $ 1.6 million for the fiscal years 2015 , 2014 and 2013 , respectively . recapitalization on may 27 , 2015 , we amended the credit agreements then in place governing our senior secured asset-based revolving credit facility ( the revolving credit facility ) and our senior secured term loan facility ( the term loan facility , and , collectively with the revolving credit facility , the senior secured credit facilities ) to , among other things , increase the size of the revolving credit facility from $ 75.0 million to $ 125.0 million and to permit a dividend to holders of our outstanding common stock . we also drew $ 50.0 million of borrowings under our revolving credit facility , the proceeds of which were used to pay an aggregate cash dividend of $ 48.8 million to holders of our common stock and of which the balance was used to pay $ 1.1 million of bank fees and $ 0.1 million of legal and other expenses related to the recapitalization . we refer to these transactions collectively as the recapitalization. stock split on june 17 , 2015 , the company effected a stock split of the company 's common stock at a ratio of 115 shares for every share previously held .
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a description of our products and services and annual financial data for each reporting segment can be found in part i , item 1 , “ business ” and note 19 to our consolidated financial statements in part ii , item 8 of this annual report on form 10-k. a discussion of our consolidated results of operations and the results of operations of each of our reporting segments for the years ended december 31 , 2018 , 2017 and 2016 follows . separation and distribution on april 18 , 2018 , the dover board of directors approved the separation of entities conducting its upstream oil and gas energy business within the dover energy segment into an independent , publicly traded company named apergy corporation . in accordance with the separation and distribution agreement , the two companies were separated by dover distributing to its stockholders all 77,339,828 shares of apergy common stock on may 9 , 2018. each dover stockholder received one share of apergy common stock for every two shares of dover common stock held at the close of business on the record date of april 30 , 2018. in conjunction with the separation , dover received a private letter ruling from the irs to the effect that , based on certain facts , assumptions , representations and undertakings set forth in the ruling , for u.s. federal income tax purposes , the distribution of apergy common stock was not taxable to dover or u.s. holders of dover common stock , except in respect to cash received in lieu of fractional share interests . following the separation , dover retained no ownership interest in apergy , and each company now has separate public ownership , boards of directors and management . basis of presentation prior to the separation , our results of operations , financial position and cash flows were derived from the consolidated financial statements and accounting records of dover and reflect the combined historical results of operations , financial position and cash flows of certain dover entities conducting its upstream oil and gas energy business within dover 's energy segment , including an allocated portion of dover 's corporate costs . these financial statements have been presented as if such businesses had been combined for all periods prior to the separation . all intercompany transactions and accounts within dover were eliminated . the assets and liabilities were reflected on a historical cost basis since all of the assets and liabilities presented were wholly owned by dover and were transferred within the dover consolidated group . these pre-separation combined financial statements may not include all of the actual expenses that would have been incurred had we been a stand-alone public company during the periods presented prior to the separation and consequently may not reflect our results of operations , financial position and cash flows had we been a stand-alone public company during the periods presented prior to the separation . all financial information presented after the separation represents the consolidated results of operations , financial position and cash flows of apergy . refer to note 1 to our consolidated financial statements in part ii , item 8 of this annual report on form 10-k for additional information on the basis of presentation of the consolidated financial statements . business environment we focus on economic- and industry-specific drivers and key risk factors affecting our business segments as we formulate our strategic plans and make decisions related to allocating capital and human resources . our business segments provide a broad range of technologies and products for the oil and gas drilling and production industry and , as a result , are substantially dependent upon activity levels in the oil and gas industry . demand for our products , technologies and services is impacted by overall global demand for oil and gas , ongoing depletion rates of existing wells which produce oil and gas , and our customers ' willingness to invest in the development and production of oil and gas resources . our customers determine their operating and capital budgets based on current and future crude oil and natural gas prices , u.s. and worldwide rig count and u.s. well completions , among other factors . crude oil and natural gas prices are impacted by supply and demand , which are influenced by geopolitical , macroeconomic and local events and have historically been subject to substantial volatility and cyclicality . future higher crude oil and natural gas prices typically translate into higher exploration and production budgets . rig count , footage drilled and exploration and production investment by oil and gas operators have often been used as leading indicators for the level of drilling and development activity in the oil and gas sector . 27 market conditions and outlook oil supply markets tightened in the back half of 2017 and through the third quarter of 2018 , driving 2018 average west texas intermediate ( “ wti ” ) crude oil prices higher . in late 2018 and while oil and gas prices were experiencing significant volatility , opec members announced production cuts that began in 2019 and which are likely to lead to global oil markets returning to more balanced conditions during the latter half of 2019. we expect low to modest growth in rig count , as well as footage drilled , in 2019 as the supply and demand for oil and gas become more balanced . we believe that demand for oil and gas will continue to grow in 2019 and commodity prices will remain constructive . given the current market conditions , we remain focused on ( i ) growing our esp product line in the u.s. unconventional markets , ( ii ) capitalizing on existing well conversions to rod lift as production declines , ( iii ) further adoption of our digital products to improve our customers ' productivity and economics , ( iv ) continued innovation and advancement of our technology in diamond sciences , and ( v ) continued adoption of our diamond bearings offering for downhole applications . story_separator_special_tag expenditures for assets that are expected to be placed into our leased asset program and with a useful life of less than one year are reported in “ leased assets and other ” in the operating section of our consolidated statement of cash flows . additionally , the cash receipts related to the sale of assets on lease are presented in “ lease assets and other ” in the operating section of our statement of cash flows . 33 investing cash flows cash required by investing activities was $ 54.2 million in 2018 and was primarily comprised of capital expenditures to support productivity , new product launches as well as increased investments in assets available to customers on a rental basis . cash required by investing activities was $ 41.9 million in 2017 and was primarily comprised of capital expenditures and an $ 8.8 million payment to acquire a supplier of progressive cavity pump products and services . refer to note 5 to our consolidated financial statements included in part ii , item 8 of this annual report on form 10-k for additional information related to this acquisition . cash required by investing activities was $ 27.3 million in 2016 and was primarily comprised of capital expenditures and $ 3.7 million of patent acquisitions from dover . expenditures for assets that are expected to be placed into our lease asset program and with a useful life of greater than one year are reported in “ capital expenditures ” in the investing section of our consolidated statement of cash flows . during the years ended december 31 , 2018 , 2017 , and 2016 we purchased $ 26.7 million , $ 14.5 million , and $ 1.1 million , respectively , of assets with a useful life of greater than one year that are expected to be placed into the lease program . financing cash flows cash required by financing activities was $ 90.8 million in 2018 , and was the result of net transfers to dover of $ 736.6 million , primarily comprised of our $ 700 million payment to dover related to the separation , and $ 45.0 million of debt repayment on our term loan . these payments were partially offset by issuances of long-term debt , net of debt issuance costs and original issue discounts , of $ 698.0 million . cash required by financing activities of $ 36.7 million and $ 90.0 million in 2017 and 2016 , respectively , was primarily due to net transfers to dover . debt and liquidity total borrowings were comprised of the following : replace_table_token_8_th senior notes on may 3 , 2018 , and in connection with the separation , we completed the private placement of $ 300 million in aggregate principal amount of 6.375 % senior notes due may 2026 ( “ senior notes ” ) . interest on the senior notes is payable semi-annually in arrears on may 1 and november 1 of each year commencing on november 1 , 2018. net proceeds of $ 293.8 million from the offering were utilized to partially fund the cash payment to dover and to pay fees and expenses incurred in connection with the separation . on november 15 , 2018 , we filed a registration statement on form s-4 with the sec in accordance with the registration rights agreement outlining our offer to exchange the senior notes for substantially identical notes without transfer restrictions . the registration statement was declared effective on november 20 , 2018 , and the exchange offer for the senior notes was completed in december 2018 with full participation . senior secured credit facilities on may 9 , 2018 , we entered into a credit agreement ( “ credit agreement ” ) governing the terms of our senior secured credit facilities , consisting of ( i ) a seven-year senior secured term loan b facility ( “ term loan facility ” ) and ( ii ) a five-year senior secured revolving credit facility ( “ revolving credit facility , ” and together with the term loan facility , the “ senior secured credit facilities ” ) , with jpmorgan chase bank , n.a . as administrative agent . the net proceeds of the senior secured credit facilities were used ( i ) to pay fees and expenses in connection with the separation , ( ii ) partially fund the cash payment to dover and ( iii ) provide for working capital and other general corporate purposes . 34 term loan facility . the term loan facility had an initial commitment of $ 415 million . the full amount of the term loan facility was funded on may 9 , 2018. amounts borrowed under the term loan facility that are repaid or prepaid may not be re-borrowed . the term loan facility matures in may 2025. net proceeds of $ 408.7 million from the term loan facility were utilized to partially fund the cash payment to dover and to pay fees and expenses incurred in connection with the separation . during the year ended december 31 , 2018 , we repaid $ 45 million of our term loan facility . revolving credit facility . the revolving credit facility consists of a five-year senior secured facility with aggregate commitments in an amount equal to $ 250 million , of which up to $ 50 million is available for the issuance of letters of credit . amounts repaid under the revolving credit facility may be re-borrowed . the revolving credit facility matures in may 2023. a summary of our revolving credit facility as of december 31 , 2018 was as follows : ( in millions ) amount debt outstanding letters of credit unused capacity maturity five-year revolving credit facility $ 250.0 $ — $ 3.6 $ 246.4 may 2023 as of december 31 , 2018 , we were in compliance with all restrictive covenants under our revolving credit facility . see note 10—debt to our consolidated financial statements included in part ii , item 8 of this annual report on form 10-k for additional information .
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consolidated results of operations years ended december 31 , 2018 , 2017 and 2016 replace_table_token_4_th _ * not meaningful 2018 compared with 2017 revenue . revenue increased $ 206.2 million , or 20.4 % , in 2018 compared to the prior year driven by broad-based volume growth in our production & automation technologies ' artificial lift and digital offerings due to improving oil and gas markets , particularly in the united states , primarily as a result of increased well completion activity . in addition , revenue increased in our drilling technologies segment year-over-year due to increased volumes driven by increased u.s. rig counts and continued adoption of diamond bearings . gross profit . gross profit increased $ 95.8 million , or 29.9 % , in 2018 compared to the prior year , reflecting benefits of increased sales volumes in both our production & automation technologies and drilling technologies segments , combined with realization of productivity initiatives . selling , general and administrative ( sg & a ) expense . selling , general and administrative expense increased $ 44.1 million , or 20.2 % , in 2018 compared to the prior year . the increase was due to increased headcount in support of our growth initiatives , higher incentive compensation resulting from improved business performance and $ 14.6 million in professional fees and other related charges associated with the separation . interest expense , net . interest expense , net increased $ 26.7 million in 2018 compared to the prior year due to the issuances of our term loan facility and senior notes during the second quarter of 2018 related to the separation . provision for ( benefit from ) income taxes . our provision for ( benefit from ) income taxes reflected effective tax rates of 23.4 % and ( 24.1 ) % in 2018 and 2017 , respectively .
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critical audit matters the critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee or those charged with governance and that : ( 1 ) relate to accounts or disclosures that are material to the consolidated financial statements and ( 2 ) involved especially challenging , subjective , or complex judgments . the communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements , taken as a whole , and we are not , by communicating the critical audit matters below , providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate . f- 2 description of the matter during the year ended december 31 , 2020 , the company issued convertible debt notes ( the “ notes ” ) that allow the holders to convert the debt into common stock upon certain default events not within the control of the company . the company determined that the terms of the notes included an embedded conversion option to be accounted for as derivative liabilities , which are required to be accounted for at fair value upon issuance and each reporting period , under the provisions of asc 815-40 – derivatives and hedging – contracts in an entity 's own stock ( acs 815 ) . as disclosed in notes 2 and 4 to the consolidated financial statements , the company recorded initial derivative liabilities and debt discount of $ 212,344 from the embedded conversion options . further , as of december 31 , 2020 , the company recorded a gain on the change in fair value of the derivative liabilities of $ 32,315 . there is no current observable market for these types of derivatives and , as such , the company measured the initial and december 31 , 2020 fair value of the embedded derivative liabilities using the bionomial lattice valuation model . such a model includes techniques that require management to make several assumptions with a high degree of subjectivity related to stock price , discount yield , risk free rates , volatility , probability of principal repayment in cash or common stock and probability of the company defaulting on the convertible debt notes . we identified the evaluation of the terms of financial instruments to determine whether the embedded conversion option met the definition of a derivative , the analysis of the accounting treatment , presentation and disclosures , and the valuation of the derivative liabilities as critical audit matters due to the complex nature of these financial instruments . how the critical audit matter was addressed in the audit the primary procedures we performed to address these critical audit matters included ( a ) reviewing and testing the company 's conclusions as to whether the financial instruments included an embedded conversion option that met the definition of a derivative as defined by asc 815 by evaluating and comparing the company 's analysis and conclusions to authoritative and interpretive literature , ( b ) comparing the accounting treatment and presentation to that described by authoritative and interpretive literature , ( c ) testing the company 's process and methodology for valuing the derivatives by comparing it to generally accepted methodologies for valuing derivatives , ( d ) testing the company 's valuation of the derivatives by testing assumptions and data used in the valuation model including the term , volatility and risk free rate story_separator_special_tag except for the historical information , the following discussion contains forward-looking statements that are subject to risks and uncertainties . we caution you not to put undue reliance on any forward-looking statements , which speak only as of the date of this report . our actual results or actions may differ materially from these forward-looking statements for many reasons . our discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes and with the understanding that our actual future results may be materially different from what we currently expect . see “ cautionary statement on forward-looking information ” above . as used herein , the terms “ we , ” “ us , ” “ our ” and the “ company ” refers to home bistro , inc. , a nevada corporation , and its subsidiaries unless otherwise stated . overview the company was incorporated in the state of nevada on december 17 , 2009. effective march 23 , 2018 , the company changed its name from vapir enterprises , inc. to gratitude health , inc. on september 14 , 2020 , the company changed its name from gratitude health , inc. to home bistro , inc. the company is in the business of providing prepackaged and prepared meals to consumers focused on offering a broad array of the highest quality meal planning , delivery , and preparation services . the company 's primary former operations were in the business of manufacturing , selling , and marketing functional rtd ( ready to drink ) beverages sold under the company 's trademark ( the “ rtd business ” ) . the rtd business was disposed on september 25 , 2020 as discussed below . on april 7 , 2020 , the board of directors of the company approved the increase of authorized shares of common stock from 600,000,000 to 1,000,000,000. on april 20 , 2020 , the company , fresh market merger sub , inc. , a delaware corporation and a newly created wholly-owned subsidiary of the company ( “ merger sub ” ) , and home bistro , inc. , a privately-held delaware corporation engaged in the food preparation and home-delivery business ( presently known as home bistro holdings , inc. , a nevada corporation ) ( story_separator_special_tag the covid-19 pandemic has the potential to significantly impact the company 's supply chain , food manufacturers , distribution centers , or logistics and other service providers . additionally , the company 's service providers and their operations may be disrupted , temporarily closed or experience worker or meat or other food shortages , which could result in additional disruptions or delays in shipments of home bistro 's products . to date , the company has been able to avoid layoffs and furloughs of employees . the company is not able to estimate the duration of the pandemic and potential impact on the business if disruptions or delays in shipments of product occur . to date , the company is not aware of any such disruptions . in addition , a severe prolonged economic downturn could result in a variety of risks to the business , including weakened demand for product and a decreased ability to raise additional capital when needed on acceptable terms , if at all . as the situation continues to evolve , the company will continue to closely monitor market conditions and respond accordingly . the company has applied for and received certain financial assistance under the coronavirus , aid , relief , and economic security act ( “ cares act ” ) enacted in march 2020 by the u.s. government in response to covid-19 . story_separator_special_tag 10pt times new roman , times , serif ; margin : 0pt 0 ; text-align : justify '' > net cash provided investing activities net cash provided by investing activities was $ 1,749 for the year ended december 31 , 2020 as compared to nil for the year ended december 31 , 2019 , an increase of $ 1,749 or 100 % . ● net cash provided by investing activities for the year ended december 31 , 2020 consisted of cash acquired from an acquisition of $ 4,917 offset by acquisition of property and equipment of $ 3,168 . 21 net cash provided by ( used in ) financing activities net cash provided by financing activities was $ 712,284 for the year ended december 31 , 2020 as compared to net cash used amounting to $ 11,900 for the year ended december 31 , 2019 , a change of $ 724,184 or 6,086 % . ● net cash provided by financing activities for the year ended december 31 , 2020 consisted of proceeds from sale of warrants of $ 100,005 , notes payable of $ 171,612 , advances payable of $ 140,840 and convertible notes payable of $ 384,100 offset by repayments of note payable – in default and advance payable in total amount of $ 84,273 . ● net cash used in financing activities for the year ended december 31 , 2019 , consisted of proceeds from sale of common stock of $ 3,000 and advance payable of $ 23,000 off set by repayments of note payable – in default and advance payable in total amount of $ 37,900. cash requirements we currently have no external sources of liquidity , such as arrangements with credit institutions or off-balance sheet arrangements that will have or are reasonably likely to have a current or future effect on our financial condition or immediate access to capital . as noted above and below , the company received a loan in the aggregate amount of $ 14,612 under the paycheck protection program of the coronavirus aid , relief , and economic security act , and a loan in the aggregate amount of $ 150,000 from the sba under its economic injury disaster loan assistance program in light of the impact of the covid-19 pandemic . we are dependent on our product sales to fund our operations and may require the sale of additional common stock and preferred stock to maintain operations . our officers and directors have made no written commitments with respect to providing a source of liquidity in the form of cash advances , loans , and or financial guarantees . going concern the financial statements have been prepared on a going concern basis , which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business . as reflected in the accompanying consolidated financial statements , for the year ended december 31 , 2020 , the company had net loss and cash used in operations of $ 1,241,661 and $ 273,817 , respectively . as of december 31 , 2020 , the company had an accumulated deficit , stockholders ' deficit , and working capital deficit of $ 6,333,389 , $ 1,914,994 and $ 466,178 , respectively . these factors raise substantial doubt about the company 's ability to continue as a going concern for a period of twelve months from the issuance date of this report . the company 's primary source of operating funds in 2020 was primarily from the third-party advances and proceeds from note payables . the company has experienced net losses from operations since inception but expects these conditions to improve in the near term and beyond as it develops its business model . management can not provide assurance that the company will ultimately achieve profitable operations or become cash flow positive or raise additional debt and or equity capital . management believes that the company 's capital resources are not currently adequate to continue operating and maintaining its business strategy for a period of twelve months from the issuance date of this report . if the company is unable to raise additional capital or secure additional lending in the near future , management expects that the company will need to curtail or cease operations .
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results of operations for the years ended december 31 , 2020 and 2019 the company is in the business of providing prepackaged and prepared meals to consumers focused on offering a broad array of the highest quality meal delivery , and preparation services . product sales during the years ended december 31 , 2020 and 2019 , sales from the food preparation and home-delivery business amounted to $ 1,335,859 and $ 836,599 , respectively , an increase of $ 499,260 or 60 % . cost of sales the primary components of cost of sales are royalty fee and food and processing costs directly attributable to fulfilment and the delivery of the product to customers including both inbound and outbound shipping costs . during the years ended december 31 , 2020 and 2019 , cost of sales amounted to $ 873,289 and $ 499,396 , respectively , an increase of $ 373,893 or 75 % due to increase in sales and royalty fee . 19 operating expenses for the years ended december 31 , 2020 and 2019 , operating expenses consisted of the following : replace_table_token_4_th ● compensation and related expenses : during the year ended december 31 , 2020 , compensation and related expenses amounted to $ 547,940 as compared to $ 362,526 for the year ended december 31 , 2019 , an increase of $ 185,414 or 51 % . the increase was primarily attributable to an increase in employee stock-based compensation in 2020 . ● professional and consulting expenses : during the year ended december 31 , 2020 , professional and consulting expenses amounted to $ 434,450 as compared to $ 27,231 for the year ended december 31 , 2019 , an increase of $ 407,219 or 1,495 % . the increase was primarily due to increases in stock-based compensation to consultants and legal of $ 124,219 , legal expense of $ 187,318 and accounting and auditing expense of $ 86,713 in 2020 .
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these may include quoted prices for similar securities , interest rates , prepayment speeds , credit risk and others . level iii — prices are determined using significant unobservable inputs . in situations where quoted prices or observable inputs are unavailable ( for example , when there is little or no market activity for an investment at the end of the period ) , unobservable inputs may be used . while the company anticipates that its valuation methods will be appropriate and consistent with other market participants , the use of different methodologies , or assumptions , to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date . the company will use inputs that are current as of the measurement date , which may include periods of market story_separator_special_tag the following discussion should be read in conjunction with the company 's financial statements and accompanying notes included in item 8 , “ financial statements and supplementary data ” of this annual report on form 10-k. overview the company is a commercial real estate finance company that primarily originates , acquires , invests in and manages performing commercial first mortgage loans , subordinate financings , cmbs and other commercial real estate-related debt investments . the company refers to these asset classes as its target assets . the company is externally managed and advised by the manager , an indirect subsidiary of apollo . the company 's principal business objective is to make investments in its target assets in order to provide attractive risk adjusted returns to stockholders over the long term , primarily through dividends and secondarily through capital appreciation . as of december 31 , 2016 , the company held a diversified portfolio comprised of approximately $ 1,641,856 of commercial mortgage loans , $ 1,051,236 of subordinate loans , $ 331,076 of cmbs and $ 146,352 of cmbs , held-to-maturity . the company has financed this portfolio with $ 1,146,566 of borrowings under repurchase agreements , and $ 254,750 aggregate principal amount of convertible senior notes . the company is a maryland corporation that was organized in 2009 and has elected to be taxed as a reit for u.s. federal income tax purposes , commencing with the year ended december 31 , 2009. the company generally is not subject to u.s. federal income taxes on its taxable income to the extent that it annually distributes its taxable income to stockholders and maintains its intended qualification as a reit . the company also intends to operate its business in a manner that will permit it to remain excluded from registration as an investment company under the 1940 act . story_separator_special_tag > december 31 , 2016 , 2015 and 2014 , respectively , the company 's net income available to common stockholders was $ 127,581 , or $ 1.74 per share , $ 91,372 , or $ 1.54 per share and $ 75,299 , or $ 1.72 per share . 37 net interest income the following table sets forth certain information regarding the company 's net investment income for the years ended december 31 , 2016 , 2015 and 2014 : replace_table_token_7_th net interest income for the year ended december 31 , 2016 compared to 2015 , and the year ended december 31 , 2015 compared to 2014 , respectively , increased $ 57,314 , or 40.0 % , and $ 46,497 , or 48.0 % . for the year ended december 31 , 2016 , the increase was primarily the result of additional interest income from commercial mortgage loans and subordinate loans offset by an increase in interest expense . for the year ended december 31 , 2015 , the increase was primarily the result of additional interest income from securities , commercial mortgage loans and subordinate loans offset by an increase in interest expense . interest income related to securities for the year ended december 31 , 2016 , decreased $ 5,602 , or 16.9 % , compared to 2015 . the decrease is primarily attributable to the sale of cmbs with an amortized cost of $ 99,355 during 2016 and the repayment of $ 35,623 of cmbs during 2016. the company did not purchase any cmbs during 2016 or 2015. interest income related to securities for the year ended december 31 , 2015 increased $ 11,999 , or 56.6 % , compared to 2014 . this increase was attributable to the purchase of $ 375,833 of cmbs during 2014. this increase was partially offset by the repayment of $ 31,553 of cmbs during 2014 , as well as the sale of cmbs with an amortized cost of $ 24,038 during 2015. interest income related to securities held-to-maturity for the year ended december 31 , 2016 , decreased $ 585 , or 4.9 % , compared to 2015 . the decrease is attributable to the repayment of $ 6,720 of securities , held-to maturity during 2016. interest income related to held-to-maturity for the year ended december 31 , 2015 increased $ 7,441 , or 161.3 % , compared to 2014 . this increase was primarily attributable to the company 's investment in a subordinate loan during may 2014 that was subsequently converted to a cmbs during august 2014. this investment is further discussed in the accompanying consolidated financial statements in `` note 4 - debt securities . '' the increase in interest income from commercial mortgage loans for the year ended december 31 , 2016 compared to 2015 , and the year ended december 31 , 2015 compared to 2014 , respectively , of $ 46,835 , or 83.5 % , and $ 28,290 , or 101.8 % , was primarily attributable to the funding of $ 843,791 , $ 637,582 and $ 403,983 of commercial mortgage loans during 2016 , 2015 and 2014 , respectively . this was partially offset by the repayments of $ 210,383 , $ 105,618 and $ 105,501 of commercial mortgage loans during 2016 , 2015 and 2014 , respectively . the increase in 2016 is also attributable to an increase in libor . story_separator_special_tag the company has ceased accruing interest associated with the loans . as of december 31 , 2015 , there was no provision for loan loss . the company uses forward currency contracts to economically hedge interest and principal payments due under its loans denominated in currencies other than u.s. dollars . the company has in the past used and may in the future use interest rate swaps and caps to manage exposure to variable cash flows on portions of its borrowings under repurchase agreements . interest rate swap and cap agreements allow the company to receive a variable rate cash flow based on libor and pay a fixed rate cash flow , mitigating the impact of this exposure . the company has not designated any of its derivative instruments as hedges under gaap and therefore , changes in the fair value of the company 's derivatives are recorded directly in earnings . 40 dividends for 2016 , the company declared the following dividends : replace_table_token_10_th as the company 's aggregate distributions exceeded its earnings and profits , a portion of the january 2017 distribution declared in the fourth quarter of 2016 and payable to stockholders of record as of december 30 , 2016 will be treated as a 2017 distribution for u.s. federal income tax purposes . for 2016 , the company declared the following dividends on its 8.625 % series a cumulative redeemable perpetual preferred stock ( `` series a preferred stock '' ) : replace_table_token_11_th for 2016 , the company declared the following dividends on its 8.00 % fixed-to-floating series b cumulative redeemable perpetual preferred stock ( `` series b preferred stock '' ) : replace_table_token_12_th for 2016 , the company declared the following dividends on its 8.00 % series c cumulative redeemable perpetual preferred stock ( `` series c preferred stock '' ) : replace_table_token_13_th subsequent events investment activity . subsequent to year end , the company closed approximately $ 193,500 of commercial real estate debt investments , $ 190,300 of which were funded . in addition the company funded approximately $ 67,700 for previously closed loans . loan repayments . s ubsequent to year end , the company received approximately $ 41,500 from loan repayments . management agreement . following a meeting by the company 's independent directors in february 2017 , which included a discussion of the manager 's performance and the level of the management fees thereunder , the company determined not to terminate the management agreement . 41 factors impacting operating results the company 's results of operations are affected by a number of factors and primarily depend on , among other things , the level of the interest income from target assets , the market value of its assets and the supply of , and demand for , commercial mortgage loans , cmbs , commercial real estate corporate debt and loans and other real estate-related debt investments in which the company invests , and the financing and other costs associated with its business . interest income and borrowing costs may vary as a result of changes in interest rates and the availability of financing , each of which could impact the net interest income the company receives on commercial mortgage loans and cmbs assets . the company 's operating results may also be impacted by conditions in the financial markets , credit losses in excess of initial anticipations or unanticipated credit events experienced by borrowers whose commercial mortgage loans are held directly by the company or are included in the company 's cmbs . changes in market interest rates . with respect to the company 's business operations , increases in interest rates , in general , may over time cause : ( i ) the interest expense associated with variable rate borrowings to increase ; ( ii ) the value of commercial mortgage loans , cmbs and commercial real estate corporate debt and loans to decline ; ( iii ) coupons on variable rate commercial mortgage loans and commercial real estate corporate debt and loans to reset , although on a delayed basis , to higher interest rates ; ( iv ) to the extent applicable under the terms of the company 's investments , prepayments on commercial mortgage loan , cmbs and commercial real estate corporate debt and loans portfolio to slow , and ( v ) to the extent the company enters into interest rate swap agreements as part of its hedging strategy , the value of these agreements to increase . conversely , decreases in interest rates , in general , may over time cause : ( i ) the interest expense associated with variable rate borrowings to decrease ; ( ii ) the value of commercial mortgage loan , cmbs and commercial real estate corporate debt and loans portfolio to increase ; ( iii ) coupons on variable rate commercial mortgage loans , cmbs and commercial real estate corporate debt and loans to reset , although on a delayed basis , to lower interest rates ; ( iv ) to the extent applicable under the terms of the company 's investments , prepayments on commercial mortgage loan , cmbs and commercial real estate corporate debt and loan portfolio to increase , and ( v ) to the extent the company enters into interest rate swap agreements as part of its hedging strategy , the value of these agreements to decrease . changes in fair value of assets . the company has designated investments in certain mortgage-backed securities as available-for-sale because the company may dispose of them prior to maturity and does not hold them principally for the purpose of selling them in the near term . securities available-for-sale are carried at estimated fair value with the net unrealized gains or losses reported as a component of accumulated other comprehensive income ( loss ) in stockholders ' equity . unrealized losses on securities that reflect a decline in value that is judged by management to be other than temporary , if any , are charged to earnings . credit risk .
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results of operations all non-u.s. dollar denominated assets and liabilities are translated to u.s. dollars at the exchange rate prevailing at the reporting date and income , expenses , gains , and losses are translated at the prevailing exchange rate on the dates that they were recorded . investments the following table sets forth certain information regarding the company 's commercial real estate debt portfolio as of december 31 , 2016 : replace_table_token_5_th ( 1 ) cmbs includes $ 62,457 of restricted cash related to the ubs facility and the db facility . ( 2 ) remaining weighted average life assumes all extension options are exercised . ( 3 ) internal rate of return ( `` irr '' ) is the annualized effective compounded return rate that accounts for the time-value of money and represents the rate of return on an investment over a holding period expressed as a percentage of the investment . it is the discount rate that makes the net present value of all cash outflows ( the costs of investment ) equal to the net present value of cash inflows ( returns on investment ) . it is derived from the negative and positive cash flows resulting from or produced by each transaction ( or for a transaction involving more than one investment , cash flows resulting from or produced by each of the investments ) , whether positive , such as investment returns , or negative , such as transaction expenses or other costs of investment , taking into account the dates on which such cash flows occurred or are expected to occur , and compounding interest accordingly . the underwritten irr for the investments shown in the above table reflect the returns underwritten by the manager , taking into account leverage and calculated on a weighted average basis assuming no dispositions , early prepayments or defaults but assuming that extension options are exercised and that the cost of borrowings remains constant over the remaining term .
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in the years ended december story_separator_special_tag overview alexander 's , inc. ( nyse : alx ) is a real estate investment trust ( “ reit ” ) , incorporated in delaware , engaged in leasing , managing , developing and redeveloping properties . all references to “ we , ” “ us , ” “ our , ” “ company , ” and “ alexander 's ” , refer to alexander 's , inc. and its consolidated subsidiaries . we are managed by , and our properties are leased and developed by , vornado realty trust ( “ vornado ” ) ( nyse : vno ) . we have six properties in the greater new york city metropolitan area . we compete with a large number of property owners and developers . our success depends upon , among other factors , trends affecting national and local economies , the financial condition and operating results of current and prospective tenants , the availability and cost of capital , interest rates , construction and renovation costs , taxes , governmental regulations and legislation , population trends , zoning laws , and our ability to lease , sublease or sell our properties , at profitable levels . our success is also subject to our ability to refinance existing debt on acceptable terms as it comes due . year ended december 31 , 2013 financial results summary net income attributable to common stockholders for the year ended december 31 , 2013 was $ 56,915,000 , or $ 11.14 per diluted share , compared to $ 674,387,000 , or $ 132.04 per diluted share for the year ended december 31 , 2012. net income attributable to common stockholders includes income from discontinued operations ( kings plaza ) of $ 2,252,000 , or $ 0.44 per diluted share for the year ended december 31 , 2013 , compared to $ 624,346,000 , or $ 122.24 per diluted share for the year ended december 31 , 2012 ( primarily from the net gain on sale of kings plaza ) . funds from operations attributable to common stockholders ( “ ffo ” ) for the year ended december 31 , 2013 was $ 85,717,000 , or $ 16.78 per diluted share , compared to $ 107,616,000 , or $ 21.07 per diluted share for the prior year . ffo includes ffo from discontinued operations ( kings plaza ) of $ 2,252,000 , or $ 0.44 per diluted share for the year ended december 31 , 2013 , compared to $ 28,936,000 , or $ 5.67 per diluted share , including $ 4,218,000 of real property depreciation , for the prior year . quarter ended december 31 , 2013 financial results summary net income attributable to common stockholders for the quarter ended december 31 , 2013 was $ 15,790,000 , or $ 3.09 per diluted share , compared to $ 617,157,000 , or $ 120.82 per diluted share for the quarter ended december 31 , 2012. net income attributable to common stockholders includes income from discontinued operations ( kings plaza ) of $ 2,252,000 , or $ 0.44 per diluted share for the quarter ended december 31 , 2013 , compared to $ 605,124,000 , or $ 118.46 per diluted share for the quarter ended december 31 , 2012 ( primarily from the net gain on sale of kings plaza ) . ffo for the quarter ended december 31 , 2013 was $ 23,015,000 , or $ 4.50 per diluted share , compared to $ 24,723,000 , or $ 4.84 per diluted share for the prior year 's quarter . ffo includes ffo from discontinued operations ( kings plaza ) of $ 2,252,000 , or $ 0.44 per diluted share for the quarter ended december 31 , 2013 , compared to $ 5,496,000 , or $ 1.08 per diluted share for the prior year 's quarter . 22 overview – continued leasing activity , square footage and occupancy as of december 31 , 2013 and 2012 , our portfolio was comprised of six properties aggregating 2,178,000 square feet that had occupancy rates of 99.4 % and 99.1 % , respectively . in the year ended december 31 , 2013 we leased 6,562 square feet with an average initial rent of $ 346.84 per square foot and a weighted average lease term of 10.4 years . significant tenants bloomberg l.p. ( “ bloomberg ” ) accounted for $ 88,164,000 , $ 86,468,000 and $ 84,526,000 , or 45 % , 45 % and 46 % of our total revenues in the years ended december 31 , 2013 , 2012 and 2011 , respectively . no other tenant accounted for more than 10 % of our total revenues in any of the last three years . if we were to lose bloomberg as a tenant , or if bloomberg were to fail or become unable to perform its obligations under its lease , it would adversely affect our results of operations and financial condition . we receive and evaluate certain confidential financial information and metrics from bloomberg on a semi-annual basis . in addition , we access and evaluate financial information regarding bloomberg from private sources , as well as publicly available data . critical accounting policies and estimates our financial statements are prepared in conformity with accounting principles generally accepted in the united states of america ( “ gaap ” ) , which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods . actual results could differ from those estimates . set forth below is a summary of our accounting policies that we believe are critical to the preparation of our consolidated financial statements . this summary should be read in conjunction with a more complete discussion of our accounting policies included in note 2 to the consolidated financial statements in this annual report on form 10-k. real estate real estate is carried at cost , net of accumulated depreciation and amortization . story_separator_special_tag 24 results of operations – year ended december 31 , 2013 compared to december 31 , 2012 property rentals property rentals were $ 135,908,000 in the year ended december 31 , 2013 , compared to $ 134,847,000 in the prior year , an increase of $ 1,061,000. this increase was primarily due to higher occupancy . expense reimbursements tenant expense reimbursements were $ 60,551,000 in the year ended december 31 , 2013 , compared to $ 56,465,000 in the prior year , an increase of $ 4,086,000. this increase was primarily due to higher real estate taxes and reimbursable operating expenses . operating expenses operating expenses were $ 64,675,000 in the year ended december 31 , 2013 , compared to $ 61,755,000 in the prior year , an increase of $ 2,920,000. this increase was primarily comprised of higher ( i ) real estate taxes of $ 3,991,000 and ( ii ) reimbursable operating expenses of $ 512,000 , partially offset by ( iii ) lower bad debt expense of $ 1,362,000. depreciation and amortization depreciation and amortization was $ 28,987,000 in the year ended december 31 , 2013 , compared to $ 28,815,000 in the prior year , an increase of $ 172,000. story_separator_special_tag style= '' font-size : 2pt '' > liquidity and capital resources property rental income is our primary source of cash flow and is dependent on a number of factors including the occupancy level and rental rates of our properties , as well as our tenants ' ability to pay their rents . our properties provide us with a relatively consistent stream of cash flow that enables us to pay our operating expenses , interest expense , recurring capital expenditures and cash dividends to stockholders . other sources of liquidity to fund cash requirements include our existing cash , proceeds from financings , including mortgage or construction loans secured by our properties and proceeds from asset sales . we anticipate that cash flows from continuing operations over the next twelve months , together with existing cash balances , will be adequate to fund our business operations , cash dividends to stockholders , debt amortization and maturities , and recurring capital expenditures . dividends on january 15 , 2014 , we increased our regular quarterly dividend to $ 3.25 per share ( a new indicated annual rate of $ 13.00 per share ) . the new dividend , if continued for all of 2014 , would require us to pay out approximately $ 66,500,000. development project we have commenced the construction of an apartment tower , which will contain approximately 300 units aggregating 250,000 square feet , above our rego park ii shopping center . construction is expected to be completed in 2015 and cost approximately $ 125,000,000 , of which $ 2,265,000 has been incurred as of december 31 , 2013. there can be no assurance that the project will be completed , or completed on schedule or within budget . financing activities and contractual obligations below is a summary of our outstanding debt and maturities as of december 31 , 2013. replace_table_token_3_th below is a summary of our contractual obligations and commitments as of december 31 , 2013. replace_table_token_4_th 28 liquidity and capital resources – continued commitments and contingencies insurance we maintain general liability insurance with limits of $ 300,000,000 per occurrence and all-risk property and rental value insurance coverage with limits of $ 1.7 billion per occurrence , including coverage for acts of terrorism , with sub-limits for certain perils such as floods and earthquakes on each of our properties . fifty ninth street insurance company , llc ( “ fnsic ” ) , our wholly owned consolidated subsidiary , acts as a direct insurer for coverage for acts of terrorism , including nuclear , biological , chemical and radiological ( “ nbcr ” ) acts , as defined by the terrorism risk insurance program reauthorization act , which expires in december 2014. coverage for acts of terrorism ( including nbcr acts ) is up to $ 1.7 billion per occurrence and in the aggregate . coverage for acts of terrorism ( excluding nbcr acts ) is fully reinsured by third party insurance companies with no exposure to fnsic . for nbcr acts , fnsic is responsible for a $ 275,000 deductible and 15 % of the balance of a covered loss , and the federal government is responsible for the remaining 85 % of a covered loss . we are ultimately responsible for any loss incurred by fnsic . we continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism . however , we can not anticipate what coverage will be available on commercially reasonable terms in the future . we are responsible for deductibles and losses in excess of our insurance coverage , which could be material . our mortgage loans are non-recourse to us , except for $ 75,000,000 of the $ 320,000,000 mortgage on our 731 lexington avenue property , in the event of a substantial casualty , as defined . our mortgage loans contain customary covenants requiring us to maintain insurance . although we believe that we have adequate insurance coverage for purposes of these agreements , we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future . if lenders insist on greater coverage than we are able to obtain , it could adversely affect our ability to finance our properties . flushing property in 2002 , flushing expo , inc. ( “ expo ” ) agreed to purchase the stock of the entity which owns the flushing property from us ( “ purchase of the property ” ) and gave us a non-refundable deposit of $ 1,875,000. pursuant to a stipulation of settlement , we settled the action expo brought against us regarding the purchase of the property and in june 2011 , deposited the settlement amount with the court , in exchange for which we received a stipulation of discontinuance , with prejudice , as well as general releases .
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general and administrative expenses general and administrative expenses were $ 5,281,000 in the year ended december 31 , 2013 , compared to $ 5,162,000 in the prior year , an increase of $ 119,000. interest and other income , net interest and other income , net was $ 1,527,000 in the year ended december 31 , 2013 , compared to $ 177,000 in the prior year , an increase of $ 1,350,000. this increase was primarily due to dividend income in the current year on the macerich common shares that we received in connection with the sale of kings plaza in november 2012. interest and debt expense interest and debt expense was $ 44,540,000 in the year ended december 31 , 2013 , compared to $ 45,652,000 in the prior year , a decrease of $ 1,112,000. this decrease was primarily due to lower average debt balances . income tax benefit ( expense ) in the year ended december 31 , 2013 , we had an income tax benefit of $ 160,000 , compared to an income tax expense of $ 64,000 in the prior year , a decrease in expense of $ 224,000. this decrease resulted primarily from a reduction of our income tax liability due to the expiration of the applicable statute of limitations . income from discontinued operations income from discontinued operations was $ 2,252,000 in the year ended december 31 , 2013 , compared to $ 624,952,000 in the year ended december 31 , 2012 , a decrease of $ 622,700,000. income for the year ended december 31 , 2013 represents the reversal of previously accrued liabilities related to kings plaza .
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see “ cautionary note regarding forward-looking statements ” in this annual report . unless otherwise indicated , references in this section to “ viewray , ” “ we , ” “ us , ” “ our , ” “ the company ” and “ our company ” refer to viewray , inc. and its consolidated subsidiary , viewray technologies , inc. as a result of the merger of viewray , inc. and viewray technologies , inc. in july 2015 , or the merger , and the change in business and operations of the company , a discussion of the past financial results of the company is not pertinent , and under applicable accounting principles the historical financial results of viewray technologies , inc. , the accounting acquirer , prior to the merger are considered the historical financial results of the company . the following discussion highlights our results of operations and the principal factors that have affected our financial condition as well as our liquidity and capital resources for the periods described , and provides information that management believes is relevant for an assessment and understanding of the statements of financial condition and results of operations presented herein . the following discussion and analysis are based on our consolidated financial statements contained in this annual report , which we have prepared in accordance with united states generally accepted accounting principles . you should read this discussion and analysis together with such consolidated financial statements and the related notes thereto . a comparison of the results for the year ended december 31 , 2019 and the results for the year ended december 31 , 2018 is provided below . our annual report on form 10-k for the year ended december 31 , 2018 includes a discussion and analysis of our financial condition and results of operations for the year ended december 31 , 2017 in part ii , item 7 “ management 's discussion and analysis of financial condition and results of operations . company overview we design , manufacture and market the viewray mridian® . the mridian is an innovative system that integrates high quality radiation therapy with simultaneous resonance imaging ( mri ) . there are two generations of the mridian : the first generation mridian with cobalt-60 based radiation beams and the second generation mridian linac , with more advanced linear accelerator or ‘ linac ' based radiation beams . both generations of the mridian have received 510 ( k ) marketing clearance from the fda and permission to affix the ce mark . mridian is the first radiation therapy system that enables simultaneous radiation treatment delivery and real-time mri imaging of a patient 's internal anatomy . it generates high-quality images that differentiate between the targeted tumor , surrounding soft tissue and nearby critical organs . mridian also records the level of radiation dose that the treatment area has received , enabling physicians to adapt the prescription between treatments , as needed . we believe this improved visualization and accurate dose recording will enable better treatment , improve patient outcomes and reduce side effects . key benefits to users and patients include : improved imaging and patient alignment ; the ability to adapt the patient 's radiation treatments to changes while the patient is still on the treatment table , or “ on-table adaptive treatment planning ” ; mri-based motion management ; and an accurate recording of the delivered radiation dose . physicians have already used mridian to treat a broad spectrum of radiation therapy patients with more than 45 different types of cancer , as well as patients for whom radiation therapy was previously not an option . at december 31 , 2019 , we had five mridian with cobalt-60 systems and 30 mridian linac systems installed at 33 cancer centers worldwide ( 14 in the united states and 19 outside the united states ) . in addition , six mridian linacs have been delivered to customers that are in varying stages of installation . we currently market mridian through a direct sales force in north america . in the rest of the world , we market mridian through a hybrid model of both a direct sales force and distribution network . we market mridian to a broad range of worldwide customers , including university research and teaching hospitals , community hospitals , private practices , government institutions and freestanding cancer centers . as with the traditional linac market , our sales and revenue cycles vary based on the particular customer and can be lengthy , sometimes lasting up to 18 to 24 months ( or more ) from initial customer contact to order contract execution . following execution of an order contract , it generally takes nine to 15 months for a customer to customize an existing facility or construct a new vault . upon the commencement of installation at a customer 's facility , it typically takes approximately 50 to 90 days for us to install mridian and perform on-site testing of the system , including the completion of acceptance test procedures . we generated product , service and distribution rights revenues of $ 87.8 million , $ 81.0 million and $ 34.0 million , and had net losses of $ 120.2 million , $ 76.4 million and $ 72.2 million during the years ended december 31 , 2019 , 2018 and 2017 , respectively . 58 we expect to continue to incur significant expenses and operating losses for the foreseeable future . we expect our expenses will increase substantially in connection with our ongoing activities , as we : add personnel to support our product development and commercialization efforts ; continue our research and development efforts ; seek regulatory approval for mridian in certain foreign countries ; and operate as a public company . accordingly , we may seek to fund our operations through public or private equity , debt financings or other sources . however , we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all . story_separator_special_tag on december 31 , 2019 , we entered into the first amendment ( the amendment ) to loan and security agreement by and among the company , viewray technologies , inc. and svb dated as of december 28 , 2018. the amendment , among other things , amended the loan agreement to ( i ) suspend testing of the minimum revenue financial covenant for the fiscal quarter ending december 31 , 2019 , ( ii ) provide for the minimum trailing twelve-month revenue thresholds under the minimum revenue financial covenant for periods ending on the last day of fiscal quarters in fiscal years subsequent to 2020 to be determined annually at the greater of ( a ) a 25 % cushion to revenue forecasts provided by the company to svb and ( b ) 10 % year-over-year annual growth , unless otherwise agreed , ( iii ) increase the minimum liquidity ratio financial covenant from 1.50:1.00 to 1.75:1.00 and ( iv ) increase the prepayment premium from 1.00 % to 2.00 % for amounts prepaid under the svb term loan for prior to the maturity date thereof , subject to certain exceptions . the svb term loan is secured by substantially all our assets , except that the collateral does not include any intellectual property held by us , provided , however , the collateral does include all accounts and proceeds from the sale or license of such intellectual property . additional details regarding the svb term loan are included in the section entitled “ notes to consolidated financial statements – note 5 – debt ” in the consolidated financial statements included elsewhere in this form 10-k. crg term loan in june 2015 , we entered into our long-term debt facility from capital royalty ii l.p. , capital royalty partners ii—parallel fund “ a ” l.p. , capital royalty partners ii ( cayman ) l.p. and parallel investment opportunities partners ii l.p. , or together with their successors by assignment , crg , and such loan , the crg term loan , for up to $ 50.0 million , of which $ 30.0 million was made available to us upon closing with the remaining $ 20.0 million to be available on or before june 26 , 2016 upon meeting certain milestones . we drew down the first $ 30.0 million on the closing date in june 2015. in march 2016 , the crg term loan was amended with regard to the conditions for borrowing the remaining $ 20.0 million available under the crg term loan . we achieved one milestone at march 31 , 2016 and borrowed an additional $ 15.0 million in may 2016. in december 2018 , we used the proceeds of the svb term loan and cash on hand to repay in full our obligations under the outstanding crg term loan and no amounts remain outstanding as of december 31 , 2019. at-the-market offering of common stock in january 2017 , we filed a registration statement with the sec which covers the offering , issuance and sale of up to a maximum aggregate offering price of $ 75.0 million of our common stock , preferred stock , debt securities , warrants , purchase contracts and or units ; and we entered into a sales agreement with fbr capital markets & co. , or fbr , under which we may sell up to $ 25.0 million of our common shares pursuant to an at-the-market offering program in accordance with rule 415 ( a ) ( 4 ) under the securities act . fbr acted as sales agent on a best efforts basis and used commercially reasonable efforts to sell on our behalf all of the shares of common stock requested to be sold by us , consistent with its normal trading and sales practices , on mutually agreed terms between fbr and us . there is no arrangement for funds to be received in any escrow , trust or similar arrangement . in may 2018 , we agreed to sell up to an additional $ 25.0 million of our common stock in accordance with the terms of a sales agreement with fbr and pursuant to an at- the-market offering program in accordance with rule 415 ( a ) ( 4 ) under the securities act . fbr is entitled to compensation of up to 3.0 % of the gross sales price per share sold . during fiscal year 2017 , we sold an aggregate of approximately 6.6 million shares of our common stock at an average market price of $ 6.10 per share under the at-the-market offering program , resulting in aggregate gross proceeds of approximately $ 40.1 million . during fiscal year 2018 , we sold 33,097 shares of our common stock at an average market price of $ 8.41 under the at-the-market offering program , resulting in aggregate gross proceeds of approximately $ 0.3 million . as of december 31 , 2018 , there was approximately $ 9.5 million left under this program for future stock issuance . in january 2019 , we filed a registration statement with the sec which covers the offering , issuance and sale of up to a maximum aggregate offering price of $ 250.0 million of our common stock , preferred stock , debt securities , warrants , purchase contracts and or units , including up to $ 100.0 million of our common shares pursuant to our at-the-market offering program with fbr . there were no 60 sales of our common stock pursuant to our at-the-market offering program with fbr during fiscal year 2019 . as of december 31 , 2019 , there was $ 100.0 million left of our common shares available under this at-the-market offering program with fbr . new orders and backlog new orders are defined as the sum of gross product orders , representing mridian contract price , recorded in backlog during the period . backlog is the accumulation of all orders for which revenue has not been recognized and which we consider valid .
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results of operation s the following tables set forth our results of operations for the periods presented ( in thousands ) : replace_table_token_5_th comparison of the years ended december 31 , 2019 and 2018 revenue replace_table_token_6_th total revenue during the year ended december 31 , 2019 increased by $ 6.8 million or 8.4 % compared to the year ended december 31 , 2018. the increase was primarily due to the increased average selling price from the revenue recognized on mridian systems and two system upgrades during the year ended december 31 , 2019 , compared to revenue recognized on mridian systems and two system upgrades during the year ended december 31 , 2018 , revenue recognized from performance obligations satisfied in the prior year , and growth in our installed base driving the increase in service revenues . product revenue . product revenue increased by $ 2.9 million , or 3.8 % , in fiscal year 2019 compared to fiscal year 2018. the increase is primarily due to the increased average selling price on mridian systems and system upgrades in fiscal year 2019 compared to the revenue recognized from the sale of mridian systems and systems upgrades in fiscal year 2018 and $ 0.9 million of revenue recognized from performance obligations satisfied in the prior year . service revenue . service revenue increased by $ 3.9 million , or 102.1 % , in fiscal year 2019 compared to fiscal year 2018 due to increased billings to existing customers , as well as the growth in our installed base . distribution rights revenue . after receipt of japanese regulatory approval in august 2016 , we started recognizing the distribution rights revenue ratably over the remaining term of the distribution agreement with itochu . distribution rights revenue remained flat in fiscal year 2019 compared to fiscal year 2018 due to the ratable recognition of revenue over the term of the agreement .
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as of december 31 , 2012 and 2011 , the company maintained a valuation allowance of approximately $ 2.1 million and $ 3.1 million , respectively , primarily relating to foreign net operating loss carryforwards from an acquisition and u.s. capital losses . as of december 31 , 2012 , the company had federal net operating loss carryforwards of approximately $ 10.0 million obtained from acquired businesses . these carryforwards are limited pursuant to section 382 of the internal revenue code due to changes in ownership as a result of the acquisitions . if unused , these carryforwards would expire on various dates from 2019 through 2028. the company also has foreign net operating loss carryforwards of approximately $ 19.8 million , which can be carried forward indefinitely . approximately story_separator_special_tag overview we derive revenues from memberships to our research products and services , performing advisory services and consulting projects , and hosting events . we offer contracts for our research products that are typically renewable annually and payable in advance . research revenues are recognized as revenue ratably over the term of the contract . accordingly , a substantial portion of our billings are initially recorded as deferred revenue . clients purchase advisory services independently and or to supplement their memberships to our research . billings attributable to advisory services and consulting projects are initially recorded as deferred revenue . advisory service revenues , such as workshops , speeches and advisory days , are recognized when the customer receives the agreed upon deliverable . consulting project revenues , which generally are short-term in nature and based upon fixed-fee agreements , are recognized as the services are provided . event billings are also initially recorded as deferred revenue and are recognized as revenue upon completion of each event . our primary operating expenses consist of cost of services and fulfillment , selling and marketing expenses and general and administrative expenses . cost of services and fulfillment represents the costs associated with the production and delivery of our products and services , including salaries , bonuses , employee benefits and stock-based compensation expense for research personnel and all associated editorial , travel , and support services . selling and marketing expenses include salaries , sales commissions , bonuses , employee benefits , stock-based compensation expense , travel expenses , promotional costs and other costs incurred in marketing and selling our products and services . general and administrative expenses include the costs of the technology , operations , finance , and human resources groups and our other administrative functions , including salaries , bonuses , employee benefits , and stock-based compensation expense . overhead costs such as facilities are allocated to these categories according to the number of employees in each group . deferred revenue , agreement value , client retention , dollar retention , enrichment and number of clients are metrics we believe are important to understanding our business . we believe that the amount of deferred revenue , along with the agreement value of contracts to purchase research and advisory services , provide a significant measure of our business activity . we define these metrics as follows : deferred revenue billings in advance of revenue recognition as of the measurement date . agreement value the total revenues recognizable from all research and advisory service contracts in force at a given time ( but not including advisory-only contracts ) , without regard to how much revenue has already been recognized . no single client accounted for more than 2 % of agreement value at december 31 , 2012. client retention the percentage of client companies with memberships expiring during the most recent twelve-month period that renewed one or more of those memberships during that same period . dollar retention the percentage of the dollar value of all client membership contracts renewed during the most recent twelve-month period to the total dollar value of all client membership contracts that expired during the period . enrichment the percentage of the dollar value of client membership contracts renewed during the most recent twelve-month period to the dollar value of the corresponding expiring contracts . clients we count as a single client the various divisions and subsidiaries of a corporate parent and we also aggregate separate instrumentalities of the federal , state , and provincial governments as single clients . 14 client retention , dollar retention , and enrichment are not necessarily indicative of the rate of future retention of our revenue base . a summary of our key metrics is as follows ( dollars in millions ) : replace_table_token_4_th replace_table_token_5_th agreement value at december 31 , 2012 showed a decline of less than 1 % from december 31 , 2011. the year-over-year growth rates in agreement value trended downward during each consecutive quarter of 2012 primarily due to a continuing decrease in our enrichment rates , which , at 95 % for the 12-month period ending december 31 , 2012 , represents a 6 % decrease from the prior period . we attribute the decline in the enrichment rate to the challenges associated with the implementation of the sales reorganization in january 2012 combined with high sales employee attrition during 2012. client retention , dollar retention and number of clients at december 31 , 2012 remain near historical levels . deferred revenue and agreement value increased significantly at december 31 , 2011 as compared to 2010 due to increased demand for our products and services due to the improvements in the economy during this period and as we increased the number of sales personnel during both 2010 and 2011. effective in 2012 , we modified our calculation of the number of clients in accordance with an automated system that counts as a single client the various divisions and subsidiaries of a corporate parent and also aggregates separate instrumentalities of federal , state , and provincial governments . story_separator_special_tag contracts for roleview research entered into or significantly modified after january 1 , 2011 are accounted for as two units of accounting : 1 ) the event ticket and 2 ) the remaining research services that are delivered throughout the contract period based on the new guidance that permits alternative methods of determining selling prices as it relates to the components that we do not sell on a standalone basis , such as research services in our case . arrangement consideration is allocated to each element based upon its relative selling price , which is determined based on standalone sales of event tickets and the estimated selling price of the remaining research services . annual subscriptions to our data products 16 include access to designated survey data products and access to a data specialist , which are delivered throughout the year , and are accounted for as one unit of accounting and recognized ratably as research services revenue over the membership period . for contracts entered into through january 2013 , we offered our clients a service guarantee , which gives our clients the right to cancel their contracts prior to the end of the contract term and receive a refund for unused products or services . furthermore , our revenue recognition determines the timing of commission expenses , as commissions are earned during the month a contract is booked and are deferred and recognized as expense as the related revenue is recognized . we evaluate the recoverability of deferred commissions at each balance sheet date . stock-based compensation . stock-based compensation is recognized as an expense based upon the fair value of the award at the time of grant . the determination of the fair value of stock-based compensation requires significant judgment and the use of estimates , particularly surrounding assumptions such as stock price volatility , expected option lives , dividend yields and forfeiture rates . these estimates involve inherent uncertainties and the application of management judgment . as a result , if circumstances change and we use different assumptions , our stock-based compensation expense could be materially different in the future . expected volatility is based , in part , on the historical volatility of our common stock as well as management 's expectations of future volatility over the expected term of the awards granted . the development of an expected life assumption involves projecting employee exercise behaviors ( expected period between stock option vesting dates and stock option exercise dates ) . expected dividend yields are based on expectations of current and future dividends , if any . we are also required to estimate future forfeitures of stock-based awards for recognition of compensation expense . we will record additional expense if the actual forfeitures are lower than estimated and will record a recovery of prior recognized expense if the actual forfeitures are higher than estimated . in addition , for our performance-vested restricted stock units , we make estimates of the performance outcome at each period end in order to estimate the actual number of shares that will be earned . the actual expense recognized over the vesting period will only be for those awards that vest . if our actual forfeiture rate or performance outcomes are materially different from our estimates , or if our estimates of forfeitures or performance outcomes are modified in a future period , the actual stock-based compensation expense could be significantly different from what we have recorded in the current period . for example , during 2011 we modified our estimates of the performance outcome for rsus issued during 2009 and 2010 that resulted in a credit of $ 0.9 million being recorded in 2011 related to expense recognized in prior periods related to these rsus . non-marketable investments . we hold minority interests in technology-related investment funds with a book value of $ 6.9 million at december 31 , 2012. these investment funds are not publicly traded , and , therefore , because no established market for these securities exists , the estimate of the fair value of our investments requires significant judgment . investments that are accounted for using the cost method are valued at cost unless an other-than-temporary impairment in their value occurs . for investments that are accounted for using the equity method , we record our share of the investee 's operating results each period . we review the fair value of our investments on a regular basis to evaluate whether an other-than-temporary impairment in the investment has occurred . we record impairment charges when we believe that an investment has experienced a decline in value that is other-than-temporary . future adverse changes in market conditions or poor operating results of underlying investments could result in losses or an inability to recover the carrying value of the investments that may not be reflected in an investment 's current carrying value , thereby possibly requiring an impairment charge in the future . goodwill , intangible assets and other long-lived assets . as of december 31 , 2012 , we had $ 86.9 million of goodwill and intangible assets with finite lives recorded on our consolidated balance sheet . goodwill is required to be measured for impairment at least annually or whenever events indicate that there may be an impairment . in order to determine if an impairment exists , we compare each of our reporting unit 's carrying value to the reporting unit 's fair value . determining the reporting unit 's fair value requires us to make estimates of market conditions and operational performance . absent an event that indicates a specific impairment may exist , we have selected november 30 as the date to perform the annual goodwill impairment test . we completed the annual goodwill impairment testing as of 17 november 30 , 2012 and concluded that the fair values of each of our reporting units substantially exceeded their respective carrying values . future events could cause us to conclude that impairment indicators exist and that goodwill associated with our acquired businesses is impaired .
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segment results we are organized into two client groups with each client group responsible for writing relevant research for the roles within the client organization on a worldwide basis . the two client groups , which are considered operating segments , are : business technology ( bt ) and marketing and strategy ( m & s ) . in addition , our events segment supports both client groups . each client group generates revenue through sales of research , advisory and other service offerings targeted at specific roles within their targeted clients . each client group consists of research personnel focused primarily on issues relevant to particular roles and to the day-to-day responsibilities of persons within the roles . amounts included in the events segment relate to the operations of the events production department . revenue reported in the events segment consists primarily of sponsorships and sales of event tickets to forrester events . in the second quarter of 2012 , we modified our management structure by consolidating our former technology industry client group segment into our two remaining client groups : business technology and marketing and strategy . in addition , in the first quarter of 2012 , we modified our calculation of segment direct margin to exclude certain marketing costs and springboard research integration costs and to include certain business development costs . accordingly , the 2011 and 2010 amounts have been reclassified to conform to the current presentation . we evaluate reportable segment performance based on direct margin . direct margin , as presented below , is defined as operating income excluding sales expenses , certain marketing and fulfillment expenses , stock-based compensation expense , general and administrative expenses , depreciation expense , and amortization of intangibles . replace_table_token_17_th replace_table_token_18_th bt revenue increased 3 % and 7 % during 2012 and 2011 , respectively , compared to the prior year periods .
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cautionary note regarding forward-looking statements this annual report on form 10-k , including management 's discussion and analysis of financial condition and results of operations and quantitative and qualitative disclosures about market risk contains forward-looking statements within the meaning of section 21e of the securities exchange act of 1934 , as amended and section 27a of the securities act of 1933 , as amended concerning , among other things , our expectations regarding the diginotar b.v. bankruptcy process , the impairment of our investment in diginotar , the timeframe in which the impairment costs will be incurred , our ability to recover amounts held in escrow , our ability to offset amounts that may be owed to diginotar b.v. by other vasco affiliates against amounts owed to vasco affiliates by diginotar b.v. , and our ability to effectively integrate certain intellectual property assets acquired from diginotar into our operations , as well as the prospects of , and developments and business strategies for , vasco and our operations , including the development and marketing of certain new products and services and the anticipated future growth in certain markets in which we currently market and sell our products and services or anticipate selling and marketing our products or services in the future . these forward-looking statements ( 1 ) are identified by use of terms and phrases such as expect , believe , will , anticipate , emerging , intend , plan , could , may , estimate , should , objective , goal , possible , potential and similar words and expressions , but such words and phrases are not the exclusive means of identifying them , and ( 2 ) are subject to risks and uncertainties and represent our present expectations or beliefs concerning future events . vasco cautions that the forward-looking statements are qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements . factors that could cause actual results to differ materially from those contemplated above include , among others , unanticipated costs associated with diginotar b.v. 's bankruptcy or potential claims that may arise in connection with the hacking incidents at diginotar b.v. additional risks , uncertainties and other factors have been described in greater detail in this annual report on form 10-k and include , but are not limited to , ( a ) risks of general market conditions , including currency fluctuations and the uncertainties resulting from turmoil in world economic and financial markets , ( b ) risks inherent to the computer and network security industry , including rapidly changing technology , evolving industry standards , increasingly sophisticated hacking attempts , increasing numbers of patent infringement claims , changes in customer requirements , price competitive bidding , and changing government regulations , and ( c ) risks specific to vasco , including , demand for our products and services , competition from more established firms and others , pressures on price levels and our historical dependence on relatively few products , certain suppliers and certain key customers . thus , the results that we actually achieve may differ materially from any anticipated results included in , or implied by these statements . except for our ongoing obligations to disclose material information as required by the u.s. federal securities laws , we do not have any obligations or intention to release publicly any revisions to any forward-looking statements to reflect events or circumstances in the future or to reflect the occurrence of unanticipated events . general the following discussion is based upon our consolidated results of operations for the years ended december 31 , 2011 , 2010 and 2009 ( percentages in the discussion , except for returns on average net cash balances , are rounded to the closest full percentage point ) and should be read in conjunction with our consolidated financial statements included elsewhere in this annual report on form 10-k. we design , develop , market and support open standards-based hardware and software security systems that manage and secure access to information assets . we also design , develop , market and support patented strong user authentication products and services for e-business and e-commerce . our products enable secure financial transactions to be made over private enterprise networks and public networks , such as the internet . our 33 strong user authentication is delivered via our hardware and software digipass security products ( collectively digipasses ) , many of which incorporate an electronic and digital signature capability , which further protects the integrity of electronic transactions and data transmissions . some of our digipasses are compliant with the europay mastercard visa ( emv ) standard and are compatible with mastercard 's and visa 's chip authentication program ( cap ) . some of our digipasses comply with the initiative for open authentication ( oath ) . as evidenced by our current customer base , most of our products are purchased by companies and , depending on the business application , are distributed to either their employees or their customers . those customers may be other businesses or , as an example in the case of internet banking , our customer banks ' corporate and retail customers . in future years , we expect that our customers will increasingly use our cloud-based service offering , digipass as a service ( dps ) as described below . we offer our products either through a product sales and licensing model or through our dps product offering , which was first made available in the fourth quarter of 2010. dps is our cloud-based authentication platform . by using our authentication platform , customers can deploy two-factor authentication more quickly , incur less upfront costs and be able to use strong authentication when logging onto a larger number of internet sites and applications . we expect those applications to include b2b applications , b2e applications ( e.g. , employees of companies logging into third party applications operated in the cloud ) , and b2c applications . story_separator_special_tag we do not believe that the uncertainty surrounding the sovereign debt issue had a significant negative impact on our business in 2011. in 2011 , revenue from our europe , middle east and africa ( emea ) region , which accounted for 66 % of our consolidated revenues in 2011 , increased 53 % over 2010. revenues from the banking market in emea , which we believe would be impacted most directly by the sovereign debt issue , increased by 67 % in 2011 over 2010. we believe that the growth has been driven by the banks focusing on the need to grow their retail banking business and secure their customers ' internet banking transactions . notwithstanding the fact that the specific amount of revenue from any one country may vary significantly year to year depending on specific orders we receive from our customers in each country in each period , our revenues from customers located in the countries that are most often noted as having the most significant sovereign debt issues ( i.e. , portugal , italy , ireland , greece and spain ) were less than 10 % of our total revenues in 2011. cybersecurity : 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 35 3. new products and services that we are introducing to the market , such as digipass as a service , are focused on processing information through our servers ( or in the cloud from our customers ' perspective ) . 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 . we offer our customers the ability to either create the secret numbers themselves or have us create the numbers on their behalf . when asked to create the numbers , we do so in a secure environment with limited physical access and store the numbers on a system that is not connected to any other network , including other vasco networks , and similarly , is not connected to the internet . were such a cyber incident to occur , our business could be subject to significant disruption and we could suffer significant monetary and other losses and significant reputational harm . in the case of our new products and services , which involve the active daily processing of the secret numbers on our servers or servers managed by others in a hosted environment , we believe a cyber incident could have a material impact on our future business . we also believe that these products may be more susceptible to cyber attacks than our traditional products since it involves the active processing of transactions using the secret numbers . while we do not have a significant amount of revenue from these products today , we believe that these products have the potential to provide substantial future growth . a cyber incident involving these products in the future could substantially impair our ability to grow the business and we could suffer significant monetary and other losses and significant reputational harm . in july 2011 , we experienced a cyber incident related to diginotar b.v. we expect that there are likely to be other hacking attempts intended to impede the performance of our products , disrupt our services and harm our reputation as a company , as the processes used by computer hackers to access or sabotage technology products , services and networks are rapidly evolving . as discussed above , our business could be subject to significant disruption , and we could suffer monetary and other losses and reputational harm , in the event of such incidents . our losses from discontinued operations resulting from the these events may be exceeded as a result of unanticipated costs associated with diginotar b.v. 's bankruptcy , potential claims that may arise in connection with the hacking incidents , further impairment of our investment in diginotar , the timeframe in which the impairment costs will be incurred , our inability to recover amounts held in escrow relating to our acquisition of diginotar , our inability to offset amounts that may be owed to diginotar b.v. by other vasco affiliates against amounts owed to vasco affiliates by diginotar b.v. , and our inability to effectively integrate certain intellectual property assets previously acquired from diginotar into our operations . see note 3 to the financial statements for additional information associated with a cybersecurity incident involving diginotar b.v. that we experienced in july 2011. see also part i , item 3legal proceedings for a description of legal proceedings related to the cybersecurity incident in 2011. income taxes : our effective tax rate reflects our global structure related to the ownership of our intellectual property ( ip ) . all our ip is owned by two subsidiaries , one in the u.s. and one in switzerland . our two subsidiaries have entered into agreements with most of the other vasco 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 36 basis or both .
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general and administrative expenses 2011 compared to 2010 consolidated general and administrative expenses for the year ended december 31 , 2011 were $ 22,450 , an increase of $ 3,912 or 21 % , from the $ 18,538 reported for 2010. the increase in general and administrative expense , including the impact of changes in currency exchange rates , was primarily attributable to : higher compensation expenses of approximately $ 1,213 related to both an increase in the average headcount and an increase in base and bonus related compensation amounts , and an increase in stock-based compensation expenses of approximately $ 2,235 , including the impact of the adjustments previously noted . we estimate that the weakening of the u.s. dollar to other currencies , primarily the euro and australian dollar , increased general and administrative expenses by approximately $ 594 in 2011 compared to 2010. the average full-time general and administrative employee headcount increased 6 % to 56 in 2011 from 53 in 2010. at year-end 2011 , 2010 and 2009 , the company employed 55 , 57 and 46 general and administrative employees , respectively . 2010 compared to 2009 consolidated general and administrative expenses for the year ended december 31 , 2010 were $ 18,538 , an increase of $ 2,355 or 15 % , from the $ 16,183 reported for 2009. the increase in general and administrative expenses , including the impact of changes in currency exchange rates , was primarily attributable to : an increase in stock-based compensation expenses of approximately $ 703 , including the impact of the adjustments previously noted , and an increase in professional fees of approximately $ 1,512 primarily associated with increased legal fees related to various discrete projects in various countries around the world .
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to our outstanding shares of common stock ; ( iv ) any of our promoters ; and ( v ) any member of the immediate family ( including spouse , parents , children , siblings and in- laws ) of any of the foregoing persons . on may 2 , 2012 , 16,500,000 shares of our common stock were issued to john kitchen , an officer of our company , for gross proceed of $ 5,000 . on june 12 , 2012 , 16,500,000 shares of our common stock were issued to linda miller , an officer and director of our company , for gross proceeds of $ 5,000 . 28 director independence our board of directors has determined that it does not have a member that is `` independent `` as the term is used in item 7 ( d ) ( 3 ) ( iv ) of schedule 14a under the exchange act . item 14. principal accounting fees and services . the aggregate fees billed for the most recently completed fiscal year ended november , 2013 and 2012 for professional services rendered by the principal accountant for the audit of our annual financial statements and review of the financial statements included in our quarterly reports on form 10-q and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows : replace_table_token_8_th ( 1 ) audit fees consist of fees incurred for professional services rendered for the audit of our financial statements , for reviews of our interim financial statements included in our quarterly reports on form 10-q and for services that are normally provided in connection with statutory or regulatory filings or engagements . ( 2 ) audit-related fees consist of fees billed for professional services that are reasonably related to the performance of the audit or review of our financial statements , but are not reported under `` audit fees `` . ( 3 ) tax fees consist of fees billed for professional services relating to tax compliance , tax planning , and tax advice . ( 4 ) all other fees consist of fees billed for all other services . our board of directors pre-approves all services provided by our independent auditors . all of the above services and fees were reviewed and approved by the board of directors either before or after the respective services were rendered . our board of directors has considered the nature and amount of fees billed by our independent auditors and believes that the provision of services for activities unrelated to the audit is compatible with maintaining our independent auditors ' independence . 29 part iv item 15. exhibits , financial statement schedules . exhibits in reviewing the agreements included as exhibits to this annual report on form 10-k , please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about our company or the other parties to the agreements . the agreements may contain representations and warranties by each of the parties to the applicable agreement . these representations and warranties have been made solely for the benefit of the parties to the applicable agreement and : should not in all instances be treated as categorical statements of fact , but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate ; have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement , which disclosures are not necessarily reflected in the agreement ; may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors ; and were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments . accordingly , these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time . additional information about the company may be found elsewhere in this annual report on form 10-k and the company 's other public filings , which are available without charge through the sec 's website at http : //www.sec.gov . the following exhibits are included as part of this report : replace_table_token_9_th 30 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereto duly authorized . be at tv , inc. ( registrant ) dated : march 17 , 2014 john kitchen john kitchen chief executive officer , and chief financial officer ( principal executive , financial , and accounting 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 . dated : march 17 , 2014 john kitchen john kitchen president , chief executive officer , chief financial officer , , treasurer , and director dated : march 17 , 2014 linda miller linda miller secretary and director story_separator_special_tag the following discussion should be read in conjunction with our audited financial statements and the related notes that appear elsewhere in this annual report on form 10-k. 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 such differences include , but are not limited to , those discussed below and elsewhere in this annual report on form 10-k. our audited financial statements are stated in united states story_separator_special_tag to our outstanding shares of common stock ; ( iv ) any of our promoters ; and ( v ) any member of the immediate family ( including spouse , parents , children , siblings and in- laws ) of any of the foregoing persons . on may 2 , 2012 , 16,500,000 shares of our common stock were issued to john kitchen , an officer of our company , for gross proceed of $ 5,000 . on june 12 , 2012 , 16,500,000 shares of our common stock were issued to linda miller , an officer and director of our company , for gross proceeds of $ 5,000 . 28 director independence our board of directors has determined that it does not have a member that is `` independent `` as the term is used in item 7 ( d ) ( 3 ) ( iv ) of schedule 14a under the exchange act . item 14. principal accounting fees and services . the aggregate fees billed for the most recently completed fiscal year ended november , 2013 and 2012 for professional services rendered by the principal accountant for the audit of our annual financial statements and review of the financial statements included in our quarterly reports on form 10-q and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows : replace_table_token_8_th ( 1 ) audit fees consist of fees incurred for professional services rendered for the audit of our financial statements , for reviews of our interim financial statements included in our quarterly reports on form 10-q and for services that are normally provided in connection with statutory or regulatory filings or engagements . ( 2 ) audit-related fees consist of fees billed for professional services that are reasonably related to the performance of the audit or review of our financial statements , but are not reported under `` audit fees `` . ( 3 ) tax fees consist of fees billed for professional services relating to tax compliance , tax planning , and tax advice . ( 4 ) all other fees consist of fees billed for all other services . our board of directors pre-approves all services provided by our independent auditors . all of the above services and fees were reviewed and approved by the board of directors either before or after the respective services were rendered . our board of directors has considered the nature and amount of fees billed by our independent auditors and believes that the provision of services for activities unrelated to the audit is compatible with maintaining our independent auditors ' independence . 29 part iv item 15. exhibits , financial statement schedules . exhibits in reviewing the agreements included as exhibits to this annual report on form 10-k , please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about our company or the other parties to the agreements . the agreements may contain representations and warranties by each of the parties to the applicable agreement . these representations and warranties have been made solely for the benefit of the parties to the applicable agreement and : should not in all instances be treated as categorical statements of fact , but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate ; have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement , which disclosures are not necessarily reflected in the agreement ; may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors ; and were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments . accordingly , these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time . additional information about the company may be found elsewhere in this annual report on form 10-k and the company 's other public filings , which are available without charge through the sec 's website at http : //www.sec.gov . the following exhibits are included as part of this report : replace_table_token_9_th 30 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereto duly authorized . be at tv , inc. ( registrant ) dated : march 17 , 2014 john kitchen john kitchen chief executive officer , and chief financial officer ( principal executive , financial , and accounting 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 . dated : march 17 , 2014 john kitchen john kitchen president , chief executive officer , chief financial officer , , treasurer , and director dated : march 17 , 2014 linda miller linda miller secretary and director story_separator_special_tag the following discussion should be read in conjunction with our audited financial statements and the related notes that appear elsewhere in this annual report on form 10-k. 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 such differences include , but are not limited to , those discussed below and elsewhere in this annual report on form 10-k. our audited financial statements are stated in united states
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results of operations the following table provides the results of operations for the following periods : year ended november , 30 2013 for the period from inception ( april 30 , 2012 ) to november 30 , 2012 revenue $ - $ - general and administrative expenses $ 2,254 $ - professional fees $ 37,721 $ 1,748 net operating loss $ ( 39,975 ) $ ( 1,748 ) during the year ended november 30 , 2013 , we incurred general and administrative and professional fees of approximately $ 39,975 , compared to general and administrative and professional fees of $ 1,748 during the period from april 30 , 2012 ( inception ) to november 30 , 2012. the increase in general and administrative expenses and professional fees incurred during the year ended november 30 , 2013 , were generally related to increased legal and accounting fees for our prospectus offering . liquidity and financial condition working capital the following table provides selected financial data about our company as of november 30 , 2013 and 2012. replace_table_token_2_th our working capital increased as of november 30 , 2013 as compared to november 30 , 2012 due to the proceeds from our financings , which were partially used to fund our operations . 9 cash flows for the year ended november 30 , 2013 for the period from inception ( april 30 , 2012 ) to november 30 , 2012 cash flows provided by ( used by ) operating activities $ ( 36,056 ) $ ( 1,748 ) cash flows provided by ( used by ) investing activities $ - $ - cash flows provided by ( used by ) financing activities $ 42,500 $ 10,000 net increase in cash during period $ 6,444 $ 8,252 cash flows from operating activities we have not generated positive cash flows from operating activities .
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66 proto labs , inc. notes to consolidated financial statements the following table summarizes stock-based compensation expense for the years ended december 31 , 2015 , 2014 and 2013 , respectively : replace_table_token_33_th stock options the following table provides the assumptions used in the black-scholes option pricing story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion and analysis contains forward-looking statements that involve risks and uncertainties . our actual results may differ materially from those anticipated in these forward- looking statements as a result of various factors , including those set forth under “ risk factors ” and elsewhere in this annual report on form 10-k. overview we are a leading online and technology-enabled manufacturer of quick-turn , on-demand 3d printed , cnc-machined and injection-molded custom parts for prototyping and short-run production . we provide “ real parts , really fast ” to product developers and engineers worldwide , who are under increasing pressure to bring their finished products to market faster than their competition . we believe custom parts manufacturing has historically been an underserved market due to the inefficiencies inherent in the quotation , equipment set-up and non-recurring engineering processes required to produce custom parts . our proprietary technology eliminates most of the time-consuming and expensive skilled labor conventionally required to quote and manufacture parts in low volumes , and our customers conduct nearly all of their business with us over the internet . we target our product lines to the millions of product developers and engineers who use 3d cad software to design products across a diverse range of end-markets . our primary manufacturing product lines currently include injection molding ( protomold ) , cnc machining ( firstcut ) and 3d printing ( fineline ) . we have experienced significant growth since our inception . since we first introduced our injection molding ( protomold ) product line in 1999 , we have steadily expanded the size and geometric complexity of the injection-molded parts we are able to manufacture , and we continue to extend the diversity of materials we are able to support . similarly , since first introducing our cnc machining ( firstcut ) product line in 2007 , we have expanded the range of part sizes , design geometries and materials we can support . in 2014 , we acquired fineline to expand the number of process types we offer to include stereolithography ( sl ) , selective laser sintering ( sls ) and direct metal laser sintering ( dmls ) . we also continually seek to enhance other aspects of our technology and manufacturing processes , including our interactive web-based and automated user interface and quoting system . we intend to continue to invest significantly to enhance our technology and manufacturing processes and expand the range of our existing capabilities with the aim of meeting the needs of a broader set of product developers and engineers . as a result of the factors described above , many of our customers tend to return to proto labs to meet their ongoing needs , with approximately 85 % , 87 % and 86 % of our revenue in 2015 , 2014 and 2013 , respectively , derived from existing customers . we have established our operations in the united states , europe and japan , which we believe are three of the largest geographic markets where product developers and engineers are located . we entered the european market in 2005 , launched operations in japan in late 2009 and further expanded into europe through our acquisition of alphaform in 2015. as of december 31 , 2015 , we had sold products into approximately 60 countries . our revenue outside of the united states accounted for approximately 27 % , 26 % and 27 % of our consolidated revenue in the years ended december 31 , 2015 , 2014 and 2013 , respectively . we intend to continue to expand our international sales efforts and believe opportunities exist to serve the needs of product developers and engineers in select new geographic regions . we have grown our total revenue from $ 98.9 million in 2011 to $ 264.1 million in 2015. during this period , our operating expenses increased from $ 32.7 million in 2011 to $ 87.3 million in 2015. we have grown our income from operations from $ 26.9 million in 2011 to $ 67.1 million in 2015. our recent growth in revenue and income from operations has been accompanied by increased cost of revenues and operating expenses . we expect to increasingly invest in our operations to support anticipated future growth as discussed more fully below . in addition , we believe that a number of trends affecting our industry have affected our results of operations and may continue to do so . for example , we believe that many of our target product developer and engineer customers have increasing e-commerce expectations , are facing increased pressure to accelerate the time to market for their products and continue to migrate from using 2d cad to using 3d cad for their design needs . we believe we continue to be well positioned to benefit from these trends , given our proprietary technology that enables us to automate and integrate the majority of activities involved in procuring custom parts , starting with our elegant web interface through which a product developer or engineer submits a 3d cad part design . while our business may be positively affected by these trends , our results may also be favorably or unfavorably impacted by other trends that affect product developer and engineer orders for custom parts in low volumes , including , among others , changes in product developer and engineer preferences or needs , developments in our industry and among our competitors , and factors impacting new product development volume such as economic conditions . story_separator_special_tag marketing and sales expense consists primarily of employee compensation , benefits , commissions , stock-based compensation , marketing programs such as print and pay-per-click advertising , trade shows , direct mail and other related overhead . we expect sales and marketing expense to increase in the future as we increase the number of marketing and sales professionals and marketing programs targeted to increase our customer base . research and development . research and development expense consists primarily of employee compensation , benefits , stock-based compensation , depreciation on equipment and other related overhead . all of our research and development costs have been expensed as incurred . we expect research and development expense to increase in the future as we seek to enhance and expand our product line offerings . general and administrative . general and administrative expense consists primarily of employee compensation , benefits , stock-based compensation , professional service fees related to accounting , tax and legal , and other related overhead . we expect general and administrative expense to increase in the future as we continue to grow and expand as a global organization . other i ncome ( e xpense ) , n et other income ( expense ) , net primarily consists of foreign currency-related gains and losses , interest income on cash balances and investments , and interest expense on borrowings . our foreign currency-related gains and losses will vary depending upon movements in underlying exchange rates . our interest income will vary depending on our average cash balances during the period , composition of our marketable security portfolio and the current level of interest rates . our interest expense will vary based on borrowings and interest rates . provision for i ncome t axes provision for income taxes is comprised of federal , state , local and foreign taxes based on pre-tax income . we expect income taxes to increase as our taxable income increases and our effective tax rate to remain relatively constant . story_separator_special_tag and a 23.8 % increase in international revenue . by product line , this revenue growth was driven by a 21.9 % increase in injection molding ( protomold ) revenue and a 24.7 % increase in cnc machining ( firstcut ) revenue , in each case for 2014 compared with 2013 , as well as $ 9.4 million in revenue from the fineline acquisition . our revenue growth in 2014 was the result of increased volume of the product developers and engineers we served . during 2014 , we served 21,552 unique product developers and engineers , an increase of 34 % over 2013. average revenue per product developer or engineer decreased 4 % during 2014 as compared to 2013. in addition to revenue gained through the acquisition of fineline , our revenue increases were primarily driven by increases in sales personnel and marketing activities . our sales personnel focus on gaining new customer accounts and expanding the depth and breadth into existing customer accounts . our marketing personnel focus on marketing activities that have proven to result in the greatest number of customer leads to support sales activity . international revenue was negatively impacted by $ 0.1 million in 2014 compared to 2013 due to strengthening of the united states dollar relative to certain foreign currencies . the effect of pricing changes on revenue was immaterial for 2014 compared to 2013. cost of revenue , gross profit and gross margin cost of revenue . cost of revenue increased $ 19.8 million , or 32.2 % , for 2014 compared to 2013 , which was greater than the rate of revenue increase of 28.5 % for 2014 compared to 2013. the increase in cost of revenue was due to raw material and production cost increases of $ 5.8 million to support increased sales volumes , equipment and facility-related cost increases of $ 3.5 million and an increase in direct labor headcount resulting in personnel and related cost increases of $ 10.5 million . 37 gross profit and gross margin . gross profit increased from $ 101.7 million , or 62.4 % of revenues , in 2013 to $ 128.4 million , or 61.3 % of revenues , in 2014 primarily due to increasing revenue growth as noted above . gross margin decreased primarily as a result of our 3d printing ( fineline ) product line having a lower gross margin than our legacy cnc machining ( firstcut ) and injection molding ( protomold ) product lines and the cost of increased capacity , which has not been fully leveraged . operating expenses , other expense , n et and provision for income taxes marketing and sales . marketing and sales expense increased $ 6.8 million , or 30.2 % , for 2014 compared to 2013 due to an increase in headcount resulting in personnel and related cost increases of $ 4.9 million and marketing program cost increases of $ 1.9 million . the increase in marketing program costs is the result of our focus and concentration on funding those programs which have proven to be the most effective in growing our business . research and development . our research and development expense increased $ 4.7 million , or 40.0 % , for 2014 compared to 2013 due to an increase in headcount resulting in personnel and related cost increases of $ 4.0 million and other operating cost increases of $ 0.7 million . general and administrative . our general and administrative expense increased $ 6.0 million , or 36.9 % , for 2014 compared to 2013 due to an increase in headcount resulting in personnel and related cost increases of $ 2.1 million , facility and administrative cost increases of $ 1.4 million , professional service cost increases of $ 1.3 million for outside legal and accounting services , stock-based compensation cost increases of $ 0.7 million and intangible amortization expenses of $ 0.5 million . other income , n et 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results of operations the following table sets forth a summary of our results of operations and the related changes for the periods indicated . the results below are not necessarily indicative of the results for future periods . replace_table_token_6_th * percentage change not meaningful 34 stock-based compensation expense included in the statements of comprehensive income data above is as follows : replace_table_token_7_th comparison of years ended december 31 , 201 5 and 201 4 revenue revenue and the related changes for 2015 and 2014 were as follows : replace_table_token_8_th revenue by geographic region , based on the billing location of the end user customer , is summarized as follows : replace_table_token_9_th 35 our revenue increased $ 54.5 million , or 26.0 % , for 2015 compared with 2014. by geographic region , this revenue growth was driven by a 24.4 % increase in united states revenue and a 30.8 % increase in international revenue . by product line , this revenue growth was driven by a 16.5 % increase in injection molding ( protomold ) revenue and a 24.1 % increase in cnc machining ( firstcut ) revenue , in each case for 2015 compared with 2014 , as well as a $ 15.7 million increase in revenue from 3d printing ( fineline ) and $ 1.2 million in other revenue through our acquisition of alphaform . our revenue growth in 2015 was the result of increased volume of the product developers and engineers we served . during 2015 , we served 27,235 unique product developers and engineers , an increase of 26 % over 2014. average revenue per product developer or engineer remained consistent during 2015 as compared to 2014. our revenue increases were primarily driven by increases in sales personnel and marketing activities . our sales personnel focus on gaining new customer accounts and expanding the depth and breadth into existing customer accounts .
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such statements are based upon certain assumptions and assessments made by our management in light of their experience and their perception of historical trends , current conditions , expected future developments and other factors they believe to be appropriate . these statements include , without limitation , statements about our anticipated expenditures , including those related to general and administrative expenses ; the potential size of the market for our services , future development and or expansion of our services in our markets , our ability to generate revenues , our ability to obtain regulatory clearance and expectations as to our future financial performance . our actual results will likely differ , perhaps materially , from those anticipated in these forward-looking statements as a result of various factors , including : our need and ability to raise additional cash . the forward-looking statements included in this report are subject to a number of additional material risks and uncertainties , including but not limited to the risks described in our filings with the securities and exchange commission . the following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes to those statements included in this filing . in addition to historical financial information , this discussion may contain forward-looking statements reflecting our current plans , estimates , beliefs and expectations that involve risks and uncertainties . as a result of many important factors , particularly those set forth under `` special note regarding forward-looking statements '' , our actual results and the timing of events may differ materially from those anticipated in these forward-looking statements . 45 overview we were incorporated in delaware under the name cardigant medical inc. on april 17 , 2009. our initial business plan was to focus on the development of novel biologic and peptide based compounds and enhanced methods for local delivery for the treatment of vascular disease including peripheral artery disease and ischemic stroke . pursuant to the stock purchase agreement dated as of july 31 , 2014 , yong li , an individual purchased a total of 887,410 restricted shares ( 22,185,230 restricted shares before the reverse stock split ) of common stock of the company from a group of three former shareholders of the company . in consideration for the shares , mr. li paid the sellers $ 399,344 in cash which came from his own capital . the sellers were jerett a. creed , the company 's former chief executive officer , chief financial officer , director and formerly a controlling shareholder of the company , the creed family limited partnership and ralph sinibaldi . the shares represented approximately 95 % of the company 's then issued and outstanding common stock . the sale was consummated on august 28 , 2014. as a result of the transaction , there was a change in control of the company . on august 27 , 2014 , we entered into a contribution agreement with cardigant neurovascular . pursuant to the contribution agreement , we assigned all our assets , properties , rights , title and interest used or held for use by our business , ( except for certain excluded assets set forth therein ) which was the treatment of atherosclerosis and plaque stabilization in both the coronary and peripheral vasculature using systemic and local delivery of large molecule therapeutics and peptide mimetics based on high density lipoprotein targets ( “ cardigant business ” ) . in consideration for such contribution of capital , cardigant neurovascular agreed to assume all our liabilities arising from the cardigant business prior to the date of the contribution agreement and thereafter with regard to certain contributed contracts . we granted cardigant neurovascular an exclusive option for a period of 6 months to purchase the excluded assets for $ 1. cardigant neurovascular exercised this option october 20 , 2014 and the excluded assets were assigned to cardigant neurovascular on october 20 , 2014. also on october 20 , 2014 , we acquired all the issued and outstanding shares of hong kong takung , a privately held hong kong corporation , pursuant to the share exchange agreement and hong kong takung became our wholly owned subsidiary in a reverse merger , or the “ merger ” . pursuant to the merger , all of the issued and outstanding shares of hong kong takung common stock were converted , at an exchange ratio of 10.4988-for-1 , into an aggregate of 8,399,040 shares ( 209,976,000 shares before the reverse stock split ) of our common stock and hong kong takung became a wholly owned subsidiary of us . the holders of our common stock as of immediately prior to the merger held an aggregate of 933,236 shares ( 23,330,662 shares before the reverse stock split ) of our common stock , the accompanying financial statements share and per share information has been retroactively adjusted to reflect the exchange ratio in the merger . subsequent to the merger , our name was changed from “ cardigant medical inc. , ” to “ takung art co. , ltd. ” hong kong takung is a limited liability company incorporated on september 17 , 2012 under the laws of hong kong , special administrative region , china . although hong kong takung was incorporated in 2012 , it did not commence business operations until late 2013. as a result of the transfer of the excluded assets pursuant to the contribution agreement and the acquisition of all the issued and outstanding shares of hong kong takung , we are no longer conducting the cardigant business and have now assumed hong kong takung 's business operations as it now our only operating wholly-owned subsidiary . hong kong takung operates an electronic online platform located at http : //en.takungae.com for artists , art dealers and art investors to offer and trade valuable artwork . story_separator_special_tag the extent to which the covid-19 impacts our operations will depend on future developments , which are highly uncertain and can not be predicted with confidence , including the duration of the outbreak , new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact , among others . story_separator_special_tag artwork in 2018. the listing fees ranged from 41.7 % to 47.3 % of the listing value of paintings and calligraphies , 24.0 % to 46.0 % of the listing value of the precious stones , 25.0 % to 48.0 % of the listing value of the porcelain , 45 % of the listing value of the unit+ products , and 45.0 % of the listing value of sports culture collectibles . the total listing value of artwork during 2018 was $ 9,320,577 ( hk $ 73,051,000 ) . the decrease in the number of listings of artwork for the year ended december 31 , 2019 , compared to the same period in 2018 , resulted in a decrease in the listing fee revenue in 2019. during the fiscal year of 2019 , we focused on promoting the trading of our existing listed artwork as opposed to new listings . we also felt that any new listings would be unfavorably impacted by current market conditions . we will be more discreet about the future listings of more valuable artworks . ( ii ) commission fee revenue for non-vip traders , the commission revenue was calculated based on a percentage of transaction value of artworks , which we charge trading commissions for the purchase and sale of the ownership shares of the artworks . the commission is typically 0.3 % of the total amount of each transaction , but as an initial promotion , we currently charge a reduced fee of 0.2 % ( resulting in an aggregate of 0.4 % for both buy and sell transactions ) of the total transaction amount with the minimum charge of $ 0.13 ( hk $ 1 ) . the commission is accounted for as revenue and immediately deducted from the proceeds from the sales of artwork units when a transaction is completed . on november 7 , 2018 we lowered the minimum charge to $ 0.0013 ( hk $ 0.01 ) . for selected traders , starting from april 1 , 2016 , we charged a predetermined monthly fee ( unlimited trades for specific artworks ) for specific artworks . these traders are selected by authorized agents and reviewed by us . after review , we negotiate individually with each one of them to determine a fixed monthly fee . different traders may have different rates but once negotiated and agreed to , the monthly fee is fixed . using the output method , we recognize the monthly commission revenue when the selected traders receive access to our trading platform to make unlimited trades for specific artwork . we define traders as “ inactive traders ” if they meet the following criteria ; the trader defaults in payment over three months ; the trader did not incur any transactions in the month of reassessment ; the service agent has confirmed with the relevant trader that he/she was inactive . once an inactive trader has been assessed and identified , his/her contract will be reassessed pursuant to asc 606-10-25-5 because there has been a significant change in fact and circumstances and pursuant to asc 606-10-25-1 ) e ) , his/her contract will not be deemed to exist and revenue will not be recognized until consideration is received in accordance with asc 606-10-25-7 ( a ) as we would have already performed our obligations ahead of receiving consideration . we charge a non-transactional transfer commission on the transfer of the ownership of an artwork . the commission amount is calculated based on 0.3 % of the close value of the artwork and each artwork unit . for the large volume of transfer or under certain special circumstances , we charge at an agreed-upon percentage of artworks units . the company offered commission to traders and service agents . effective january 1 , 2019 , we no longer offered commission to our traders . for service agents , we offered a total of 40 % to 75 % of the commission earned from transactions with new traders to the service agents when they bring in an agreed number of traders to the trading platform . the commission paid to the service agents and discounts are recognized as a cost of revenue in the same period the related revenue is recognized . 50 since the second half of 2018 , there was a decrease in our trading volume and transaction value amounts because of the deteriorating economy in china due to the under-performance of its financial stock markets as well as the fall-out from the p2p ( peer-to-peer ) lending market . total commission revenue decreased by $ 1,380,096 or 36.14 % for the year ended december 31 , 2019 to $ 2,438,756 compared to $ 3,818,852 for the year ended december 31 , 2018 , primarily because of decrease in trading volume and transaction value driven by the depressed economy in china . ( iii ) management fee revenue we charge traders a management fee to cover the costs of insurance , storage , and transportation for an artwork and trading management of artwork units , which are calculated at $ 0.0013 ( hk $ 0.01 ) per 100 artwork units per day . the management fee is deducted from proceeds from the sale of artwork units .
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results of operation of takung hong kong takung operates a platform for offering and trading artwork . we generate revenue from our services in connection with the offering and trading of artwork ownership units on our system , primarily consisting of listing fees , trading commissions , and management fees . for the years ended december 31 , 2019 and 2018 the following tables set forth our consolidated statements of operations data : replace_table_token_5_th 48 revenue effective january 1 , 2018 , the company adopted topic 606 using modified retrospective approach applied to its contracts which were not completed as of january 1 , 2018. results for reporting periods beginning after january 1 , 2018 are accounted for and presented under topic 606 , while prior period amounts are not adjusted and continue to be reported in accordance with topic 605. the discussion of our adoption of asc606 contained in note 2 to our consolidated financial statements , “ summary of significant accounting policies ” , is incorporated herein by reference . ( i ) listing fee revenue listing fee revenue is calculated based on a percentage of the listing value and transaction value of artworks . listing value is the total offering price of an artwork when the ownership units are initially listed on our trading platform . we utilize an appraised value as a basis to determine the appropriate listing value for each artwork , or portfolio of artworks .
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story_separator_special_tag condition and results of operations overview independence holding company , a delaware corporation ( nyse : ihc ) , is a holding company principally engaged in the life and health insurance business through : ( i ) its insurance companies , standard security life insurance company of new york ( `` standard security life '' ) , madison national life insurance company , inc. ( `` madison national life '' ) , independence american insurance company ( independence american ) ; and ( iii ) its marketing and administrative companies , including ihc risk solutions , llc ( risk solutions ) , ihc health solutions , inc. ( health solutions ) , and actuarial management corporation ( `` amc '' ) . these companies are sometimes collectively referred to as the insurance group , and ihc and its subsidiaries ( including the insurance group ) are sometimes collectively referred to as the `` company . '' ihc also owns a significant equity interest in a managing general underwriter ( mgu ) that writes medical stop-loss for standard security life . ihc 's health insurance products serve niche sectors of the commercial market through multiple classes of business and varied distribution channels . medical stop-loss is marketed to large employer groups that self-insure their medical risks ; in 2011 the company 's average case size was 250 covered employee lives . this niche is expected to grow as result of federal health care reform . the small-group major medical product is purchased by employers with between two and 50 covered lives . with regard to those persons in the growing individual market , ihc 's products offer major medical coverage for individuals and families and persons with short-term medical needs , and limited medical and scheduled benefit plans through select distribution partners . beginning in 2012 , independence american entered the 29 pet insurance market through a national distributor with a long history in this niche . standard security life 's limited medical product is primarily purchased by hourly workers and others who are generally not eligible for coverage under their employer 's group medical plan . madison national life and independence american offer limited and scheduled benefit plans primarily to uninsured consumers . the dental and vision products are marketed to large and small groups as well as individuals . with respect to ihc 's life and disability business , madison national life has historically sold almost all of this business through one distribution source specializing in serving school districts and municipalities . the company has a large , minority position in a mgu that specializes in marketing stop-loss plans to the fewer than 100 employee market . the leadership team of this mgu has years of experience in marketing similar plans for a competitor in certain states whose health care laws were a model for federal health reform . while management considers a wide range of factors in its strategic planning and decision-making , underwriting profit is consistently emphasized as the primary goal in all decisions as to whether or not to increase our retention in a core line , expand into new products , acquire an entity or a block of business , or otherwise change our business model . management 's assessment of trends in healthcare and morbidity , with respect to medical stop-loss , fully insured medical , disability and dbl ; mortality rates with respect to life insurance ; and changes in market conditions in general play a significant role in determining the rates charged , deductibles and attachment points quoted , and the percentage of business retained . ihc also seeks transactions that permit it to leverage its vertically integrated organizational structure by generating fee income from production and administrative operating companies as well as risk income for its carriers and profit commissions . management has always focused on managing costs of its operations and providing its insureds with the best cost containment tools available . the following is a summary of key performance information and events : on march 5 , 2010 , ihc acquired a controlling interest in amic . upon achieving control amic 's income and expense amounts became consolidated with ihc 's results . accordingly , the individual line items on the consolidated statement of operations for 2011 and 2010 reflect the operations of amic with no corresponding amounts for 2009. the results of operations for the years ended december 31 , 2011 , 2010 and 2009 , are summarized as follows ( in thousands ) : replace_table_token_9_th · income from continuing operations of $ .81 per share , diluted , for the year ended december 31 , 2011 , compared to $ 1.44 per share , diluted , for the year ended december 31 , 2010. net income for 2010 includes a $ 16.7 million after-tax gain on the bargain purchase of amic ; 30 · consolidated investment yield ( on an annualized basis ) of 4.3 % in 2011 compared to 4.6 % in 2010 ; · released $ 2.3 million of deferred income taxes relative to its investment in amic based on the company 's intention to adopt tax planning strategies to recover its investment in amic in a tax-free manner ; · increased ownership interest in amic to 78.4 % ; · in the fourth quarter of 2011 , standard security life entered into a coinsurance agreement effective in january 2012 and transferred approximately $ 143 million of group annuity reserves in the first quarter of 2012. for the year ended december 31 , 2011 , net realized investment gains were $ 8.7 million of which a significant portion resulted from sales of invested assets in anticipation of the transfer of assets in accordance with the terms of such agreement in the first quarter of 2012. as a result of such agreement , the company wrote-off $ 4.6 million of deferred acquisition costs at december 31 , 2011 , which was more than offset by these net realized investment gains . story_separator_special_tag actual results could differ from those estimates . a summary of the company 's significant accounting policies and practices is provided in note 1 of the notes to the consolidated financial statements included in item 8 of this report . management has identified the accounting policies described below as those that , due to the judgments , estimates and assumptions inherent in those policies , are critical to an understanding of the company 's consolidated financial statements and this management 's discussion and analysis . insurance premium revenue recognition and policy charges life traditional life insurance products consist principally of products with fixed and guaranteed premiums and benefits , primarily term and whole life insurance products . premiums from these products are recognized as revenue when due . annuities and interest-sensitive life contracts , such as universal life and interest-sensitive whole life , are contracts whose terms are not fixed and guaranteed . premiums from these policies are reported as funds on deposit . policy charges consist of fees assessed against the policyholder for cost of insurance ( mortality risk ) , policy administration and early surrender . these revenues are recognized when assessed against the policyholder account balance . policies that do not subject the company to significant risk arising from mortality or morbidity are considered investment contracts . deposits received from such contracts are reported as other policyholder funds . policy charges for investment contracts consist of fees assessed against the policyholder account for maintenance , administration and surrender of the policy prior to contractually specified dates , and are recognized when assessed against the policyholder account balance . health premiums for short-duration medical insurance contracts are intended to cover expected claim costs resulting from insured events that occur during a fixed period of short duration . the company has the ability to cancel the annual contract or to revise the premium rates at the beginning of each annual contract period to cover future insured events . insurance premiums from annual health contracts are collected monthly and are recognized as revenue evenly as insurance protection is provided . premiums related to long-term and short-term disability contracts are recognized on a pro rata basis over the applicable contract term . insurance reserves the company maintains loss reserves to cover its estimated liability for unpaid losses and loss adjustment expenses , where material , ( including legal , other fees , and costs not associated with specific claims but related to the claims payment function ) for reported and unreported claims incurred as of the end of each accounting period . these loss reserves are based on actuarial assumptions and are maintained at levels that are in accordance with gaap . the company 's estimate of loss reserves represents management 's best estimate of the company 's liability at the balance sheet date . 34 loss reserves differ for short-duration and long-duration insurance policies , including annuities . reserves are based on approved actuarial methods , but necessarily include assumptions about expenses , mortality , morbidity , lapse rates and future yield on related investments . all of the company 's short-duration contracts are generated from its accident and health business , and are accounted for based on actuarial estimates of the amount of loss inherent in that period 's claims , including losses incurred for which claims have not been reported . short-duration contract loss estimates rely on actuarial observations of ultimate loss experience for similar historical events . management believes that the company 's methods of estimating the liabilities for insurance reserves provided appropriate levels of reserves at december 31 , 2011. changes in the company 's reserve estimates are recorded through a charge or credit to its earnings . life for traditional life insurance products , the company computes insurance reserves primarily using the net premium method based on anticipated investment yield , mortality , and withdrawals . these methods are widely used in the life insurance industry to estimate the liabilities for insurance reserves . inherent in these calculations are management and actuarial judgments and estimates that could significantly impact the ending reserve liabilities and , consequently , operating results . actual results may differ , and these estimates are subject to interpretation and change . policyholder funds represent interest-bearing liabilities arising from the sale of products , such as universal life , interest-sensitive life and annuities . policyholder funds are comprised primarily of deposits received and interest credited to the benefit of the policyholder less surrenders and withdrawals , mortality charges and administrative expenses . interest credited interest credited to policyholder funds represents interest accrued or paid on interest-sensitive life policies and investment policies . amounts charged to operations ( including interest credited and benefit claims incurred in excess of related policyholder account balances ) are reported as insurance benefits , claims and reserves-life and annuity . credit rates for certain annuities and interest-sensitive life policies are adjusted periodically by the company to reflect current market conditions , subject to contractually guaranteed minimum rates . health the company believes that its recorded insurance reserves are reasonable and adequate to satisfy its ultimate liability . the company primarily uses its own loss development experience , but will also supplement that with data from its outside actuaries , reinsurers and industry loss experience as warranted . to illustrate the impact that loss ratios have on the company 's loss reserves and related expenses , each hypothetical 1 % change in the loss ratio for the health business ( i.e. , the ratio of insurance benefits , claims and settlement expenses to earned health premiums ) for the year ended december 31 , 2011 , would increase reserves ( in the case of a higher ratio ) or decrease reserves ( in the case of a lower ratio ) by approximately $ 3.0 million with a corresponding increase or decrease in the pre-tax expense for insurance benefits , claims and reserves in the consolidated statement of operations .
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results of operations acquisition of amic on march 5 , 2010 , ihc acquired a controlling interest in amic as a result of the purchase of amic common stock in the open market . in determining the bargain purchase gain with regard to the acquisition of the controlling interest in amic , ihc first recognized a gain of $ 2.2 million as a result of re-measuring its equity interest in amic to its fair value of $ 22.0 million immediately before the acquisition based on the closing market price of amic 's common stock . then , upon the acquisition of a controlling interest on march 5 , 2010 , the company consolidated the net assets of amic . accordingly , the company determined the fair value of the identifiable assets acquired and liabilities assumed from amic on such date . the fair value of the net assets acquired exceeded the sum of : ( i ) the fair value of the consideration paid ; ( ii ) the fair value of ihc 's equity investment prior to the acquisition ; and ( iii ) the fair value of the noncontrolling interests in amic , resulting in a bargain purchase gain of $ 25.6 million . the total gain , amounting to $ 27.8 million pre-tax , is included in gain on bargain purchase of amic on the company 's consolidated statement of operations . this gain is a result of the quoted market price of amic being significantly less than the fair value of the net assets of amic . this disparity is due to the 41 low trading volume in amic shares , and a discount on the shares traded due to a lack of control by minority shareholders . the fair value of the noncontrolling interests in amic was based on the closing market price of amic 's common stock . prior to obtaining control , ihc recorded its investment in amic using the equity method .
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in addition , the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur and excess tax benefits should be classified with other income tax cash flows as an operating activity . the standard permits early adoption in any story_separator_special_tag this report contains forward-looking statements that involve risks and uncertainties . the statements contained in this report that are not purely historical are forward-looking statements within the meaning of section 27a of the securities act of 1933 and section 21e of the securities exchange act of 1934 , including but not limited to our statements about anticipated income and revenue growth rates , future profitability and market share , new and expanded products and services , geographic expansion and planned capital expenditures . without limiting the foregoing , the words “ may , ” “ should , ” “ could , ” “ expect , ” “ plan , ” “ intend , ” “ anticipate , ” “ believe , ” “ estimate , ” “ predict , ” “ designed , ” “ potential , ” “ continue , ” “ target , ” “ seek ” and similar expressions are intended to identify forward-looking statements . all forward-looking statements included in this report are based on information available to us up to , and including the date of this document , and we disclaim any obligation to update any such forward-looking statements . our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain important factors , including those set forth in this “ management 's discussion and analysis of financial condition and results of operations ” and “ risk factors ” and elsewhere in this report . you should carefully review those factors and also carefully review the risks outlined in other documents that we file from time to time with the united states securities and exchange commission . executive overview cimpress , the world leader in mass customization , is a technology driven company that aggregates , via the internet , large volumes of small , individually customized orders for a broad spectrum of print , signage , apparel and similar products . we fulfill those orders with manufacturing capabilities which include cimpress owned and operated manufacturing facilities and a network of third-party fulfillers to create customized products for customers on-demand . we bring our products to market through a portfolio of focused brands serving the needs of micro , small and medium sized businesses , resellers and consumers . these brands include vistaprint , our global brand for micro business marketing products and services , as well as brands that we have acquired that serve the needs of various market segments , including resellers , small and medium businesses with differentiated service needs , and consumers purchasing products for themselves and their families . during the first quarter of fiscal 2016 , we modified our internal organizational and reporting structure , resulting in the vistaprint business unit , the upload and print business units , and the all other business units constituting our reportable segments . the vistaprint business unit represents our vistaprint-branded websites focused on the north america , europe , australia and new zealand markets , and our webs-branded business , which is managed with the vistaprint-branded digital business . the upload and print business units segment includes the druck.at , exagroup , easyflyer , printdeal , pixartprinting , tradeprint , and wirmachendruck branded businesses . the all other business units segment includes the operations of our albumprinter and most of world business units and newly formed corporate solutions business unit , which historically was part of the vistaprint business unit and is focused on delivering volume and revenue via partnerships . in evaluating the financial condition and operating performance of our business , management focuses on revenue growth , constant-currency revenue growth , operating income , adjusted net operating profit after tax ( nopat ) and cash flow from operations . a summary of these key financial metrics for the fiscal year ended june 30 , 2016 , as compared to the fiscal year ended june 30 , 2015 are as follows : 31 fiscal year 2016 reported revenue increased by 20 % to $ 1,788.0 million . consolidated constant-currency revenue increased by 24 % and excluding acquisitions increased by 11 % . operating income decreased $ 18.1 million to $ 78.2 million . adjusted nopat increased $ 14.7 million to $ 139.8 million . cash provided by operating activities increased $ 5.3 million to $ 247.4 million . for our fiscal year 2016 results , reported revenue growth was primarily due to the addition of the revenue of our recently acquired wirmachendruck , exagroup and druck.at brands , as well as continued growth in the vistaprint business unit and upload and print businesses acquired in fiscal 2014. the decrease in operating income was primarily due to a goodwill impairment loss during the third quarter of fiscal 2016 related to our exagroup business , as well as losses recognized for the abandonment of production equipment during fiscal 2016 , partially offset by increased profits in the vistaprint business unit and upload and print business units . adjusted nopat , which excludes several non-operational items including the impairment related charges , increased versus the comparative period a year ago . the increases in adjusted nopat are primarily due to increased profits in the vistaprint business unit and upload and print business units , partially offset by planned increased investments in our most of world businesses , product expansion , and the mass customization platform . critical accounting policies and estimates our financial statements are prepared in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) . to apply these principles , we must make estimates and judgments that affect our reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . story_separator_special_tag as part of the process of preparing our consolidated financial statements , we calculate our income taxes in each of the jurisdictions in which we operate . this process involves estimating our current tax expense , including assessing the risks associated with tax positions , together with assessing temporary and permanent differences resulting from differing treatment of items for tax and financial reporting purposes . we recognize deferred tax assets and liabilities for the temporary differences using the enacted tax rates and laws that will be in effect when we expect temporary differences to reverse . we assess the ability to realize our deferred tax assets based upon the weight of available evidence both positive and negative . to the extent we believe that it is more likely than not that some portion or all of the deferred tax assets will not be realized , we establish a valuation allowance . our estimates can vary due to the profitability mix of jurisdictions , foreign exchange movements , changes in tax law , regulations or accounting principles , as well as certain discrete items . in the event that actual results differ from our estimates or we adjust our estimates in the future , we may need to increase or decrease income tax expense , which could have a material impact on our financial position and results of operations . we establish reserves for tax-related uncertainties based on estimates of whether , and the extent to which , additional taxes will be due . these reserves are established when we believe that certain positions might be challenged despite our belief that our tax return positions are in accordance with applicable tax laws . we adjust these reserves in light of changing facts and circumstances , such as the closing of a tax audit , new tax legislation , or the change of an estimate based on new information . to the extent that the final outcome of these matters is different than the amounts recorded , such differences will affect the provision for income taxes in the period in which such determination is made . interest and , if applicable , penalties related to unrecognized tax benefits are recorded in the provision for income taxes . software and website development costs . we capitalize eligible salaries and payroll-related costs of employees who devote time to the development of our websites and internal-use computer software . capitalization begins when the preliminary project stage is complete , management with the relevant authority authorizes and commits to the funding of the software project , and it is probable that the project will be completed and the software 33 will be used to perform the function intended . these costs are amortized on a straight-line basis over the estimated useful life of the software , which is three years . our judgment is required in determining whether a project provides new or additional functionality , the point at which various projects enter the stages at which costs may be capitalized , assessing the ongoing value and impairment of the capitalized costs , and determining the estimated useful lives over which the costs are amortized . historically we have not had any significant impairments of our capitalized software and website development costs . business combinations . we recognize the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition . the fair value of identifiable intangible assets is based on detailed cash flow valuations that use information and assumptions provided by management . the valuations are dependent upon a myriad of factors including historical financial results , estimated customer renewal rates , projected operating costs and discount rates . we estimate the fair value of contingent consideration at the time of the acquisition using all pertinent information known to us at the time to assess the probability of payment of contingent amounts or through the use of a monte carlo simulation model . we allocate any excess purchase price over the fair value of the net tangible and intangible assets acquired and liabilities assumed to goodwill . the assumptions used in the valuations for our acquisitions may differ materially from actual results depending on performance of the acquired businesses and other factors . while we believe the assumptions used were appropriate , different assumptions in the valuation of assets acquired and liabilities assumed could have a material impact on the timing and extent of impact on our statements of operations . goodwill is assigned to reporting units as of the date of the related acquisition . if goodwill is assigned to more than one reporting unit , we utilize a method that is consistent with the manner in which the amount of goodwill in a business combination is determined . costs related to the acquisition of a business are expensed as incurred . goodwill , indefinite-lived intangible assets , and other definite lived long-lived assets . we evaluate goodwill and indefinite-lived intangible assets for impairment annually or more frequently when an event occurs or circumstances change that indicate that the carrying value may not be recoverable . 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 amount . we consider the timing of our most recent fair value assessment and associated headroom , the actual operating results as compared to the cash flow forecasts used in those fair value assessments , the current long-term forecasts for each reporting unit , and the general market and economic environment of each reporting unit .
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results of operations the following table presents our operating results for the periods indicated as a percentage of revenue : replace_table_token_6_th in thousands replace_table_token_7_th 35 revenue we generate revenue primarily from the sale and shipping of customized manufactured products , and by providing digital services , website design and hosting , and email marketing services , as well as a small percentage from order referral fees and other third-party offerings . total revenue by reportable segment for the fiscal years ended june 30 , 2016 , 2015 and 2014 is shown in the following tables . fiscal 2016 includes the impact of tradeprint , alcione and wirmachendruck from their respective acquisition dates in our upload and print business units segment . fiscal 2015 includes from their respective acquisitions dates , the impact of fotoknudsen which is part of our all other business units , as well as easyflyer , exagroup and druck.at which are part of our upload and print business units segment : replace_table_token_8_th fiscal 2014 includes the impact of printdeal and pixartprinting from their respective acquisition dates in our upload and print business units segment : replace_table_token_9_th _ ( 1 ) constant-currency revenue growth , a non-gaap financial measure , represents the change in total revenue between current and prior year periods at constant-currency exchange rates by translating all non-u.s. dollar denominated revenue generated in the current period using the prior year period 's average exchange rate for each currency to the u.s. dollar . ( 2 ) constant-currency revenue growth excluding acquisitions , a non-gaap financial measure , excludes revenue results for businesses and brands in the period in which there is no comparable year over year revenue . revenue from our fourth quarter fiscal 2015 and fiscal 2016 acquisitions is excluded from fiscal 2016 revenue growth .
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we offer an extensive selection of high-quality brand-name and private label merchandise through our various channels : “ nordstrom ” branded full-line stores and online store at nordstrom.com , nordstrom rack stores , nordstromrack.com and hautelook and other retail channels , including trunk club showrooms and trunkclub.com , our jeffrey boutiques and our clearance store that operates under the name “ last chance. ” as of january 31 , 2015 , our stores are located in 38 states throughout the united states and in one province in canada . in addition , we offer our customers a nordstrom rewards loyalty program along with a variety of payment products and services , including credit and debit cards . we continue to see the ongoing evolution of retail , with increasing customer interaction between our stores and ecommerce . we are making progress to meet customer expectations of a personalized experience that merges the richness of stores with the convenience of online . because the customer views us simply as nordstrom , we believe there is tremendous value in strengthening our platform for the customer experience that encompasses full-price , off-price , in-store and online . while each channel represents a substantial growth opportunity , there are significant synergies across channels to create a unique customer experience to gain market share . we considered 2014 a watershed year in our company history , with our successful entry into canada , continued expansion of our nordstrom rack business through store growth , the launch of nordstromrack.com and the acquisition of trunk club . our performance in 2014 reflected continued progress in executing our customer strategy through investments to drive growth across channels . we achieved total net sales growth of 7.8 % , adding nearly $ 1 billion to our top-line and delivering record sales and earnings per diluted share . our financial position remains strong and this marked the sixth consecutive year we generated over $ 1 billion in cash flow from operations . our partnership with vendors and brands enhances our product offering . we offer topshop merchandise at 53 full-line stores and online , with plans to reach over 80 stores in 2015. our new partnership with madewell in 2015 , initially available at 15 of our stores and online , is another way to provide sought-after brands that appeal to new and existing customers . in 2014 , we opened our first full-line store in canada in calgary , alberta , reflecting a multi-year effort from our team to address the unique challenges of crossing the border . with our store outperforming our expectations , we are encouraged with our customers ' response in this market . we are looking forward to opening stores in 2015 in ottawa , ontario and vancouver , british columbia . in the u.s. we increased our presence with two full-line stores in the woodlands , texas and jacksonville , florida . in 2015 , we plan to open three full-line stores in puerto rico , minneapolis , minnesota and milwaukee , wisconsin . at nordstrom rack , we offer customers great brands at great prices , with 48 of the top 50 full-line brands represented . we opened 27 nordstrom rack stores in 2014 , a record number of openings , contributing to nordstrom rack 's total sales growth of 17 % . our online businesses continue to be our fastest-growing channels . in the spring of 2014 , we expanded our capabilities through the launch of nordstromrack.com , providing a seamless integration with hautelook . we more than doubled our merchandise selection , which accelerated growth in this channel in the second half of 2014. demonstrating synergies across our businesses , we enabled customers to return purchases from hautelook and nordstromrack.com to any of our nordstrom rack stores , which drove nearly one million incremental trips to nordstrom rack stores . nordstrom.com finished its fifth consecutive year of approximately 20 % or more comparable sales growth , with a key driver being increased merchandise selection . in 2015 , we plan to open our third fulfillment center , located in pennsylvania , which will enhance the customer experience through faster delivery . furthermore , we have extended our full-price offering with our acquisition of trunk club , a high-growth business offering a new approach to personalized service . our credit business , through our nordstrom rewards program , continues to play an important role in attracting new customers and deepening our engagement with existing customers . the program contributes to our overall results , with members shopping more frequently and spending more on average than non-members . for the third consecutive year , we opened over one million new accounts . with over four million active members , 2014 sales from members represented approximately 40 % of our sales . we are confident in our ability to execute our customer strategy as we evolve with customers and continue to leverage capabilities across all channels to serve customers on their terms . to enhance the customer experience , we continue to make investments in our stores in new markets such as canada , puerto rico and manhattan , in our ecommerce and fulfillment capabilities and in technology to support growth across all channels . we believe these investments in our customer strategy will help us achieve long-term top-quartile shareholder returns through high single-digit total sales growth and mid-teens return on invested capital . 16 results of operations our reportable segments are retail and credit . our retail segment includes our u.s. nordstrom branded full-line stores and online store , nordstrom rack stores , nordstromrack.com and hautelook and other retail channels , including trunk club , jeffrey , our canada store and our last chance clearance store . for purposes of discussion and analysis of our results of operations of our retail business , we combine our retail segment results with revenues and expenses in the “ corporate/other ” column of note 16 : segment reporting in the notes to consolidated financial statements of item 8 : financial statements and supplementary data . story_separator_special_tag nordstrom.com showed strong sales growth with net sales of $ 1,622 , an increase of 28 % compared with 2012 , with comparable sales up 30 % on a comparable 52-week basis . these increases were driven by expanded merchandise selection and ongoing technology investments to enhance the customer experience . nordstrom rack net sales were $ 2,738 , up 12.0 % compared with 2012 , primarily due to 37 new store openings in 2012 and 2013. comparable sales increased 2.7 % for the year . cosmetics and shoes were the strongest-performing categories for the year . both the average selling price and the number of items sold increased on a comparable basis in 2013 compared with 2012 . retail business gross profit the following table summarizes the retail business gross profit : replace_table_token_9_th 1 retailers do not uniformly record the costs of buying and occupancy and supply chain operations ( freight , purchasing , receiving , distribution , etc . ) between gross profit and selling , general and administrative expense . as such , our gross profit and selling , general and administrative expenses and rates may not be comparable to other retailers ' expenses and rates . 2 ending inventory includes pack and hold inventory of $ 222 , $ 173 and $ 125 in 2014 , 2013 and 2012 , which represents strategic purchases of merchandise for upcoming selling seasons . 3 inventory turnover rate is calculated as annual cost of sales and related buying and occupancy costs ( for all segments ) divided by 4-quarter average inventory . retailers do not uniformly calculate inventory turnover as buying and occupancy costs may be included in selling , general and administrative expenses . as such , our inventory turnover rates may not be comparable to other retailers . nordstrom , inc. and subsidiaries 19 gross profit ( 2014 vs. 2013 ) our retail gross profit rate decreased 52 basis points compared with 2013 due to increased markdowns and nordstrom rack 's accelerated store expansion . the growth in nordstrom rack stores resulted in a higher occupancy expense as sales volume at new stores typically take several years to reach the average of our mature stores and also have substantial pre-opening costs . retail gross profit increased $ 275 in 2014 due to an increase in net sales , partially offset by increased markdowns . our inventory turnover rate decreased to 4.67 times in 2014 , from 5.07 times in 2013 . ending inventory per square foot increased 8.8 % compared with the same period in 2013 , which outpaced the total sales per square foot increase of 3.9 % primarily due to planned inventory growth related to nordstrom rack and nordstromrack.com and hautelook . gross profit ( 2013 vs. 2012 ) our retail gross profit rate decreased 41 basis points compared with 2012 primarily due to higher expenses associated with the growth in the nordstrom rewards customer loyalty program and higher occupancy costs related to nordstrom rack 's accelerated store expansion . retail gross profit increased $ 99 in 2013 compared with 2012 due to an increase in net sales at nordstrom.com and nordstrom rack , which was partially offset by a decrease in full-line net sales and increased occupancy costs related to nordstrom rack 's accelerated store expansion . our inventory turnover rate decreased to 5.07 times in 2013 , from 5.37 times in 2012 . this was primarily due to our increased investment in pack and hold inventory at nordstrom rack , which helped fuel the growth in that channel . on a per square foot basis , we ended the year with a 9.4 % increase in our ending inventory on a 0.8 % increase in sales compared with 2012 . the increase in ending inventory per square foot relative to the increase in sales per square foot was primarily due to the impact of the 53 rd week in 2012 , which decreased inventory levels in our full-line stores and included an additional week of sales in 2012. in 2013 , we also planned inventory increases in full-line stores to fuel growth in well-performing merchandise categories and increased our pack and hold inventory at nordstrom rack . retail business selling , general and administrative expenses retail business selling , general and administrative expenses ( “ retail sg & a ” ) are summarized in the following table : replace_table_token_10_th selling , general and administrative expenses ( 2014 vs. 2013 ) our retail sg & a rate increased 48 basis points in 2014 compared with 2013 primarily due to expenses related to the acquisition of trunk club and ongoing fulfillment and technology investments . our retail sg & a increased $ 316 in 2014 due primarily to growth-related investments in fulfillment and technology . selling , general and administrative expenses ( 2013 vs. 2012 ) our retail sg & a rate decreased 8 basis points in 2013 compared with 2012 due to expense leverage from increased sales volume . our retail sg & a expenses increased $ 100 in 2013 compared with 2012 due primarily to growth-related investments in our ecommerce business , nordstrom rack 's accelerated store expansion and canada pre-opening expenses . the increase also reflected expenses associated with higher sales volume and the opening of 22 nordstrom rack stores in 2013 . 20 credit segment the nordstrom credit and debit card products are designed to strengthen customer relationships and grow retail sales by providing loyalty benefits , valuable services and payment products . we believe our credit business allows us to build deeper relationships with our customers by fully integrating the nordstrom rewards program with our retail stores and providing better service , which in turn fosters greater customer loyalty . our cardholders tend to visit our stores more frequently and spend more with us than non-cardholders .
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fourth quarter results the following are our results for the fourth quarters of 2014 and 2013 : replace_table_token_18_th 1 gross profit is calculated as net sales less cost of sales and related buying and occupancy costs ( for all segments ) . our fourth quarter sales trends were consistent with trends the company experienced throughout 2014. we continued to make progress executing our customer strategy through investments to drive growth across channels . net earnings for the fourth quarter of 2014 were $ 255 , or $ 1.32 per diluted share , compared with $ 268 , or $ 1.37 per diluted share , in 2013 . the trunk club acquisition reduced earnings before interest and taxes in the fourth quarter by $ 11. net sales total net sales increased in the fourth quarter by 9.0 % , driven by a comparable sales increase of 4.7 % and 35 new stores in 2014. nordstrom net sales , which consist of the full-line stores in the u.s. and nordstrom.com businesses , increased $ 141 , or 5.0 % , compared with the same period in 2013 , while comparable sales increased 4.5 % . both the number of items sold and the average selling price of our merchandise increased on a comparable basis . category highlights for the quarter were cosmetics , accessories and men 's apparel . u.s. full-line net sales for the quarter increased $ 26 , or 1.2 % , compared with the same period in 2013 , with an increase in comparable sales of 0.5 % . the southwest and southeast were the top-performing geographic regions . nordstrom.com net sales increased $ 115 , or 19 % , on top of last year 's 30 % increase for the same period .
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under the asset and liability method , deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements , which will result in taxable or deductible amounts in the future . asc 740-10 , income taxes , provides guidance for how uncertain tax positions should be recognized , story_separator_special_tag the following discussion should be read in conjunction with the consolidated and combined financial statements and notes thereto appearing in item 8 - financial statements and supplementary data of this annual report on form 10-k. organization and basis of presentation jbg smith was organized by vornado as a maryland reit on october 27 , 2016 ( capitalized on november 22 , 2016 ) . jbg smith was formed for the purpose of receiving , via the separation on july 17 , 2017 , substantially all of the assets and liabilities of vornado 's washington , dc segment , which are referred to as the vornado included assets . on july 18 , 2017 , jbg smith acquired the jbg assets of jbg in the combination . substantially all of our assets are held by , and our operations are conducted through , jbg smith lp . prior to the separation from vornado , jbg smith was a wholly owned subsidiary of vornado and had no material assets or operations . on july 17 , 2017 , vornado distributed 100 % of the then outstanding common shares of jbg smith on a pro rata basis to the holders of its common shares . prior to such distribution by vrlp , vornado 's operating partnership , distributed op units in jbg smith lp on a pro rata basis to the holders of vrlp 's common limited partnership units , consisting of vornado and the other common limited partners of vrlp . following such distribution by vrlp and prior to such distribution by vornado , vornado contributed to jbg smith all of the op units it received in exchange for common shares of jbg smith . each vornado common shareholder received one jbg smith common share for every two vornado common shares held as of the close of business on july 7 , 2017 ( the `` record date '' ) . vornado and each of the other limited partners of vrlp received one jbg smith lp op unit for every two common limited partnership units in vrlp held as of the close of business on the record date . our operations are presented as if the transfer of the vornado included assets had been consummated prior to all historical periods presented in the accompanying consolidated and combined financial statements at the carrying amounts of such assets and liabilities reflected in vornado 's books and records . the following is a discussion of the historical results of operations and liquidity and capital resources of jbg smith as of december 31 , 2017 and 2016 , and for each of the three years in the period ended december 31 , 2017 , which includes results prior to the consummation of the separation . the historical results presented prior to the consummation of the separation include the vornado included assets , all of which were under common control of vornado until july 17 , 2017. unless otherwise specified , the discussion of the historical results prior to july 18 , 2017 does not include the results of the jbg assets . consequently , our results for the periods before and after the formation transaction are not directly comparable . references to the financial statements refer to our consolidated and combined financial statements as of december 31 , 2017 and 2016 , and for each of the three years in the period ended december 31 , 2017 . references to the balance sheets refer to our consolidated and combined balance sheets as of december 31 , 2017 and 2016 . references to the statement of operations refer to our consolidated and combined statements of operations for each of the three years in the period ended december 31 , 2017 . references to the statement of cash flows refer to our consolidated and combined statements of cash flows for each of the three years in the period ended december 31 , 2017 . the accompanying financial statements are prepared in accordance with gaap . gaap requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , and revenue and expenses during the reporting periods . actual results could differ from these estimates . the historical financial results for the vornado included assets reflect charges for certain corporate costs allocated by the former parent which we believe are reasonable . these charges were based on either actual costs incurred or a proportion of costs estimated to be applicable to the vornado included assets based on an analysis of key metrics , including total revenues . such costs do not necessarily reflect what the actual costs would have been if the vornado included assets had been operating as a separate standalone public company . these charges are discussed further in note 18 to the financial statements included herein . we intend to elect to be taxed as a reit under sections 856-860 of the code . under those sections , a reit which distributes at least 90 % of its reit taxable income as dividends to its shareholders each year and which meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to its shareholders . prior to the separation , vornado operated as a reit and distributed 100 % of taxable income to its shareholders , accordingly , no provision for federal income taxes has been made in the accompanying financial statements for the periods prior to the separation . we intend to adhere to these requirements and maintain our reit status in future periods . as a reit , we are allowed to reduce taxable income by all or a portion of our distributions to shareholders . story_separator_special_tag aggregate notional value of $ 856.9 million to convert variable interest rates applicable to our unsecured term loan and certain mortgages payable to fixed rates ; the payment of dividends during 2017 of $ 0.225 per common share . dividends declared in december 2017 of $ 0.225 per common share were paid in january 2018 ; and the investment of $ 210.6 million in development costs , construction in progress and real estate additions . critical accounting policies and estimates the preparation of financial statements in conformity with gaap , requires management to make estimates and assumptions that in certain circumstances may significantly impact our financial results . these estimates are prepared using management 's best judgment , after considering past and current events and economic conditions . in addition , certain information relied upon by management in preparing such estimates includes internally generated financial and operating information , external market information , when available , and when necessary , information obtained from consultations with third-party experts . actual results could differ from these estimates . we consider an accounting estimate to be critical if changes in the estimate could have a material impact on our consolidated and combined results of operations or financial condition . our significant accounting policies are more fully described in note 2 to the financial statements included in part ii , item 8 of this annual report on form 10-k ; however , the most critical accounting policies , which involve the use of estimates and assumptions as to future uncertainties and , therefore , may result in actual amounts that differ from estimates , are as follows : business combinations we account for business combinations , including the acquisition of real estate , using the acquisition method pursuant to which we recognize and measure the identifiable assets acquired , liabilities assumed , and any noncontrolling interests in the acquiree at their acquisition date fair values . accordingly , we estimate the fair values of acquired tangible assets ( consisting of real estate , cash and cash equivalents , tenant and other receivables , investments in unconsolidated real estate ventures and other assets , as applicable ) , identified intangible assets and liabilities ( consisting of the value of in-place leases , above- and below-market leases , options to enter into ground leases and management contracts , as applicable ) , assumed debt and other liabilities , and noncontrolling interests , as applicable , based on our evaluation of information and estimates available at that date . based on these estimates , we allocate the purchase price to the identified assets acquired and liabilities assumed . any excess of the purchase price over the estimated fair value of the net assets acquired is recorded as goodwill . any excess of the fair value of assets acquired over the purchase price is recorded as a gain on bargain purchase . if , up to one year from the acquisition date , information regarding the fair value of the net assets acquired and liabilities assumed is received and estimates are refined , appropriate adjustments are made on a prospective basis to the purchase price allocation , which may include adjustments to identified assets , assumed liabilities , and goodwill or the gain on bargain purchase , as applicable . the results of operations of acquisitions are prospectively included in our financial statements beginning with the date of the acquisition . transaction costs related to business combinations are expensed as incurred and included in `` transaction and other costs '' in our statements of operations . the fair values of buildings are determined using the `` as-if vacant '' approach whereby we use discounted income or cash flow models with inputs and assumptions that we believe are consistent with current market conditions for similar assets . the most significant assumptions in determining the allocation of the purchase price to buildings are the exit capitalization rate , discount rate , estimated market rents and hypothetical expected lease-up periods . we assess fair value of land based on market comparisons and development projects using an income approach of cost plus a margin . the fair values of identified intangible assets are determined based on the following : the value allocable to the above- or below-market component of an acquired in-place lease is determined based upon the present value ( using a discount rate which reflects the risks associated with the acquired leases ) of the difference between ( i ) the contractual amounts to be received pursuant to the lease over its remaining term and ( ii ) management 's estimate of the amounts that would be received using market rates over the remaining term of the lease . amounts allocated to above- market leases are recorded as `` identified intangible assets '' in `` other assets , net '' in the balance sheets , and amounts allocated to below-market leases are recorded as `` lease intangible liabilities '' in `` other liabilities , net '' in the balance sheets . these intangibles are amortized to `` property rentals '' in our statements of operations over the remaining terms of the respective leases . factors considered in determining the value allocable to in-place leases during hypothetical lease-up periods related to space that is leased at the time of acquisition include ( i ) lost rent and operating cost recoveries during the hypothetical lease-up 45 period and ( ii ) theoretical leasing commissions required to execute similar leases . these intangible assets are recorded as `` identified intangible assets '' in `` other assets , net '' in the balance sheets and are amortized to `` depreciation and amortization expenses '' in our statements of operations over the remaining term of the existing lease . the fair value of the in-place property management , leasing , asset management , and development and construction management contracts is based on revenue and expense projections over the estimated life of each contract discounted using a market discount rate .
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summary of cash flows the following summary discussion of our cash flows is based on the statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below . replace_table_token_21_th cash flows for the year ended december 31 , 2017 cash and cash equivalents and restricted cash were $ 338.6 million at december 31 , 2017 , compared to $ 32.3 million at december 31 , 2016 , an increase of $ 306.3 million . this increase resulted from $ 74.2 million of net cash provided by operating activities , $ 7.7 million of net cash used in investing activities and $ 239.8 million of net cash provided by financing activities . our outstanding debt was $ 2.2 billion at december 31 , 2017 , a $ 1.0 billion increase from the balance at december 31 , 2016 primarily from mortgages payable assumed in the combination and borrowings under our credit facility . net cash provided by operating activities of $ 74.2 million primarily comprised : ( i ) $ 88.4 million of net income ( before $ 191.9 million of non-cash items and $ 24.4 million gain on bargain purchase ) and ( ii ) $ 2.6 million of return on capital from unconsolidated real estate ventures , partially offset by ( iii ) $ 16.8 million of net change in operating assets and liabilities . non-cash adjustments of $ 191.9 million primarily include depreciation and amortization , share-based compensation expense , deferred rent , deferred income tax benefit , net loss from unconsolidated real estate ventures , bad debt expense and other non-cash items .
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the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying notes thereto included elsewhere in this report . overview we are a medical technology company that develops and provides innovative medical devices for the treatment of chronic diseases at home . we focus on advancing the standard of care in treating chronic diseases in the home setting to improve patient outcomes and quality of life and help control rising healthcare expenditures . we possess a unique , scalable platform to deliver at-home healthcare solutions throughout the united states . this evolving home care delivery model is recognized by policy-makers and payers as a key for controlling rising healthcare expenditures . our initial area of therapeutic focus is vascular disease , with a goal of advancing the standard of care in treating lymphedema and chronic venous insufficiency . our mission is to help people with chronic diseases live better and care for themselves at home . our solutions deliver cost-effective , clinically proven , long-term treatment for these chronic diseases . our proprietary products are the flexitouch system , the entré system and the actitouch system . a predecessor to our flexitouch system received 510 ( k ) clearance from the fda in july 2002 , and we introduced the system to address the many limitations of self-administered home-based manual lymphatic drainage therapy . we began selling our more advanced flexitouch system after receiving 510 ( k ) clearance from the fda in october 2006. in september 2016 , we received 510 ( k ) clearance from the fda for the flexitouch system in treating lymphedema in the head and neck . historically , we derived substantially all of our revenues from our flexitouch system . for each of 2016 and 2015 , sales of our flexitouch system represented 87 % of our revenues . in september 2012 , we acquired our second proprietary product , the actitouch system . the system received 510 ( k ) clearance from the fda in june 2013 , and we began selling the product in september 2013 to address the many limitations of non-removable multilayered bandages that are worn by patients suffering from venous leg ulcers . we also introduced our entré system in the united states in february 2013. the entré system is sold to patients who need a more basic pump or who do not yet qualify for insurance reimbursement for an advanced compression device such as our flexitouch system . for each of 2016 and 2015 , sales of our actitouch and entré systems combined represented 13 % of our revenues . to support the growth of our business , we invest heavily in our commercial infrastructure , consisting of our direct sales force , home training resources , reimbursement capabilities and clinical expertise . we market our products in the united states using a direct-to-patient and -provider model . our direct sales force has grown from three representatives in march 2005 to a team of over 125 people as of december 31 , 2016. this model allows us to directly approach patients and clinicians , whereby we disintermediate the traditional durable medical equipment channel , allowing us to capture both the manufacturer and distributor margins . we also utilize over 400 licensed , independent healthcare practitioners as home trainers who educate patients on the proper use of our systems . we invest substantial resources in our reimbursement operations group of over 70 people that focuses on verifying case-by-case benefits , obtaining prior authorization , billing and collecting payments from payers and providing customer support services . our payer relations group of 30 people is responsible for developing relationships with payer decision-makers to educate them on our product efficacy , develop overall payer coverage policies and reimbursement criteria , manage medicare patient claims and contracts with payers , and serve as an advocacy liaison between patients , clinicians and payers throughout the appeals process . we also have a clinical team , consisting of a scientific advisory board , in-house therapists and nurses , and a medical director ( part-time ) , that serves as a resource to clinicians and patients and guides our development of clinical evidence in support of our products . our patients are reimbursed by government and private payers for the purchase of our products pursuant to established rates with each payer . we rely on third-party contract manufacturers for the sourcing of parts , the assembly of our controllers and the manufacturing of the garments used with our systems . we conduct final assembly of the garments used with our flexitouch system , perform quality assurance , and ship our products from our facility in minneapolis , minnesota . 66 for the year ended december 31 , 2016 , we generated revenues of $ 84.5 million and had net income of $ 2.9 million , compared to revenues of $ 62.9 million and net income of $ 1.4 million for the year ended december 31 , 2015 and revenues of $ 47.7 million and net income of $ 2.1 million for the year ended december 31 , 2014. our primary sources of capital to date have been from operating income and private placements of our capital stock , as well as our initial public offering , which closed on august 2 , 2016. we operate in one segment for financial reporting purposes . components of our results of operations revenues we derive our revenues from the sale of our flexitouch , actitouch and entré systems to patients in the united states . revenue growth has been driven by increased clinician , patient and payer awareness of lymphedema and the clinical efficacy of our flexitouch system , and the launch of our actitouch and entré systems in 2013. we have expanded our direct sales force that helps us drive and support our revenue growth and intend to continue this expansion . however , any reversal in these recent trends could have a negative impact on our future revenues . story_separator_special_tag we expect r & d expenses as a percentage of our revenues to vary over time depending on the level and timing of initiating new product development efforts , as well as our clinical trial activities . reimbursement , general and administrative expenses reimbursement , general and administrative expenses consist primarily of compensation , including salaries , bonuses and benefits for employees in our patient services and advocacy , billing and collections , case management , payer relations and governmental affairs and reimbursement operations departments , as well as finance , human resources and administration , information technology , business development and general management functions , and facilities costs . our experienced payer relations and reimbursement operations departments of over 100 people focus on verifying case-by-case benefits , obtaining prior authorization , billing and collecting payments from payers and providing customer support services . payer relations and reimbursement operations department expenses also include consulting , travel to payer case manager seminars , professional development and training and certification expenses . general and administrative expenses also include professional services , such as legal , consulting and accounting services , stock-based compensation , travel expenses and insurance costs . we expect to continue to incur additional legal , accounting , insurance and other professional service fees associated with being a public company , which may increase further when we are no longer able to rely on the `` emerging growth company '' exemption we are afforded under the jobs act . other income ( expense ) , net other income ( expense ) , net consists primarily of interest expense related to our notes payable and interest income driven by the interest accruing on cash and cash equivalents and past due insurance balances . we do not accrue interest on a majority of past due customer accounts receivable balances . income tax expense ( benefit ) our income tax expense ( benefit ) consists primarily of deferred income taxes resulting from temporary differences between the reporting of amounts for financial statement purposes and income tax purposes . 68 critical accounting policies and significant 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 generally accepted accounting principles in the united states , or gaap . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities , revenues and expenses at the date of the financial statements . generally , we base our estimates on historical experience and on various other assumptions in accordance with gaap that we believe to be reasonable under the circumstances . actual results may differ from these estimates and such differences could be material to our financial position and results of operations . while our significant accounting policies are more fully described in note 1 to our consolidated financial statements included elsewhere in this report , we believe the following discussion addresses our most critical accounting policies , which are those that are most important to the portrayal of our financial condition and results of operations and require our most difficult , subjective and complex judgments . revenue recognition we recognize revenue when persuasive evidence of a sale arrangement exists , delivery of product has occurred through the transfer of title and risks of reward of ownership , the selling price is fixed or determinable and collectability is reasonably assured . we distribute our products directly to patients . for any of our products sold to patients covered by private payers , such as commercial insurance companies , we recognize revenues from such sales upon shipment of our products . a product is not shipped until we have received a prescription from a physician for our products and , as applicable , receipt of prior authorization from payers . at shipment , we invoice the payer for the total product price and we recognize revenue as a percentage of the invoice based on the policies and payment history of the applicable payer , net of estimated uncollectible patient copayments . the payment history of the applicable payer is drawn from our actual payment experience over the past year . any differences in payments received as compared to our estimates are recognized in the period in which we actually receive payment for the product . over time , we adjust the ultimate collection estimates to reflect these differences . after the insurance payer has remitted payment , we separately invoice the patient for their portion of the payment obligation , such as copayments and deductibles . for our products sold to medicare patients , we recognize revenues from such sales upon shipment of our products , which can occur only after we have received a prescription from a physician and all applicable medicare documentation is obtained . for flexitouch system sales , we estimate the revenue on each shipment to a medicare patient as a percentage of the total invoice based on collection history . while we have contracted rates with medicare , to the extent any claims for reimbursement are denied , we will recognize any necessary adjustments in the period for which the adjustment is made or can be estimated . accounts receivable the majority of our accounts receivable and revenues are from commercial insurance payers and government payers , such as medicare , the veterans administration and medicaid . accounts receivable are carried net of allowances for estimated non-receipt of patient co-payment and deductible obligations and allowances for uncollectible accounts . we believe all accounts receivable in excess of the allowance are fully collectible . we do not accrue interest on a majority of the past due accounts receivable . we determine when accounts become past due on a customer by customer basis .
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results of operations comparison of the years ended december 31 , 2016 and 2015 the following table presents our results of operations for the periods indicated . replace_table_token_6_th revenues revenues increased $ 21.7 million , or 34 % , to $ 84.5 million in the year ended december 31 , 2016 , compared to $ 62.9 million in the year ended december 31 , 2015. the growth in revenues was primarily attributable to an increase of approximately $ 18.7 million , or 34 % , in sales of our flexitouch system in the year ended december 31 , 2016. the increase in flexitouch sales was driven primarily by expansion of our sales force , increased physician and patient awareness of the lymphedema condition , and increased contractual coverage with national and regional insurance payers . the growth in revenues in 2016 was also attributable to an increase of approximately $ 3.0 million , or 37 % , in sales of the actitouch and entré systems , compared to 2015. the following table summarizes our revenues by product for the years ended december 31 , 2016 and december 31 , 2015 , both in dollars and percentage of total revenues : replace_table_token_7_th 72 cost of goods sold and gross margin cost of goods sold increased $ 6.0 million , or 36 % , to $ 22.9 million during the year ended december 31 , 2016 , compared to $ 16.9 million during the year ended december 31 , 2015. the increase in cost of goods sold was primarily attributable to an increase in the number of systems sold . gross margin for each of the years ended december 31 , 2016 and 2015 was 73 % .
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the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the exchange act and are subject to the safe harbors created thereby . these statements should be considered as subject to the many risks and uncertainties that exist in the company 's operations and business environment . such risks and uncertainties could cause actual results to differ materially from those projected as a result of many factors , including , but not limited to , those under the headings cautionary statements regarding forward looking information and item 1a . risk factors . the company is engaged in the manufacture and sale of products in one reportable segment : piping systems . since the company 's revenues are significantly dependent upon large discrete projects , the company 's operating results in any reporting period could be negatively impacted as a result of variations in the level of the company 's large discrete project orders or delays in the timing of the specific project phases . covid-19 and depressed oil and gas market the company 's results of operations , financial condition , liquidity and cash flow in 2020 have been materially adversely affected by the covid-19 pandemic and the current depressed market prices for oil and gas , and will likely continue to be materially adversely affected , the extent to which remains unclear at this time . see item 1a . risk factors for additional information . as of the date of filing this form 10-k , all of the company 's plants are operating and , to date , the company 's global supply chains have not been materially affected by the global pandemic . due to the unprecedented actions taken to stem the spread of the virus and the uncertainty of the duration and impact of additional actions that may be required , the resulting future disruptions to the company 's operations are uncertain . in response to the extraordinary steps taken to combat the spread of covid-19 and the impact of decreased oil prices , the company has updated its forecasts more frequently during this period to determine the continuing financial impact of these events on the company 's results of operations , financial condition and liquidity . as a result of these reforecasts , the company reduced headcount , planned capital expenditures and non-essential operating expenses . due to continued project delays as a result of the covid-19 pandemic and related disruptions , as of january 31 , 2021 , the company and its subsidiaries failed to achieve the necessary fixed charge coverage ratio of 1.10 to 1.00 for the three-month period ended january 31 , 2021 under its amendment and waiver for the north american loan parties . based upon the actions taken by the company and expected future results , the company believes it has alleviated any concerns about its ability to satisfy its obligations in the normal course of business for the next year after the date these financial statements are available to be issued . see further discussion below and in note 5 - debt , in the notes to consolidated financial statements . on may 1 , 2020 , the company entered into a loan agreement under the ppp and received proceeds of approximately $ 3.2 million . interest on the loan accrued at a fixed interest rate of 1.0 % . under section 1106 of the cares act , borrowers are eligible for forgiveness of principal and accrued interest on the loans to the extent that the proceeds are used to cover eligible payroll costs , mortgage interest costs , rent and utility costs , otherwise described as qualified expenses . during the three months ended july 31 , 2020 , the company used all of the ppp loan proceeds to pay for qualified expenses . 100 % of the ppp loan proceeds were used for payroll related expenses . the company believes the ppp loan proceeds will be forgiven under the terms of the cares act , although no assurance to that effect can be provided . under the current provisions of the cares act , any recipient of a ppp loan may be subject to an audit by the sba to confirm it qualifies for the loan and that the proceeds were used for qualified expenses as prescribed by the ppp rules . based on the facts and circumstances of the company 's ppp loan and according to the applicable accounting guidance described herein , the company has elected to account for the ppp loan proceeds as a grant that has reasonable assurance of being forgiven . as such , the company recognized the proceeds in earnings during the year ended january 31 , 2021. the amounts are recognized in other income in the consolidated statements of operations . the company has submitted its application and supporting documentation for forgiveness to its bank , which has submitted the application and supporting documents to the sba . we are currently awaiting approval of forgiveness from the sba . beginning in april 2020 , the company 's subsidiary , perma-pipe canada , ltd. ( `` ppca '' ) , applied for relief in the form of grants from the canadian government under the cews program . based on the cews program rules , the grants are applied for each month and are granted based on the amount of eligible employee expenses incurred over the previous month . beginning in october 2020 , ppca also applied for grants under the cers program . ppca was approved for and received approximately $ 1.9 million and $ 0.1 million in grants under the cews and cers programs , respectively , during the year ended january 31 , 2021. both programs are scheduled to continue through june 2021. the proceeds from cews and cers are recognized in other income in the consolidated statements of operations . story_separator_special_tag the transfer and repayment occurred on december 17 , 2020 and did not cause the company to incur any additional fees or taxes , nor did it force the company to change any of its assertions with regards to permanent reinvestment in any of its foreign subsidiaries . the company will incur additional fees over the remainder of the amendment and waiver of approximately $ 0.2 million . the amendment and waiver also eliminated the company 's ability to make libor borrowings and reduced the overall availability by $ 2.0 million until maturity . the amended fixed charge coverage ratio requirements for the company and its subsidiaries under the amendment and waiver are ( i ) 1.25 to 1.00 for the six-month period ending april 30 , 2021 and ( ii ) 1.25 to 1.00 for the nine-month period ending july 31 , 2021. the amended fixed charge coverage ratio requirements for the north american loan parties under the amendment and waiver are ( i ) 1.10 to 1.00 for the three-month period ending january 31 , 2021 ; ( ii ) 1.10 to 1.00 for the six-month period ending april 30 , 2021 ; and ( iii ) 1.10 to 1.00 for the nine-month period ending july 31 , 2021. in order to cure any future breach of the fixed charge coverage ratio covenant by the north american loan parties , the company may repatriate cash from any of its foreign subsidiaries that are otherwise not a party to the credit agreement in an amount which , when added to the amount of the company 's consolidated adjusted ebitda , would result in pro forma compliance with the covenant . due to continued project delays as a result of the covid-19 pandemic , as of january 31 , 2021 , the company and its subsidiaries failed to achieve the necessary fixed charge coverage ratio of 1.10 to 1.00 for the three-month period ended january 31 , 2021 under the amendment and waiver for the north american loan parties . per the amendment and waiver , the company will repatriate approximately $ 0.8 million in cash from its subsidiary in the united arab emirates in april 2021 to cure the breach . the repatriation will not cause the company to incur any additional fees or taxes , nor did it force the company to change any of its assertions with regards to permanent reinvestment in any of its foreign subsidiaries . as of january 31 , 2021 , the company 's foreign subsidiaries that are not a party to the credit agreement had approximately $ 6.6 million of cash available to satisfy a future potential repatriation cure of any potential future breach of the fixed charge coverage ratio covenant . the company estimates that it may need to repatriate cash of up to $ 0.1 million in the next six months . any cash required to cure future covenant defaults would be repatriated through the company 's subsidiaries in the united arab emirates , saudi arabia , egypt and or india . most of this cash could be repatriated without any tax consequences , however , some repatriation would require payment of withholding taxes . the company does not anticipate any material tax impacts of any potential future repatriation . the company believes it has alleviated any concerns about its ability to satisfy its obligations in the normal course of business for the next year after the date these financial statements are available to be issued based on the following : ● the company 's execution of the amendment and waiver described above ; ● the company 's ability to repatriate cash from its foreign subsidiaries to cure any future covenant defaults without any material cost or tax consequences ; ● the company expects an increase in business activity and cash flow from operations over the remaining term of the amendment and waiver ; ● management expects to be able to borrow within the reduced availability parameters noted above ; and ● the company 's flexibility in deciding when to incur its planned capital expenditures , allowing the company to defer cash spending if necessary to ensure compliance with loan covenants in the future . as of january 31 , 2021 , the company had borrowed an aggregate of $ 2.8 million at a rate of 6.25 % and had $ 1.7 million available under the senior credit facility . 16 revolving lines - foreign . the company also has credit arrangements used by its middle eastern subsidiaries in the u.a.e . and egypt as discussed further below . the company has a revolving line for 8.0 million dirhams ( approximately $ 2.2 million at january 31 , 2021 ) from a bank in the u.a.e . the facility has an interest rate of approximately 3.4 % and was originally set to expire in november 2020. however , the expiration has been extended due to the covid-19 pandemic and the inability to finalize renewal documentation prior to that time . the company is awaiting final documentation to complete the renewal process , which is expected to occur in april 2021. the company has a second revolving line for 19.5 million dirhams ( approximately $ 5.3 million at january 31 , 2021 ) from a bank in the u.a.e . the facility was renewed in january 2021 under the same terms . it has an interest rate of approximately 3.9 % and is set to expire in january 2022. these credit arrangements are in the form of overdraft facilities and project financing at rates competitive in the countries in which the company operates . the lines are secured by certain equipment , certain assets ( such as accounts receivable and inventory ) , and a guarantee by the company . some credit arrangement covenants require a minimum tangible net worth to be maintained , including maintaining certain levels of intercompany subordinated debt . in addition , some of the revolving credit facilities restrict payment of dividends or undertaking of additional debt .
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consolidated results of operations : replace_table_token_1_th 2020 compared to 2019 net sales : net sales were $ 84.7 million in 2020 , a decrease of $ 42.9 million , or 33.7 % , from $ 127.7 million in 2019 . the decrease was a result of lower sales volumes driven by the impact of lower oil prices , combined with project delays arising as a result of the covid-19 pandemic . the company expects these delayed projects to commence in 2021. gross profit : gross profit decreased to $ 11.2 million , or 13.2 % of net sales , in 2020 , a decrease of $ 17.8 million , or 61.5 % , from $ 29.0 million , or 22.8 % of net sales , in 2019 . this decrease was primarily driven by lower sales volumes . general and administrative expenses : general and administrative expenses were $ 17.2 million in 2020 compared to $ 18.9 million in 2019 , a decrease of $ 1.7 million , or 9.0 % . this decrease was driven primarily by cost cutting measures enacted as a result of the covid-19 pandemic . selling expenses : selling expenses increased by $ 0.1 million , from $ 5.2 million in 2019 to $ 5.3 million in 2020 . this increase was primarily due the addition of new sales employees and severance for terminated employees in the current year , partially offset by lower overall personnel costs . 13 interest expense : interest expense decreased to $ 0.4 million in 2020 from $ 0.9 million in 2019 due to lower net borrowings during 2020 . other income , net : other income was $ 4.0 million in 2020 compared to $ 1.1 million in 2019 , an increase of $ 2.9 million .
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our mission is to help people around the world plan and have the perfect trip by giving them access to the reviews and opinions of the millions of travelers who make up our global online community . tripadvisor aggregates reviews and opinions about destinations , accommodations ( including hotels , b & bs , specialty lodging and vacation rentals ) , restaurants and activities throughout the world . our platform also enables consumers to book hotels , vacation rentals , airline tickets , vacation packages , destination services and even cruises . our branded websites include tripadvisor.com in the united states and localized versions of the website in 33 other countries , including china under the brand daodao.com . our tripadvisor-branded websites globally reached more than 260 million monthly unique visitors during the year ended december 31 , 2013 , according to google analytics . we feature over 125 million reviews and opinions on more than 775,000 hotels and accommodations and approximately 550,000 vacation rentalsas well as more than 2 million restaurants and 400,000 attractions in 139,000 destinations throughout the world . beyond travel-related content , our websites also include links to the websites of our customers , including travel advertisers , allowing travelers to directly book their travel arrangements . in addition to the flagship tripadvisor brand , we now manage and operate 20 other travel media brands , connected by the common goal of providing comprehensive travel planning resources across the travel sector . story_separator_special_tag 40 current trends affecting our business increasing competition . the travel review industry and , more generally , the business of collecting and aggregating travel-related resources and information , continue to be increasingly competitive . in recent years , an increasing number of companies , such as search companies google , inc. and baidu.com , inc. and several large online travel agencies , have begun to collect and aggregate travel information and resources . we plan to continue to invest in order to remain the leading source of travel reviews as well as continuing to enhance our content and user experience . refer to our discussion above in competition in item 1 business section for additional information on our competition . increasing use of internet and social media to access travel information . commerce , information and advertising continue to migrate to the internet and away from traditional media outlets . we believe that this trend will continue to create strategic growth opportunities , allowing us to attract new consumers and develop unique and effective advertising solutions . consumers are increasingly using online social media channels , such as facebook and twitter , as a means to communicate and exchange information , including travel information and opinions . we have made significant efforts related to social networking in order to leverage the expanding use of this channel and enhance traffic diversification and user engagement . we are also continually adapting our user experience in response to a changing internet environment and usage trends . for example , in 2012 , we invested in building and introducing to users hotel metasearch functionality for our smartphone platforms and in 2013 , we completed the process of implementing hotel metasearch functionality on our desktop and tablet platforms . refer to our metasearch discussion above under improving the hotel shopper experience in the our strategy section in item 1 business for additional information on our hotel metasearch transition . increasing mobile usage . users are increasingly using smartphone and tablet computing devices to access the internet . to address these growing user demands , we continue to extend our platform to develop smartphone and tablet applications to deliver travel information and resources . although the substantial majority of our smartphone users also access and engage with our websites on personal computers and tablets where we display advertising , our users could decide to access our products primarily through smartphone devices . we have just begun to display graphic advertising on smartphones , however , our smartphone monetization strategies are still developing , as smartphone monetization was less than 20 % of desktop monetization of hotel shoppers during the year ended december 31 , 2013 while tablets monetize more closely to desktops . mobile growth and development remains a key strategy and we will continue to invest and innovate in this growing platform to help us maintain and grow our user base , engagement and monetization over the long term . click-based advertising revenue . in recent years , the majority of our revenue growth resulted from higher click-based advertising revenue due to increased traffic on our websites and an increase in the volume of clicks on our advertisers ' placements . although click-based advertising revenue growth has generally been driven by traffic volume , we remain focused on the various factors that could impact revenue growth , including , but not limited to , the growth in hotel shoppers , cpc pricing fluctuations , the overall economy , the ability of advertisers to monetize our traffic , the quality and mix of traffic to our websites , and the quality and mix of traffic from our advertising placements to advertisers , as well as advertisers ' evolving approach to transaction attribution models and return on investment targets . we monitor and regularly respond to changes in these factors in order to strategically improve our user experience , customer satisfaction and monetization in this dynamic environment . for example , in order to improve user experience , we introduced metasearch functionality to our hotel shoppers as discussed above under improving the hotel shopper experience in the our strategy section in item 1 business. spin-off during 2011 , expedia , inc. , or expedia , announced its plan to separate into two independent public companies in order to better achieve certain strategic objectives of its various businesses . story_separator_special_tag reclassifications certain reclassifications have been made to conform the prior period 's data to the current format . these reclassifications had no net effect on our consolidated and combined financial statements and were not material . revenue we derive substantially all of our revenue through the sale of advertising , primarily through click-based advertising and , to a lesser extent , display-based advertising . in addition , we earn revenue through a combination of subscription-based offerings related to our business listings and vacation rentals products , transaction revenue from selling room nights on our transactional sites , and other revenue including content licensing . replace_table_token_11_th 2013 vs. 2012 revenue increased $ 182 million during the year ended december 31 , 2013 when compared to the same period in 2012 , primarily due to an increase in click-based advertising revenue of $ 108 million . the primary driver of the increase in click-based advertising revenue was an increase in hotel shoppers of 36 % for the year ended december 31 , 2013 , partially offset by lower revenue per hotel shopper of 13 % for the year ended december 31 , 2013 , primarily due to a combination of lower user conversion related to our transition to hotel metasearch , growth in hotel shoppers on smartphones , which have a lower monetization rate than desktops and tablets , and growth in emerging international markets that are currently monetizing at lower levels than our mature markets . display-based advertising increased by $ 25 million during the year ended december 31 , 2013 , primarily as a result of a 34 % increase in the number of impressions sold due to increased sales productivity coupled with our new delayed ad call product , and worldwide growth particularly in emerging markets when compared to the same period in 2012 , partially offset by a decrease in pricing by 5 % for the year ended december 31 , 2013. subscription , transaction and other revenue increased by $ 49 million during the year ended december 31 , 2013 , primarily due to growth in our business listings and vacation rentals products . 45 2012 vs. 2011 revenue increased $ 126 million during the year ended december 31 , 2012 when compared to the same period in 2011 , primarily due to an increase in click-based advertising revenue of $ 88 million . the primary driver of the increase in click-based advertising revenue was an increase in hotel shoppers during the year ended december 31 , 2012 , when compared to the same period for 2011 , of 32 % , partially offset by lower revenue per hotel shopper of 8 % for the year ended december 31 , 2012 , primarily due to lower clicks per hotel shopper due to our site redesign in september 2011. display-based advertising increased by $ 8 million during the year ended december 31 , 2012 , primarily as a result of a 6 % increase in the number of impressions sold when compared to the same period in 2011 , and an increase in pricing by 1 % for the year ended december 31 , 2012. subscription , transaction and other revenue increased by $ 30 million during the year ended december 31 , 2012 , primarily due to growth in our business listings and vacation rentals products . the following table presents our revenue by geographic region , which reflects how we measure our business internally . revenue by geography is based on the location of our websites : replace_table_token_12_th ( 1 ) united states and canada * ( 2 ) europe , middle east and africa ( 3 ) asia-pacific ( 4 ) latin america * included in international revenue for discussion purposes . international revenue increased $ 105 million and $ 88 million during the years ended december 31 , 2013 and 2012 , respectively , compared to the same periods in 2012 and 2011. international revenue represented 51 % , 49 % , and 45 % of total revenue during the years ended december 31 , 2013 , 2012 , and 2011 , respectively . the increase in international revenue , in absolute dollars and as a percentage of total revenue , is primarily due to additional investment in international expansion and growth in international hotel shoppers . in addition to the above product revenue discussion , revenue from expedia , which consists primarily of click-based advertising , is as follows : replace_table_token_13_th 2013 vs. 2012 revenue from expedia increased $ 13 million during the year ended december 31 , 2013 , respectively , when compared to the same period in 2012 , primarily due to lower click volume sent to expedia , primarily related to our transition to hotel metasearch which was more than offset by higher cpc pricing paid by expedia during this time period . for information on our relationship with expedia refer to note 15 related party transactions in the notes to our consolidated and combined financial statements . 46 2012 vs. 2011 revenue from expedia decreased $ 7 million during the year ended december 31 , 2012 when compared to the same period in 2011 , primarily due to lower cpc pricing paid by expedia , partially offset by higher click volume sent to expedia in 2012. cost of revenue cost of revenue consists of expenses that are closely correlated or directly related to revenue generation , including ad serving fees , flight search fees , credit card fees and data center costs . replace_table_token_14_th 2013 vs. 2012 cost of revenue increased $ 6 million during the year ended december 31 , 2013 when compared to the same period in 2012 , primarily due to increased data center costs , driven by higher site traffic and merchant credit card fees . 2012 vs. 2011 cost of revenue increased $ 1 million during the year ended december 31 , 2012 when compared to the same period in 2011 , primarily due to increased merchant credit card fees .
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executive summary at present , our financial results are principally dependent on our ability to grow click-based advertising revenue . we continue to invest in areas of potential click-based revenue growth , including international and mobile initiatives , while also investing in our display-based advertising , business listings and vacation rentals businesses . we aim to leverage our position as the largest online travel company to become an increasingly important partner for advertisersincluding hoteliers , online travel agencies and other travel-related service providersby providing our customers with access to a large audience of highly-qualified , highly-engaged users . the key drivers of our click-based and display-based advertising revenue are described below , as well as a summary of our key growth areas and the current trends impacting our business . key drivers of click-based advertising revenue for the years ended december 31 , 2013 , 2012 and 2011 , 74 % , 77 % and 79 % , respectively , of our total revenue came from our core cpc-based lead generation product . the key drivers of our click-based advertising revenue include the growth in monthly unique hotel shoppers and revenue per hotel shopper . hotel shoppers : total traffic growth , or growth in monthly visits from unique visitors , is reflective of our overall brand growth . we track and analyze sub-segments of traffic and their correlation to revenue generation and utilize hotel shoppers as an indicator of revenue growth . we use the term hotel shoppers to refer to users who view a listing of hotels in a city or visitors who view a specific hotel page . hotel shoppers tend to be seasonal and also tend to vary based on general economic conditions . our number of hotel shoppers increased 36 % for the year ended december 31 , 2013 over 2012 and increased 32 % for the year ended december 31 , 2012 over 2011 , according to our log files .
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31 item 15. exhibits ( a ) the following documents are filed as part of this report . portions of item 15 are submitted as separate sections of this report : ( 1 ) financial statements filed as part of this report : reports of independent registered public accounting firm balance sheets as at december 31 , 2012 and 2011 statements of operations—years ended december 31 , 2012 and 2011 statement of stockholders ' ( deficit ) equity —years ended december 31 , 2012 and 2011 statements of cash flows—years ended december 31 , 2012 and 2011 notes to financial statements—december 31 , 2012 and 2011 ( 2 ) the exhibits listed in the exhibits index immediately preceding such exhibits are filed as part of this report item 8—financial statements the following financial statements of bio-key international , inc. are included herein at the indicated page numbers : report of independent registered public accounting firm , rmsbg p.c . 33 balance sheets as at december 31 , 2012 and 201 1 34 statements of operations—years ended december 31 , 2012 and 201 1 35 statements of stockholders ' ( deficit ) equity —years ended december 31 , 2012 and 201 1 36 statements of cash flows—years ended december 31 , 2012 and 201 1 37 notes to the financial statements—december 31 , 2012 and 201 1 38 32 report of independent registered public accounting firm the board of directors and stockholders bio-key international , inc. north billerica , ma we have audited the accompanying consolidated balance sheets of bio-key international , inc. and subsidiary ( the “ company ” ) as of december 31 , 2012 and 2011 , and the related consolidated statements of operations , stockholders ' ( deficit ) equity and cash flows for the years then ended . these consolidated financial statements are the responsibility of the company 's management . our responsibility is to express an opinion on these consolidated financial statements based on story_separator_special_tag this management 's discussion and analysis of financial condition and results of operations , and other parts of this report contain forward-looking statements that involve risks and uncertainties . all forward-looking statements included in this report are based on information available to us on the date hereof , and we assume no obligation to update any such forward-looking statements . our actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors , including those set forth in the section captioned “ risk factors ” in item 1a and elsewhere in this report . the following should be read in conjunction with our audited financial statements included elsewhere herein . the following management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) is intended to help you understand bio-key international ( the “ company ” , “ we ” , “ us ” or “ our ” ) . md & a is provided as a supplement to and should be read in conjunction with our financial statements and the accompanying notes . our md & a includes the following sections : overview provides a description of our business , the major items that affected our business , and how we analyze our business . it then provides an analysis of our overall 2012 performance and a description of the significant events impacting 2012 and thereafter . results of operations provides an analysis of the consolidated results of operations for 2012 compared to 2011. liquidity and capital resources provides an overview of our cash flows , financing , contractual obligations , and liquidity outlook . critical accounting policies provides a discussion of our accounting policies that require critical judgment , assumptions and estimates . recent accounting standards provides a description of accounting standards which we have not yet been required to implement and may be applicable to our operations , as well as those significant accounting standards which were adopted during 2012 see note a to the consolidated financial statements included elsewhere in this annual report . overview bio-key develops and markets advanced fingerprint identification biometric technology and software solutions . we were among the initial pioneers in developing automated , finger identification technology that can be used without the aid of non-automated methods of identification such as a personal identification , password , token , smart card , id card , credit card , passport , driver 's license or other form of possession or knowledge based identification . this advanced bio-key identification technology improves both the accuracy and speed of finger-based biometrics . through partnerships with oems , integrators , and solution providers , we provide biometric software solutions to private and public sector customers . bio-key provides the ability to positively identify individuals in seconds before granting access to valuable corporate resources , web portals or applications . powered by our patented vector segment technology our vst , web-key® and bsp development kits are fingerprint biometric solutions that provide true interoperability with all major reader manufacturers , enabling application developers and integrators to seamlessly integrate fingerprint biometrics into virtually any application . while our growth has been sluggish due to market acceptance , and lengthy processes involved with building relationships with large integrators , we believe that due to current market conditions , specifically identity theft , we are well-positioned for growth as solutions empower users to take control of their identities in a way that can not be replicated , stolen or mistaken for unauthorized use . organizations that employ bio-key 's solutions to authenticate employees and protect company data also experience a measurable return on investment . story_separator_special_tag in addition , the company raised $ 500,000 from certain private and institutional investors in return for 5,000,000 newly issued shares of the company 's common stock . if we are unable to generate sufficient revenue to meet our goals , we will need to obtain additional third-party financing to ( i ) conduct the sales , marketing and technical support necessary to execute our plan to substantially grow operations , increase revenue and serve a significant customer base ; and ( ii ) provide working capital . see note s – subsequent events , to the consolidated financial statements included elsewhere in this annual report . due to several factors , including our history of losses and limited revenue , our independent auditors have included an explanatory paragraph in their opinion related to our annual financial statements as to the substantial doubt about our ability to continue as a going concern . our long-term viability and growth will depend upon the successful commercialization of our technologies and our ability to obtain adequate financing . to the extent that we require such additional financing , no assurance can be given that any form of additional financing will be available on terms acceptable to us , that adequate financing will be obtained to meet our needs , or that such financing would not be dilutive to existing stockholders . if available financing is insufficient or unavailable or we fail to continue to generate meaningful revenue , we may be required to further reduce operating expenses , delay the expansion of operations , be unable to pursue merger or acquisition candidates , or continue as a going concern . off-balance sheet arrangements we do not have any off-balance sheet arrangements that have , or are in the opinion of management reasonably likely to have , a current or future effect on our financial condition or results of operations . critical accounting policies our financial statements are prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . we evaluate our estimates and assumptions on an ongoing basis . our actual results may differ significantly from these estimates under different assumptions or conditions . there have been no material changes to these estimates for the periods presented in this annual report on form 10-k. we believe that of our significant accounting policies , which are described in note a of the notes to our consolidated financial statements included in this annual report on form 10-k , the following accounting policies involve a greater degree of judgment and complexity . accordingly , these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations . 16 1. revenue recognition revenues from software licensing are recognized in accordance with asc 985-605 , “ software revenue recognition . accordingly , revenue from software licensing is recognized when all of the following criteria are met : persuasive evidence of an arrangement exists , delivery has occurred , the fee is fixed or determinable , and collectability is probable . the company intends to enter into arrangements with end users for items which may include software license fees , and services or various combinations thereof . for each arrangement , revenues will be recognized when evidence of an agreement has been documented , the fees are fixed or determinable , collection of fees is probable , delivery of the product has occurred and no other significant obligations remain . multiple-element arrangements : for multiple-element arrangements , the company applies the residual method in accordance with asc 985-605. the residual method requires that the portion of the total arrangement fee attributable to the undelivered elements be deferred based on its vsoe of fair value and subsequently recognized as the service is delivered . the difference between the total arrangement fee and the amount deferred for the undelivered elements is recognized as revenue related to the delivered elements , which is generally the software license . vsoe of fair value for all elements in an arrangement is based upon the normal pricing for those products and services when sold separately . vsoe of fair value for support services is additionally determined by the renewal rate in customer contracts . the company has established vsoe of fair value for support as well as consulting services . license revenues : amounts allocated to license revenues are recognized at the time of delivery of the software and all other revenue recognition criteria discussed above have been met . revenue from licensing software , which requires significant customization and modification , is recognized using the percentage of completion method , based on the hours of effort incurred by the company in relation to the total estimated hours to complete . in instances where third party hardware , software or services form a significant portion of a customer 's contract , the company recognizes revenue for the element of software customization by the percentage of completion method described above . otherwise , third party hardware , software , and services are recognized upon shipment or acceptance as appropriate . if the company makes different judgments or utilizes different estimates of the total amount of work expected to be required to customize or modify the software , the timing and revenue recognition , from period to period , and the margins on the project in the reporting period , may differ materially from amounts reported .
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results of operations consolidated results of operations two year % trend replace_table_token_3_th revenues and costs of goods sold replace_table_token_4_th revenues for the years ended december 31 , 2012 and 2011 , service revenues included approximately $ 688,000 and $ 680,000 , respectively , of recurring maintenance and support revenue , and approximately $ 407,000 and $ 168,000 , respectively , of non-recurring custom services revenue . non-recurring service revenue increased 142 % from 2011 to 2012 as the company completed services for a large custom contract and continued to provide custom services deployed to different sites from a legacy customer . for the year ended december 31 , 2012 , license and other revenue ( comprised of third party hardware and royalty income ) increased as a result of several contributing factors . the company realized an approximate $ 441,000 increase ( 27 % ) from 2011 to 2012 in its core software license revenue from both new and existing customers . the percentage of license and other revenue as a proportion of total revenue decreased from 76 % to 71 % , due to the relative increase in service revenue from 24 % to 29 % of total revenue . third-party hardware sales decreased by approximately $ 381,000 ( 41 % ) from 2011 to 2012 primarily as a result of smaller deployments from new customers in the healthcare industry , who required initial start-up investments in hardware , in addition to expanding deployments from existing customers and other oem requirements . depending on the size and the timing requirements of the customers ' software deployment roadmap , hardware purchases may be solely within the initial software order , or , as with our oem partners in the healthcare industry , a recurring activity . mckesson continued their deployment of our identification technology in their accudose® product line , and our partners allscripts , medflow , choicepoint/lexisnexis , educational biometric technology and identimetrics all continued expansion of biometric id deployments .
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the reconciliation of the effective income tax rate to the federal statutory rate is as follows : replace_table_token_32_th deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and the amounts used for income tax purposes . significant components of the company 's deferred tax assets and liabilities at june 30 , 2015 and 2014 are as follows : replace_table_token_33_th the company has provided a valuation allowance on the deferred tax assets at june 30 , 2015 and 2014 to reduce such asset to zero , since there is no assurance that the company will generate future taxable income to utilize such asset . management will review this valuation allowance requirement periodically and make adjustments as warranted . the net change in the valuation allowance for the year ended june 30 , 2015 was an increase of $ 142,026 . at june 30 , 2015 and 2014 , the company had federal net operating loss ( “ nol ” ) carryforwards of approximately $ 6,843,000 and $ 6,452,000 , respectively , and state nol carryforwards of approximately $ 4,975,000 and $ 4,802,000 , respectively . federal nols could , if unused , expire in 2030. state nols , if unused , could expire in 2020. effective january 1 , 2007 , the company adopted fasb guidelines that address the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements . under this guidance , we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities , based on the technical merits of the position . the tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement . this guidance also provides guidance on derecognition , classification , interest and penalties on income taxes , accounting in interim periods and requires increased disclosures . at the date of adoption , and as of june 30 , 2015 and 2014 , the company did not have a liability for unrecognized tax benefits , and no adjustment was required at adoption . 40 the company files income tax returns in the u.s. federal jurisdiction and various states . the company is subject to u.s. federal or state income tax examinations by tax authorities for tax years after 2010. the company 's policy is to record interest and penalties on uncertain tax provisions as income tax expense . as of june 30 , 2015 and 2014 , the company has no accrued interest or penalties related to uncertain tax positions . additionally , tax years 2010 through 2015 remain open to examination by the major taxing jurisdictions to which the company is subject . note 9. deconsolidation of former french subsidiary ( taag ) on august 18 , 2014 the board of directors of the company authorized management to commit to a plan to sell taag . the company concluded that taag 's printing operations in the major geographical area of france were not aligned with the company 's long term strategy . accordingly , the operations of taag were classified as discontinued operations and comparative information for prior periods has been restated to segregate the assets , liabilities , revenue , expenses , and cash flows related to taag as discontinued operations . further , the board of directors of the company authorized the disposal of taag at a reasonable price in relation to its current fair value , and in the event such sale was not consummated by september 10 , 2014 , that management proceed with an insolvency filing by taag under french law . on september 15 , 2014 , the french tribunal de commerce appointed an administrator for taag following a declaration of insolvency by our legal representative , and on october 6 , 2014 taag entered into a judicial liquidation procedure . as a result , effective september 15 , 2014 , the company relinquished control of taag to the tribunal and taag ceased to be our subsidiary and was deconsolidated from our financial statements . the company deconsolidated the assets , liabilities and other comprehensive income of taag with a resulting non-cash gain on deconsolidation of $ 1,711,748 recorded on the consolidated statements of operations for the year ended june 30 , 2015. the gain from deconsolidation of former french subsidiary consists of the following : description amount current assets $ ( 1,239,713 ) property and equipment , net ( 359,677 ) noncurrent story_separator_special_tag cautionary notice regarding forward-looking statements the following discussion and analysis of our financial condition and results of operations for the years ended june 30 , 2015 and 2014 should be read in conjunction with our consolidated financial statements and related notes to those financial statements that are included elsewhere in this report . our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties , such as our plans , objectives , expectations and intentions . actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors , including those set forth under “ risk factors ” and elsewhere in this report . story_separator_special_tag they place orders with us for the articles they need and we source and electronically deliver the requested content to them generally in under an hour . this service is known in the industry as single article delivery or document delivery . we also obtain the necessary permissions from the content publisher so that our customer 's use complies with applicable copyright laws . we have arrangements with numerous content publishers that allow us to distribute their content . the majority of these publishers provide us with electronic access to their content , which allows us to electronically deliver single articles to our customers often in a matter of minutes . even though single article delivery services are charged on a transactional basis , customer order volume tends to be consistent from month to month in part due to consistent orders of larger customers that require the implementation of our services into their work flow , subject to fluctuations due to the addition or loss of customers . we deliver research solutions through our article galaxy journal article platform ( “ article galaxy ” ) . we have developed proprietary software and internet-based interfaces that allow customers to initiate orders , manage transactions , obtain reporting , automate authentication , improve seamless connectivity to corporate intranets , and enhance the information resources they already own , or have access to via subscriptions or internal libraries , as well as organize workgroups to collaborate around scientific information . as a cloud-based saas solution , article galaxy is deployed as a single system across our entire customer base . customers access article galaxy securely through online web interfaces and via web service apis , which enable customers to leverage article galaxy features and functionality from within proprietary and other 3rd party software systems . article galaxy can also be configured to satisfy a customer 's individual preferences in areas such as user experience , business processes , and spend management . as a saas solution , article galaxy benefits from efficiencies in scalability , stability and development costs , resulting in significant advantages versus multiple instance or installed desktop software alternatives . we leverage these technical efficiencies to fuel rapid innovation and competitive advantage . reprints and eprints marketing departments in life science and other research-intensive organizations generally require large quantities of printed copies of published stm journal articles called “ reprints ” that are distributed to physicians and at conferences . we obtain the necessary permissions from the content publisher so that our customer 's use complies with applicable copyright laws . the majority of content publishers print their content in-house and prohibit others from printing their content ; however , when not prohibited by the content publisher , we use third parties to print reprint orders . electronic copies , called “ eprints ” , are also used for distribution through the internet and other electronic mechanisms . we have developed proprietary eprint software that increases the efficiency of our customers ' content purchases by transitioning from paper reprints to electronic eprints , and by improving compliance with applicable copyright laws and promotional regulations within the life science industry . reprints and eprints are charged on a transactional basis and order volume typically fluctuates from month to month based on customer marketing budgets and the existence of stm journal articles that fit customer requirements . critical accounting policies and estimates the preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the united states , or gaap , requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . when making these estimates and assumptions , we consider our historical experience , our knowledge of economic and market factors and various other factors that we believe to be reasonable under the circumstances . actual results may differ under different estimates and assumptions . the accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they inherently involve significant judgments and uncertainties . revenue recognition our policy is to recognize revenue when services have been performed , risk of loss and title to the product transfers to the customer , the selling price is fixed or determinable , and collectability is reasonably assured . we generate revenue by providing two types of services to our customers : article galaxy , and reprints and eprints . article galaxy we charge a transactional service fee for the electronic delivery of single articles , and a corresponding copyright fee for the permitted use of the content . this service , known in the industry as single article delivery or document delivery , generates nearly all of the revenue attributable to the article galaxy journal article platform . we recognize revenue from single article delivery services upon delivery to the customer only when the selling price is fixed or determinable , and collectability is reasonably assured . 17 reprints and eprints we charge a transactional fee for each reprint or eprint order and are responsible for printing and delivery of reprint orders , and the electronic delivery and , in some cases , the electronic delivery mechanism of eprint orders . the majority of content publishers print their content in-house and prohibit others from printing their content ; however , when not prohibited by the content publisher , we use third parties to print reprint orders . we recognize revenue from reprints and eprints services upon shipment or electronic delivery to the customer only when the selling price is fixed or determinable , and collectability is reasonably assured .
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results of operations replace_table_token_5_th 19 revenue replace_table_token_6_th article galaxy revenue increased $ 2,703,459 , or 14.5 % , for the year ended june 30 , 2015 compared to the prior year , primarily due to a net increase in orders resulting from the acquisition of new customers . single article delivery services generate nearly all of the revenue attributable to the article galaxy journal article platform . even though single article delivery services are charged on a transactional basis , customer order volume tends to be consistent from month to month in part due to consistent orders of larger customers that require the implementation of our services into their work flow , subject to fluctuations due to the addition or loss of customers . revenue from reprints and eprints increased $ 713,509 , or 7.3 % , for the year ended june 30 , 2015 compared to the prior year , primarily due to a net increase in orders from current and new customers . reprints and eprints are charged on a transactional basis and order volume typically fluctuates from month to month based on customer marketing budgets and the existence of stm journal articles that fit customer requirements . total revenue increased 3,416,968 , or 12.0 % , for the year ended june 30 , 2015 compared to the prior year , for the reasons described above . cost of revenue replace_table_token_7_th replace_table_token_8_th 20 * the difference between current and prior period cost of revenue as a percentage of revenue cost of revenue as a percentage of revenue from article galaxy decreased to 75.5 % , for the year ended june 30 , 2015 compared to 75.9 % , for the prior year , primarily due to slightly reduced production expenses and decreased content acquisition costs .
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the company measures stock-based compensation expense at fair value as of the grant date in accordance with u.s. gaap and recognizes such expenses over the vesting period of the stock-based employee awards . stock options are issued with an exercise price equal to the opening market price of horizon common shares on the date of grant . the fair value of stock options is determined using a black-scholes option pricing model story_separator_special_tag the following discussion and analysis of our financial condition contains forward-looking statements regarding industry outlook and our expectations regarding the performance of our business . these forward-looking statements are subject to numerous risks and uncertainties , including , but not limited to , the risks and uncertainties described under the heading “ forward-looking statements , ” at the beginning of this annual report on form 10-k. our actual results may differ materially from those contained in or implied by any forward-looking statements . the financial information discussed below and included in this annual report on form 10-k for periods prior to the separation may not necessarily reflect what horizon 's financial condition , results of operations or cash flows would have been had horizon been a stand-alone public entity during this period or what horizon 's financial condition , results of operations and cash flows may be in the future . you should read the following discussion together with item 8 , “ financial statements and supplementary data ” within this annual report on form 10-k. overview we are a leading designer , manufacturer and distributor of a wide variety of high-quality , custom-engineered towing , trailering , cargo management and other related accessory products on a global basis , serving the automotive aftermarket , retail and oe channels . critical factors affecting our ability to succeed include : our ability to realize the expected economic benefits of structural realignment of manufacturing facilities and business units ; our ability to quickly and cost-effectively introduce new products ; our ability to acquire and integrate companies or products that supplement existing product lines , add new distribution channels and expand our geographic coverage ; our ability to manage our cost structure more efficiently via supply base management , internal sourcing and or purchasing of materials , selective outsourcing and or purchasing of support functions , working capital management , and leverage of our administrative functions . if we are unable to do any of the foregoing successfully , our financial condition and results of operations could be materially and adversely impacted . we report shipping and handling expenses associated with our horizon americas reportable segment 's distribution network as an element of selling , general and administrative expenses in our consolidated statements of income ( loss ) . as such , gross margins for the horizon americas reportable segment may not be comparable to those of our horizon europe‑africa and horizon asia‑pacific segments , which primarily rely on third-party distributors , for which all costs are included in cost of sales . the acquisition of the westfalia group , a european leader in towing products , addressed a geographic gap in our global footprint by strengthening our presence in the european market . the westfalia group is included in the results of operations and consolidated financial statements beginning october 1 , 2016. the pending acquisition of the brink group will further strengthen our global platform and enhance our product portfolio . 26 segment information and supplemental analysis the following table summarizes financial information for our three reportable segments : replace_table_token_4_th 27 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > $ 6.0 million of unfavorable commodity prices and freight costs , in advance of pricing actions , and approximately $ 0.3 million of costs associated with upgrading the paintline in our mexico manufacturing facility . partially offsetting these decreases was approximately $ 3.3 million of lower costs due to the consolidation of our manufacturing facilities during 2016 that did not reoccur in 2017. the remainder of the change is a result of lower sales levels and unfavorable currency exchange . selling , general and administrative expenses decreased approximately $ 2.8 million to $ 83.7 million , or 19.0 % of net sales , in 2017 , as compared to $ 86.5 million , or 19.5 % of net sales , in 2016 . approximately $ 3.4 million of the decrease is primarily due to lower incentive compensation as a result of lower segment performance and approximately $ 1.5 million of the decrease is due to lower legal costs as a result of an award settlement that was received in the fourth quarter of 2017. these decreases were partially offset by approximately $ 1.7 million of costs associated with a project to optimize our distribution footprint and unfavorable currency exchange . horizon americas ' operating profit increased approximately $ 5.4 million to $ 44.1 million , or 10.0 % of net sales , in 2017 , from $ 38.7 million , or 8.7 % of net sales , in 2016 . operating profit and operating profit margin increased primarily due to approximately $ 6.0 million of lower expense related to the impairment of intangible assets during 2016. partially offsetting this decrease were unfavorable commodity prices , higher freight costs , and lower selling , general and administrative expenses . horizon europe-africa . net sales increased approximately $ 221.9 million , or 213.2 % , to $ 326.0 million in 2017 , as compared to $ 104.1 million in 2016 , primarily due to the westfalia group , acquired in the fourth quarter of 2016. the remainder of the change is primarily due to favorable currency exchange as the strengthening of the euro more than offset the weakening of the british pound in relation to the u.s. dollar . story_separator_special_tag net sales within our horizon asia‑pacific reportable segment increased by $ 6.6 million primarily due to increases in the automotive oe channel , which were partially offset by unfavorable currency exchange . gross profit margin approximated 24.7 % and 24.9 % in 2016 and 2015 , respectively . the overall decrease in gross profit margin primarily relates to our horizon europe‑africa reportable segment , which was negatively impacted by purchase accounting , as well as higher commodity prices , product input costs , and unfavorable currency exchange . the decreases in gross profit margin were partially offset by higher sales volumes in both of our horizon americas and horizon asia‑pacific reportable segments . additionally , margin improvement in our horizon americas ' reportable segment and cost savings and productivity initiatives in our horizon asia‑pacific reportable segment partially offset the decline in the gross profit margin . operating profit margin approximated 1.0 % and 3.4 % in 2016 and 2015 , respectively . operating profit decreased $ 13.3 million , or 67.8 % , to $ 6.3 million in 2016 as compared to $ 19.6 million in 2015 , primarily as a result of the impact of purchase accounting and transaction related expenses within the horizon europe-africa reportable segment . operating profit margin was also negatively impacted by $ 6.8 million of incremental expenses related to the impairment of intangible assets and the disposal of property and equipment compared to 2015 in our horizon americas and horizon europe-africa reportable segments . partially offsetting these decreases were favorable product mix and lower input costs in our horizon americas reportable segment and cost and productivity initiatives in our horizon asia‑pacific reportable segment . 30 interest expense increased approximately $ 11.3 million , to $ 20.1 million in 2016 , as compared to $ 8.8 million in 2015 . as we became a public company , we incurred debt in the form of a term b loan and abl facility ( as defined below ) . the increase in expense in 2016 is partially due to these instruments being outstanding for twelve months compared to only six months in 2015. we also incurred additional debt in the form of the incremental term b loan that was extended to us in the fourth quarter of 2016 in connection with the acquisition of the westfalia group . other expense , net increased approximately $ 1.1 million to $ 2.6 million in 2016 , from $ 3.7 million in 2015 , primarily driven by lower foreign currency transaction losses as the u.s. dollar stabilized in relation to the foreign currencies in which we operate . the effective income tax rate for 2016 was 22.8 % , compared to ( 18.2 ) % for 2015 . the higher effective tax rate for the year ended december 31 , 2016 is primarily driven by incurring non-deductible transaction costs related to the westfalia group acquisition , which were partially offset by the recognition of income tax benefits associated with the release of certain unrecognized tax positions . the lower tax rate in 2015 was due to the recognition of a $ 3.3 million tax benefit due to the release of an unrecognized tax contingency due to the expiration of the statute of limitations , which was offset by $ 2.9 million of tax charges for spin-off related transaction costs . additionally , the overall effective tax rate for 2015 was reduced by the recognition of benefits associated with losses in certain jurisdictions with higher statutory tax rates . net income decreased approximately $ 21.0 million to a net loss of $ 12.7 million in 2016 , from net income of $ 8.3 million in 2015 . the decrease was primarily the result of a $ 13.3 million decrease in operating profit , a $ 11.3 million increase in interest expense , partially offset by $ 1.1 million decrease in other expenses , net and by a $ 2.5 million increase in income tax benefit . see below for a discussion of operating results by reportable segment . horizon americas . net sales increased approximately $ 13.9 million , or 3.2 % , to $ 443.2 million in 2016 , as compared to $ 429.3 million in 2015 . net sales in our automotive oe channel increased approximately $ 14.8 million , primarily driven by new programs and continued growth with global automotive manufacturers . e-commerce increased by approximately $ 7.6 million , due to increased consumer promotional activity and increased demand from automotive internet retailers . net sales in our retail channel increased approximately $ 0.8 million , driven by growth with our mass merchant and automotive retail customers in our towing , trailering , and broom and brush categories . these increases were partially offset by decreases within our aftermarket and industrial channels . net sales in our aftermarket channel decreased approximately $ 4.6 million due to a consumer shift towards the e-commerce channel , lower sales to smaller regional warehouse distributor customers , and macroeconomic conditions in the brazilian market , which more than offset sales increases to our national warehouse distributor customers . net sales in our industrial channel decreased approximately $ 4.0 million , primarily due to lower demand from our oe and warehouse distributor customers servicing energy and agricultural end markets . the remainder of the change in net sales was primarily due to unfavorable currency exchange as the brazilian real weakened in relation to the u.s. dollar . horizon americas ' gross profit increased approximately $ 15.0 million to $ 131.3 million , or 29.6 % of net sales , in 2016 , from approximately $ 116.3 million , or 27.1 % of net sales , in 2015 , due to margin improvement and higher sales levels . gross profit margin was positively impacted due to a favorable product sales mix within our automotive oe channel , as sales of our higher margin brake controllers and heavy duty towing products increased year-over-year .
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results of operations year ended december 31 , 2017 compared with year ended december 31 , 2016 overall , net sales increased approximately $ 243.8 million , or approximately 37.6 % , to $ 893.0 million in 2017 , as compared to $ 649.2 million in 2016 . net sales within our horizon europe‑africa reportable segment increased $ 221.9 million primarily driven by our fourth quarter 2016 acquisition of the westfalia group . net sales within our horizon asia‑pacific reportable segment increased by $ 25.4 million due to a regional bolt-on acquisition and net sales to a new customer . net sales within our horizon americas reportable segment decreased $ 3.5 million driven by decreases in the retail and aftermarket channels , which were partially offset by an increase within the automotive oe , e-commerce , and industrial channels . gross profit margin ( gross profit as a percentage of net sales ) approximated 23.2 % and 24.7 % in 2017 and 2016 , respectively . the overall decline in gross profit margin is the result of a shift in concentration of net sales from our higher margin horizon americas reportable segment to our lower margin horizon europe‑africa reportable segment . further , gross profit margin declined in our horizon americas reportable segment as the negative impacts of unfavorable commodity prices more than offset the lower costs and cost savings realized in 2017 from the consolidation of our manufacturing facilities that occurred in 2016. gross profit margin improved in our horizon asia‑pacific reportable segment as a result of increased sales volumes and productivity initiatives . an increase in gross profit margin in our horizon europe‑africa reportable segment is primarily due to the acquisition of the westfalia group . operating profit margin ( operating profit as a percentage of net sales ) approximated 3.9 % and 1.0 % in 2017 and 2016 , respectively . operating profit increased $ 28.5 million , or 451.7
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in the sale of aftermarket products and services , we benefit from a large installed base of our original equipment , which requires periodic maintenance , repair and replacement parts . we use our manufacturing platform and global network of qrcs to offer a broad array of aftermarket equipment services , such as installation , advanced diagnostics , repair and retrofitting . in geographic regions where we are positioned to provide quick response , we believe customers have traditionally relied on us , rather than our competitors , for aftermarket products due to our highly engineered and customized products . however , the aftermarket for standard products is competitive , as the existence of common standards allows for easier replacement of the installed products . as proximity of service centers , timeliness of delivery and quality are important considerations for all aftermarket products and services , we continue to selectively expand our global qrc capabilities to improve our ability to capture this important aftermarket business . oil and gas the oil and gas industry , which represented approximately 41 % and 38 % of our bookings in 2019 and 2018 , respectively , experienced an increase in capital spending in 2019 compared to the previous year . the increase was primarily due to increased project activity and short cycle investment . aftermarket opportunities in this industry remained stable throughout 2019 following increased spending in 2018 due to catch up of deferred spending on our customers ' repair and maintenance budgets from previous years . 27 the outlook for the oil and gas industry is heavily dependent on the demand growth from both mature markets and developing geographies as well as changes in the regulatory environment . in the short-term , we believe that stable oil prices will support oil and gas upstream and mid-stream investment and we further expect continued investment in later cycle downstream oil and gas and petrochemical projects due to emerging market growth and certain regulatory requirements , such as imo 2020. we also believe stable oil prices support increased demand for our aftermarket products and services . we believe the medium and long-term fundamentals for this industry remain attractive and see a stabilized environment as the industry works through current excess supply . in addition , we believe projected depletion rates of existing fields and forecasted long-term demand growth will require additional investments . with our long-standing reputation in providing successful solutions for upstream , mid-stream and downstream applications , along with the advancements in our portfolio of offerings , we believe that we continue to be well-positioned to assist our customers in this improving environment . chemical the chemical industry represented approximately 22 % of our bookings in both 2019 and 2018 . the chemical industry is comprised of chemical-based and pharmaceutical products . capital spending in 2019 increased primarily due to global economic growth and forecasted demand for chemical-based products . the aftermarket opportunities remained stable throughout 2019 following increased spending in 2018 due to catch up of deferred spending of our customers ' repair and maintenance budgets from previous years . the outlook for the chemical industry remains heavily dependent on global economic conditions . as global economies and unemployment conditions improve , a rise in consumer spending should follow . an increase in spending would drive greater demand for chemical-based products supporting improved levels of capital investment . we believe the chemical industry in the near-term will continue to invest in north america and middle east capacity additions , maintenance and upgrades for optimization of existing assets and that developing regions will selectively invest in capital infrastructure to meet current and future indigenous demand . we believe our global presence and our localized aftermarket capabilities are well-positioned to serve the potential growth opportunities in this industry . power generation the power generation industry represented approximately 11 % of our bookings in both 2019 and 2018 . in 2019 , the power generation industry continued to experience softness in thermal power generation capital spending in the mature and key developing markets . china continued to curtail the construction of new coal-fired power generation over the last year , while in india and southeast asia capital investment remained in place driven by increased demand forecasts . natural gas-fired combined cycle ( “ ngcc ” ) plants increased their share of the energy mix , driven by market prices for gas remaining low and stable ( partially due to the increasing global availability of liquefied natural gas ( “ lng ” ) ) , low capital expenditures , and the ability of ngcc to stabilize unpredictable renewable sources . with the potential of unconventional sources of gas , the global power generation industry is forecasting an increased use of this form of fuel for power generation plants . despite fewer new nuclear plants being constructed , nuclear power remains an important contributor to the global energy mix . we continue to support our significant installed base in the global nuclear fleet by providing aftermarket and life extension products and services . due to our extensive history , we believe we are well positioned to take advantage of this ongoing source of aftermarket and new construction opportunities . political efforts to limit the emissions of carbon dioxide may have some adverse effect on thermal power investment plans depending on the potential requirements imposed and the timing of compliance by country . however , many proposed methods of capturing and limiting carbon dioxide emissions offer business opportunities for our products and services . story_separator_special_tag bookings in 2018 included approximately $ 31 million related to the two fpd locations and associated product lines that were divested in the third quarter of 2018. bookings of $ 4.0 billion in 2018 increased by $ 215.9 million , or 5.7 % , as compared with 2017. the increase included currency benefits of approximately $ 30 million . the increase was primarily driven by the oil and gas , general and chemical industries , partially offset by a decrease in the power generation industry . the increase was more heavily-weighted towards customer aftermarket bookings . 30 backlog represents the aggregate value of booked but uncompleted customer orders and is influenced primarily by bookings , sales , cancellations and currency effects . backlog of $ 2.2 billion at december 31 , 2019 increase d by $ 265.4 million , or 14.0 % , as compared with december 31 , 2018 . currency effects provided an increase of less than $ 1 million ( currency effects on backlog are calculated using the change in period end exchange rates ) . backlog related to aftermarket orders was approximately 33 % and 36 % of the backlog at december 31 , 2019 and 2018 , respectively . we expect to recognize revenue on approximately 88 % of december 31 , 2019 backlog during 2020 . backlog includes our unsatisfied ( or partially unsatisfied ) performance obligations related to contracts having an original expected duration in excess of one year of approximately $ 709 million as discussed in note 2 to our consolidated financial statements included in item 8 of this annual report . backlog of $ 1.9 billion at december 31 , 2018 decreased by $ 141.8 million , or 7.0 % , as compared with december 31 , 2017. currency effects provided a decrease of approximately $ 83 million . backlog related to aftermarket orders was approximately 36 % and 31 % of the backlog at december 31 , 2018 and 2017 , respectively . we expected to recognize revenue on approximately 89 % of december 31 , 2018 backlog during 2019. sales replace_table_token_8_th sales in 2019 increase d by $ 112.2 million , or 2.9 % , as compared with 2018 . the increase included negative currency effects of approximately $ 94 million . the increase was more heavily-weighted to aftermarket sales , with increased sales into north america , europe and asia pacific , partially offset by decreased sales into latin america , africa and the middle east . sales in 2018 included approximately $ 30 million related to the two fpd locations and associated product lines that were divested in the third quarter of 2018. sales in 2018 increased by $ 171.9 million , or 4.7 % , as compared with 2017. the increase included currency benefits of approximately $ 31 million . the increase was more heavily-weighted to aftermarket sales , with increased sales into north america , asia pacific and africa , partially offset by decreased sales in the middle east and europe . sales to international customers , including export sales from the u.s. , were approximately 63 % of total sales in both 2019 and 2018 and 64 % for 2017 . sales into europe , the middle east and africa ( `` ema '' ) were approximately 32 % of total sales in both 2019 and 2018 and 36 % in 2017 . sales into asia pacific were approximately 21 % of total sales for 2019 , 20 % for 2018 and 19 % for 2017 . sales into latin america were approximately 6 % of total sales in 2019 , 2018 and 2017 . gross profit and gross profit margin replace_table_token_9_th gross profit in 2019 increase d by $ 107.6 million , or 9.1 % , as compared with 2018 . gross profit margin in 2019 of 32.8 % increase d from 31.0 % in 2018 . the increase in gross profit margin was primarily attributed to the favorable impact of revenue recognized on higher margin projects , lower realignment charges associated with our realignment programs , improvements in operational efficiency and a $ 7.7 million charge related to the write-down of inventory in the second quarter of 2018 that did not recur . aftermarket sales represent approximately 50 % of total sales in both 2019 and 2018 . gross profit in 2018 increased by $ 98.8 million , or 9.1 % , as compared with 2017. gross profit margin in 2018 of 31.0 % increased from 29.7 % in 2017. the increase in gross profit margin was primarily attributable to a $ 16.9 million charge for costs related to a contract to supply oil and gas platform equipment to an end user in latin america in 2017 that did not recur , revenue recognized on higher margin projects , a mix shift to higher margin aftermarket sales , favorable impact of increased sales on our absorption of fixed manufacturing costs and increased savings related to our realignment programs , partially offset by a $ 7.7 million charge for cost incurred related to the write-down of inventory associated with the divestiture of two fpd locations and related product lines in the second quarter of 2018. aftermarket sales increased to approximately 50 % of total sales , as compared with approximately 48 % of total sales in 2017 . 31 sg & a replace_table_token_10_th sg & a in 2019 decrease d by $ 43.9 million , or 4.7 % , as compared with 2018 . currency effects yielded a decrease of approximately $ 18 million . in 2019 , sg & a as a percentage of sales decreased 180 basis points as compared with the same period in 2018 primarily due to lower charges related to our flowserve 2.0 transformation and realignment programs , decreased broad-based annual incentive compensation expense , gains from the sales of non-strategic manufacturing facilities during the year , favorable impacts resulting from the 2018 divestiture of two fpd locations
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flow control division segment results fcd designs , manufactures , distributes and services a broad portfolio of engineered and industrial valve and automation solutions , including isolation and control valves , actuation , controls and related equipment . fcd leverages its experience and application know-how by offering a complete menu of engineering and project management services to complement its expansive product portfolio . fcd has a total of 49 manufacturing facilities and qrcs in 22 countries around the world , with five of its 21 manufacturing operations located in the u.s. , 10 located in europe , five located in asia pacific and one located in latin america . we believe that fcd is the second largest industrial valve supplier in the world . replace_table_token_20_th bookings in 2019 decrease d $ 33.4 million , or 2.6 % , as compared with 2018 . the decrease included negative currency effects of approximately $ 29 million . the decrease in customer bookings in the general and chemical industries were partially offset by increases in the power generation , oil and gas and water management industries . decreased customer bookings of $ 27.3 million into north america , $ 8.2 million into asia pacific and $ 2.6 million into europe were partially offset by increased bookings of $ 24.1 million into the middle east . the decrease was more heavily weighted towards customer aftermarket bookings . of the $ 1.2 billion of bookings in 2019 , approximately 34 % were from oil and gas , 29 % from chemical , 24 % from general industries and 13 % from power generation . bookings in 2018 increased $ 48.6 million , or 4.0 % , as compared with 2017. the increase included currency benefits of approximately $ 11 million . the increase in customer bookings in the general , oil and gas and chemical industries were partially offset by decreases in the power generation and water management industries .
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in accordance with the national retail federation fiscal reporting calendar and our bylaws , the fiscal 2016 , 2015 and 2014 reporting periods presented and discussed below ended january 28 , 2017 , january 30 , 2016 and january 31 , 2015 , respectively , and each contained 52 weeks . executive overview fiscal 2016 the company 's performance during fiscal 2016 reflected mall traffic declines from continued retail industry challenges , as our sales decline weighed heavily on our profitability . comparable retail sales decreased 5 % over last year , and gross profit from retail operations decreased 73 basis points of net retail sales as a result of increased markdowns . consolidated selling , general and administrative ( `` sg & a '' ) expenses increased 114 basis points of net sales while sg & a decreased $ 14.3 million . during the fiscal year , savings in several expense categories , notably advertising , utilities and supplies , were partially offset by increased payroll and employee-related insurance expense . net income decreased to $ 169.2 million , or $ 4.93 per share , during fiscal 2016 from $ 269.4 million , or $ 6.91 per share , in the prior year . included in net income for fiscal 2016 is a pre-tax charge of $ 6.5 million ( $ 4.2 million after tax or $ 0.12 per share ) for asset impairment related to the write-down of a cost method investment . included in net income for fiscal 2015 is a pre-tax gain of $ 12.6 million ( $ 8.1 million after tax or $ 0.21 per share ) related to the sale of four retail store locations . during fiscal 2016 , the company repurchased $ 246.2 million , or 3.8 million shares , of class a common stock under the february 2016 stock plan , with $ 253.8 million in authorization remaining at january 28 , 2017. as of january 28 , 2017 , we had working capital of $ 861.4 million ( including cash and cash equivalents of $ 347.0 million ) and $ 813.3 million of total debt outstanding , excluding capital lease obligations , with $ 87.2 million in scheduled maturities in late fiscal 2017. we operated 268 dillard 's locations , 25 clearance centers and one internet store as of january 28 , 2017 . 17 key performance indicators we use a number of key indicators of financial condition and operating performance to evaluate the performance of our business , including the following : replace_table_token_8_th trends and uncertainties fluctuations in the following key trends and uncertainties may have a material effect on our operating results . cash flow—cash from operating activities is a primary source of our liquidity that is adversely affected when the retail industry faces economic challenges . furthermore , operating cash flow can be negatively affected by competitive factors . pricing—if our customers do not purchase our merchandise offerings in sufficient quantities , we respond by taking markdowns . if we have to reduce our retail selling prices , the cost of sales on our consolidated statement of income will correspondingly rise , thus reducing our net income and cash flow . success of brand—the success of our exclusive brand merchandise as well as merchandise we source from national vendors is dependent upon customer fashion preferences and how well we can predict and anticipate trends . sourcing—our store merchandise selection is dependent upon our ability to acquire appealing products from a number of sources . our ability to attract and retain compelling vendors as well as in-house design talent , the adequacy and stable availability of materials and production facilities from which we source our merchandise and the speed at which we can respond to customer trends and preferences all have a significant impact on our merchandise mix and , thus , our ability to sell merchandise at profitable prices . store growth—our ability to open new stores is dependent upon a number of factors , such as the identification of suitable markets and locations and the availability of shopping developments , especially in a weak economic environment . store growth can be further hindered by mall attrition and subsequent closure of underperforming properties . seasonality and inflation our business , like many other retailers , is subject to seasonal influences , with a significant portion of sales and income typically realized during the last quarter of our fiscal year due to the holiday season . because of the seasonality of our business , results from any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year . we do not believe that inflation has had a material effect on our results during the periods presented ; however , our business could be affected by such in the future . 18 2017 guidance a summary of management 's estimates of certain financial measures for fiscal 2017 is shown below . replace_table_token_9_th general net sales . net sales include merchandise sales of comparable and non-comparable stores and revenue recognized on contracts of cdi , the company 's general contracting construction company . comparable store sales include sales for those stores which were in operation for a full period in both the current quarter and the corresponding quarter for the prior year . comparable store sales exclude changes in the allowance for sales returns . non-comparable store sales include : sales in the current fiscal year from stores opened during the previous fiscal year before they are considered comparable stores ; sales from new stores opened during the current fiscal year ; sales in the current or previous fiscal year for stores closed during the current or previous fiscal year that are no longer considered comparable stores ; sales in clearance centers ; and changes in the allowance for sales returns . service charges and other income . service charges and other income include income generated through the wells fargo alliance and former synchrony alliance . story_separator_special_tag the provision for sales returns is based on historical evidence of our return rate . we recorded an allowance for sales returns of $ 5.1 million and $ 4.9 million as of january 28 , 2017 and january 30 , 2016 , respectively . adjustments to earnings resulting from revisions to estimates on our sales return provision were not material for fiscal years 2016 , 2015 or 2014. the company 's share of income earned under the wells fargo alliance and former synchrony alliance involving the dillard 's branded private label credit cards is included as a component of service charges and other income . the company received income of approximately $ 104 million , $ 105 million and $ 112 million from the alliances in fiscal 2016 , 2015 and 2014 , respectively . the company participates in the marketing of the private label credit cards and accepts payments on the private label credit cards in its stores as a convenience to customers who prefer to pay in person rather than by paying online or mailing their payments to wells fargo . revenues from cdi construction contracts are generally recognized by applying percentages of completion for each period to the total estimated revenue for the respective contracts . the length of each contract varies but is typically nine to eighteen months . the percentages of completion are determined by relating the actual costs of work performed to date to the current estimated total costs of the respective contracts . any anticipated losses on completed contracts are recognized as soon as they are determined . vendor allowances . the company receives concessions from vendors through a variety of programs and arrangements , including co-operative advertising , payroll reimbursements and margin maintenance programs . cooperative advertising allowances are reported as a reduction of advertising expense in the period in which the advertising occurred . if vendor advertising allowances were substantially reduced or eliminated , the company would likely consider other methods of advertising as well as the volume and frequency of our product advertising , which could increase or decrease our expenditures . similarly , we are not able to assess the impact of vendor advertising allowances on creating additional revenues , as such allowances do not directly generate revenues for our stores . 20 payroll reimbursements are reported as a reduction of payroll expense in the period in which the reimbursement occurred . amounts of margin maintenance allowances are recorded only when an agreement has been reached with the vendor and the collection of the concession is deemed probable . all such merchandise margin maintenance allowances are recognized as a reduction of cost purchases . under the retail inventory method , a portion of these allowances reduces cost of goods sold and a portion reduces the carrying value of merchandise inventory . insurance accruals . the company 's consolidated balance sheets include liabilities with respect to claims for self-insured workers ' compensation ( with a self-insured retention of $ 4 million per claim ) and general liability ( with a self-insured retention of $ 1 million per claim and a one-time $ 1 million corridor ) . the company 's retentions are insured through a wholly-owned captive insurance subsidiary . the company estimates the required liability of such claims , utilizing an actuarial method , based upon various assumptions , which include , but are not limited to , our historical loss experience , projected loss development factors , actual payroll and other data . the required liability is also subject to adjustment in the future based upon the changes in claims experience , including changes in the number of incidents ( frequency ) and changes in the ultimate cost per incident ( severity ) . as of january 28 , 2017 and january 30 , 2016 , insurance accruals of $ 43.1 million and $ 44.4 million , respectively , were recorded in trade accounts payable and accrued expenses and other liabilities . adjustments resulting from changes in historical loss trends have helped control expenses during fiscal 2016 and 2015 , partially due to company programs that have helped decrease both the number and cost of claims . further , we do not anticipate any significant change in loss trends , settlements or other costs that would cause a significant change in our earnings . a 10 % change in our self-insurance reserve would have affected net income by $ 3.0 million for fiscal 2016. long-lived assets . the company 's judgment regarding the existence of impairment indicators is based on market and operational performance . we assess the impairment of long-lived assets , primarily fixed assets , whenever events or changes in circumstances indicate that the carrying value may not be recoverable . factors we consider important which could trigger an impairment review include the following : significant changes in the manner of our use of assets or the strategy for the overall business ; significant negative industry or economic trends ; a current-period operating or cash flow loss combined with a history of operating or cash flow losses ; and store closings . the company performs an analysis of the anticipated undiscounted future net cash flows of the related long-lived assets . if the carrying value of the related asset exceeds the undiscounted cash flows , the carrying value is reduced to its fair value . various factors including future sales growth and profit margins are included in this analysis . to the extent these future projections or the company 's strategies change , the conclusion regarding impairment may differ from the current estimates . income taxes . temporary differences arising from differing treatment of income and expense items for tax and financial reporting purposes result in deferred tax assets and liabilities that are recorded on the balance sheet . these balances , as well as income tax expense , are determined through management 's estimations , interpretation of tax law for multiple jurisdictions and tax planning .
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results of operations the following table sets forth the results of operations and percentage of net sales , for the periods indicated : replace_table_token_10_th 22 sales replace_table_token_11_th the percent change by segment and product category in the company 's sales for the past two years is as follows : replace_table_token_12_th 2016 compared to 2015 net sales from the retail operations segment decreased $ 317.4 million during fiscal 2016 as compared to fiscal 2015 , decreasing 5 % in both total and comparable stores . during fiscal 2016 , sales of ladies ' apparel and men 's apparel and accessories decreased moderately from the prior year . sales of ladies ' accessories and lingerie , shoes , juniors ' and children 's apparel , cosmetics and home and furniture decreased significantly from the prior year . the number of sales transactions during fiscal 2016 decreased 7 % over fiscal 2015 while the average dollars per sales transaction increased 2 % . net sales from the construction segment decreased $ 21.3 million or 10.3 % during fiscal 2016 as compared to fiscal 2015 due to a decrease in construction projects . the backlog of awarded construction contracts at january 28 , 2017 totaled $ 235.8 million , increasing approximately 41 % from january 30 , 2016 . 2015 compared to 2014 net sales from the retail operations segment decreased $ 101.6 million during fiscal 2015 as compared to fiscal 2014 , decreasing 2 % in both total and comparable stores . during fiscal 2015 , sales of ladies ' apparel , ladies ' accessories and lingerie , shoes , juniors ' and children 's apparel and cosmetics decreased slightly from the prior year . sales of men 's apparel and accessories decreased moderately over the prior year . sales of home and furniture declined significantly from the prior year . the number of sales transactions during fiscal 2015 decreased 5 % over fiscal 2014 while the average dollars per sales transaction increased 3 % .
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on october 23 , 2015 , ciner enterprises indirectly acquired oci enterprises inc. 's ( “ oci enterprises ” ) approximately 73 % limited partner interest in the partnership , as well as its 2 % general partner interest and related incentive distribution rights ( the “ transaction ” ) . prior to the transaction , oci enterprises indirectly owned and controlled our general partner . the transaction did not involve the sale or purchase of any of our common units held by the public . as a result of the closing of the transaction , ciner enterprises indirectly owns and controls our general partner , and oci enterprises no longer has any direct or indirect ownership or control in the partnership or our general partner . factors affecting our results of operations soda ash supply and demand our net sales , earnings and cash flow from operations are primarily affected by the global supply of , and demand for soda ash , which , in turn , directly impacts the prices we and other producers charge for our products . demand for soda ash in the united states is driven in large part by general economic growth and activity levels in the end-markets that the glass-making industry serve , such as the automotive and construction industries . because the united states is a well-developed market , we expect that domestic demand levels will remain stable for the near future . because future u.s. capacity growth is expected to come from the four major producers in the green river basin , we also expect that u.s. supply levels will remain relatively stable in the near term . 48 soda ash demand in international markets has continued to grow , although the rate of growth has slowed recently due to sluggish economic growth in emerging markets . we expect that future global economic growth will positively influence global demand , which will likely result in increased exports , primarily from the united states , turkey , and to a limited extent , from china , the largest suppliers of soda ash to international markets . however , in the near term , new supply coming on-line , primarily in turkey , will likely exceed any new growth in demand . most of the new capacity is from trona based sources and therefore lower cost compared to synthetic producers . as a result , we have seen lower net prices in north and south america as some higher cost synthetic producers are taking aggressive price actions to secure multi-national customers in anticipation of lower cost capacity coming on line in turkey in 2017 and 2018. sales mix because demand for soda ash in the united states has remained relatively stable in recent years , we have focused on international markets to expand our business , and we expect to continue to do so in the near future . as a result , our operations have been and continue to be sensitive to fluctuations in freight and shipping costs and changes in international prices , which have historically been more volatile than domestic prices . our gross profit will be impacted by the mix of domestic and international sales as a result of changes in input costs and our average selling prices . in november 2016 , ciner corp , on behalf of ciner wyoming , entered into a soda ash sales agreement with an affiliate of the ciner group that sells soda ash to markets not served by ansac . we are doing this in order to leverage synergies within ciner group and stabilize the supply of soda ash to ciner group 's customers who typically like to contract on an annual calendar year basis . energy costs one of the primary impacts to our profitability is our energy costs . because we depend upon natural gas and electricity to power our trona ore mining and soda ash processing operations , our net sales , earnings and cash flow from operations are sensitive to changes in the prices we pay for these energy sources . our cost of energy , particularly natural gas , has been relatively low in recent years , and , despite the historic volatility of natural gas prices , we believe that we will continue to benefit from relatively low prices in the near future . however , we expect to continue to hedge a portion of our forecasted natural gas purchases to mitigate volatility . see item 7a , “ quantitative and qualitative disclosures about market risk - commodity price risks , ” for additional information . how we evaluate our business productivity of operations our soda ash production volume is primarily dependent on the following three factors : ( 1 ) operating rate , ( 2 ) quality of our mined trona ore and ( 3 ) recovery rates . operating rate is a measure of utilization of the effective production capacity of our facilities and is determined in large part by productivity rates and mechanical on-stream times , which is the percentage of actual run times over the total time scheduled . we implement two planned outages of our mining and surface operations each year , typically in the second and third quarters . during these outages , which last approximately one week , we repair and replace equipment and parts . periodically , we may experience minor unplanned outages caused by various factors , including equipment failures , power outages or service interruptions . the quality of our mine ore is determined by measuring the trona ore recovered as a percentage of the deposit , which includes both trona ore and insolubles . story_separator_special_tag the extent to which rock springs may increase the applicable royalty rate is currently the subject of litigation in wyoming . any increase in the royalty rates we are required to pay to our lessors and licensor , or any failure by us to renew any of our leases and license , could have a material adverse impact on our results of operations , financial condition or liquidity , and , therefore , may affect our ability to distribute cash to unitholders . see part i , item 3 , “ legal proceedings , ” for additional information . selling , general and administrative expenses selling , general and administrative expenses incurred by our affiliates on our behalf are allocated to us based on the time the employees of those companies spend on our business and the actual direct costs they incur on our behalf . selling , general and administrative expenses incurred by ansac on our behalf are allocated to us based on the proportion of ansac 's total volumes sold for a given period attributable to the soda ash sold by us to ansac . prior to the closing of the transaction on october 23 , 2015 , under the omnibus agreement we reimbursed oci enterprises and its affiliates for the expenses incurred by them in providing services to us , and we also reimbursed oci enterprises for certain direct operating expenses they paid on our behalf . subsequent to the closing of the transaction , on october 23 , 2015 the partnership entered into a services agreement ( the “ services agreement ” ) , among the partnership , our general partner and ciner corp. pursuant to the services agreement , ciner corp has agreed to provide the partnership with certain corporate , selling , marketing , and general and administrative services , in return for which the partnership has agreed to pay ciner corp an annual management fee , subject to quarterly adjustments , and reimburse ciner corp for certain third-party costs incurred in connection with providing such services . in addition , under the joint venture agreement governing ciner wyoming , ciner wyoming reimburses us for employees who operate our assets and for support provided to ciner wyoming . results of operations a discussion and analysis of the factors contributing to our results of operations is presented below for the periods and as of the dates indicated . the financial statements , together with the following information , are intended to provide investors with a reasonable basis for assessing our historical operations , but should not serve as the only criteria for predicting our future performance . 50 the following tables set forth our results of operations for the years ended december 31 , 2016 , 2015 and 2014 . replace_table_token_9_th ( 1 ) ore to ash ratio expresses the number of short tons of trona ore needed to produce one short ton of soda ash and liquor and includes our deca rehydration recovery process . in general , a lower ore to ash ratio results in lower costs and improved efficiency . ( 2 ) for a discussion of the non-gaap financial measure adjusted ebitda , please read “ non-gaap financial measures ” of this management 's discussion and analysis . 51 analysis of results of operations the following table sets forth a summary of net sales , sales volumes and average sales price , and the percentage change between the periods : replace_table_token_10_th 2016 compared to 2015 story_separator_special_tag style= '' line-height:120 % ; padding-bottom:10px ; padding-top:10px ; text-indent:32px ; font-size:10pt ; '' > operating income . as a result of the foregoing , operating income increased by 14.8 % to $ 110.1 million for the year ended december 31 , 2015 compared to $ 96.0 million for the year ended december 31 , 2014. net income . as a result of the foregoing , net income increased by 15.6 % to $ 106.2 million for the year ended december 31 , 2015 , compared to $ 91.9 million for the year ended december 31 , 2014. liquidity and capital resources sources of liquidity include cash generated from operations and borrowings under credit facilities and capital calls from partners . we use cash and require liquidity primarily to finance and maintain our operations , fund capital expenditures for our property , plant and equipment , make cash distributions to holders of our partnership interests , pay the expenses of our general partner and satisfy obligations arising from our indebtedness . our ability to meet these liquidity requirements will depend on our ability to generate cash flow from operations . our sources of liquidity include : cash generated from our operations ; approximately $ 91.7 million ( $ 190 million , less $ 78.0 million outstanding and less standby letters of credit of $ 20.3 million ) , is available for borrowing and undrawn under the ciner wyoming credit facility ( as defined in part ii , item 8 , financial statements and supplementary data - note 9 , “ debt ” ) , subject to availability . during the year ended december 31 , 2016 we had repayments on the ciner wyoming credit facility of $ 27.0 million , offset by borrowings of $ 15.0 million ; and 53 $ 10.0 million available for borrowing under the revolving credit facility ( as defined in part ii , item 8 , financial statements and supplementary data - note 9 , “ debt ” ) , subject to availability . we expect our ongoing working capital and capital expenditures to be funded by cash generated from operations and borrowings under the ciner wyoming credit facility .
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consolidated results net sales . net sales decreased by 2.3 % to $ 475.2 million for the year ended december 31 , 2016 from $ 486.4 million for the year ended december 31 , 2015 . the change in net sales was driven by a decrease in total average sales price of 5.2 % , partly offset by an increase in soda ash volumes sold of 3.0 % . cost of products sold . cost of products sold , including depreciation , depletion and amortization expense , increased by 1.6 % to $ 361.7 million for the year ended december 31 , 2016 from $ 356.1 million for the year ended december 31 , 2015 , primarily as a result of the following : an increase of 27.4 % in materials costs to $ 18.6 million for year ended december 31 , 2016 , compared to $ 14.6 million for the year ended december 31 , 2015 , due primarily to the 3.0 % increase in soda ash volumes sold , as well as an increase in the deca harvesting costs during 2016 compared to 2015 ; an increase of 16.1 % in royalties paid to $ 25.2 million for the year ended december 31 , 2016 , as compared to $ 21.7 million for the year ended december 31 , 2015 , driven by increased sales volumes and increased royalty rates beginning in fourth quarter 2015 for both federal leases and license with rock springs .
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p ) basic and diluted income per share basic income per share is computed by dividing net income attributable to common stockholders by the weighted average number of common shares outstanding story_separator_special_tag the following discussion and analysis of our financial condition and result of operations should be read in conjunction with the consolidated financial statements and the related notes and other information included elsewhere in this report . overview we are a non-asset based transportation and logistics services company providing customers domestic and international freight forwarding services and other value added supply chain management services , including order fulfillment , inventory management and warehousing . we are executing a strategy to expand our operations through a combination of organic growth and the strategic acquisition of non-asset based transportation and logistics providers meeting our acquisition criteria . our first acquisition of airgroup corporation ( `` airgroup '' ) was completed on january 1 , 2006. airgroup , headquartered in bellevue , washington , is a non-asset based logistics company providing domestic and international freight forwarding services through a network of independent agent offices across north america . we continue to seek additional companies as suitable acquisition candidates and have completed five material acquisitions since our acquisition of airgroup . in november 2007 , we acquired certain assets of automotive services group in detroit , michigan to service the automotive industry . in september 2008 , we acquired adcom express , inc. d/b/a adcom worldwide ( `` adcom '' ) , adding an additional 30 locations across north america and augmenting our overall domestic and international freight forwarding capabilities . in april 2011 , we acquired dba distribution services , inc. , d/b/a distribution by air ( `` dba '' ) , adding an additional 26 locations across north america , further expanding our physical network and service capabilities . in december 2011 , we acquired the assets and operations of laredo , texas based isla international ltd , ( “ isla ” ) to serve as our gateway to mexico . in february 2012 , we acquired the assets and operations of new york-jfk based brunswicks logistics , inc. d/b/a albs logistics , inc. ( “ albs ” ) , a strategic location for domestic and international logistics services . in connection with our 2008 acquisition of adcom , the company changed the name of airgroup corporation to radiant global logistics , inc. ( `` rgl '' ) to better position our centralized back-office operations to service our multi-brand network . today , rgl , through the radiant , airgroup , adcom and dba network brands , has a diversified account base including manufacturers , distributors and retailers using a network of independent carriers through a combination of strategically positioned , company owned and independent agent offices . our growth strategy will continue to focus on both organic growth and growth through acquisitions . for organic growth , we will focus on strengthening and retaining existing , and expanding new customer agency relationships . since our acquisition of airgroup in january 2006 , we have focused our efforts on the build-out of our network of independent agency offices , as well as enhancing our back-office infrastructure , transportation and accounting systems . we also continue to search for targets that fit within our acquisition criteria . 22 performance metrics our principal source of income is derived from freight forwarding services . as a freight forwarder , we arrange for the shipment of our customers ' freight from point of origin to point of destination . generally , we quote our customers a turnkey cost for the movement of their freight . our price quote will often depend upon the customer 's time-definite needs ( first day through fifth day delivery ) , special handling needs ( heavy equipment , delicate items , environmentally sensitive goods , electronic components , etc . ) , and the means of transport ( motor carrier , air , ocean or rail ) . in turn , we assume the responsibility for arranging and paying for the underlying means of transportation . our transportation revenue represents the total dollar value of services we sell to our customers . our cost of transportation includes direct costs of transportation , including motor carrier , air , ocean and rail services . we act principally as the service provider to add value in the execution and procurement of these services to our customers . our net transportation revenue ( gross transportation revenue less the direct cost of transportation ) is the primary indicator of our ability to source , add value and resell services provided by third parties , and is considered by management to be a key performance measure . in addition , management believes measuring its operating costs as a function of net transportation revenue provides a useful metric , as our ability to control costs as a function of net transportation revenue directly impacts operating earnings . our operating results will be affected as acquisitions occur . since all acquisitions are made using the purchase method of accounting for business combinations , our financial statements will only include the results of operations and cash flows of acquired companies for periods subsequent to the date of acquisition . our gaap-based net income will be affected by non-cash charges relating to the amortization of customer related intangible assets and other intangible assets attributable to completed acquisitions . under applicable accounting standards , purchasers are required to allocate the total consideration in a business combination to the identified assets acquired and liabilities assumed based on their fair values at the time of acquisition . the excess of the consideration paid over the fair value of the identifiable net assets acquired is to be allocated to goodwill , which is tested at least annually for impairment . applicable accounting standards require that we separately account for and value certain identifiable intangible assets based on the unique facts and circumstances of each acquisition . story_separator_special_tag we generate the major portion of its air and ocean freight revenues by purchasing transportation services from direct ( asset-based ) carriers and reselling those services to our customers . based upon the terms in the contract of carriage , revenues related to shipments where we issue a house airway bill or a house ocean bill of lading are recognized at the time the freight is tendered to the direct carrier at origin . costs related to the shipments are also recognized at this same time based upon anticipated margins , contractual arrangements with direct carriers , and other known factors . the estimates are routinely monitored and compared to actual invoiced costs . the estimates are adjusted as deemed necessary by us to reflect differences between the original accruals and actual costs of purchased transportation . 24 this method generally results in recognition of revenues and purchased transportation costs earlier than the preferred methods under gaap which do not recognize revenue until a proof of delivery is received or which recognize revenue as progress on the transit is made . our method of revenue and cost recognition does not result in a material difference from amounts that would be reported under such other methods . story_separator_special_tag transportation revenue ( in thousands ) for the fiscal years ended june 30 , 2012 and 2011 : replace_table_token_3_th agent commissions were $ 52.4 million for the year ended june 30 , 2012 , an increase of 23.8 % from $ 42.4 million for the year ended june 30 , 2011. the increase is primarily attributable to the addition of dba agent-based offices in april 2011. as a percentage of net revenues , agent commissions decreased to 61.9 % for the year ended june 30 , 2012 , from 67.8 % for the year ended june 30 , 2011. this decrease is a result of our recent acquisitions of dba , isla , and albs , which added company-owned operations in newark , los angeles , laredo , and new york-jfk where commissions are not payable . personnel costs consist of payroll , payroll taxes , benefits and stock compensation expense . personnel costs were $ 13.1 million for the year ended june 30 , 2012 , an increase of 70.6 % from $ 7.7 million for the year ended june 30 , 2011. the increase is primarily attributable to our acquisitions of dba , isla , and albs , which added the personnel costs associated with the new company-owned operations in newark , los angeles , laredo , and new york-jfk . as a percentage of net revenues , personnel costs increased to 15.6 % for the year ended june 30 , 2012 , from 12.4 % for the year ended june 30 , 2011. selling , general and administrative ( `` sg & a '' ) costs consist primarily of marketing , rent , professional services , insurance and travel expenses . sg & a costs were $ 11.3 million for the year ended june 30 , 2012 , an increase of 112.7 % from $ 5.3 million for the year ended june 30 , 2011. the increase is primarily attributable to our acquisitions of dba , isla , and albs which added costs associated with the new company-owned operations in newark , los angeles , laredo , and new york-jfk , combined with non-recurring legal expenses incurred in connection with the isla and albs transactions and the on-going dispute with the selling shareholders of dba . as a percentage of net revenues , sg & a costs increased to 13.4 % for the year ended june 30 , 2012 , from 8.5 % for the year ended june 30 , 2011. depreciation and amortization costs were $ 3.1 million for the year ended june 30 , 2012 , an increase of 137.2 % from $ 1.3 million for the year ended june 30 , 2011. the increase is primarily due to amortization costs associated with the intangibles our acquisitions of dba , isla , and albs . as a percentage of net revenues , depreciation and amortization increased to 3.7 % for the year ended june 30 , 2012 from 2.1 % for the year ended june 30 , 2011. transition costs represent non-recurring operating costs incurred in connection with our acquisition of dba and totaled $ 1.0 million for the year ended june 30 , 2012 , an increase of 74.6 % from $ 0.6 million for the year ended june 30 , 2011. as a percentage of net revenues , non-recurring transition costs increased to 1.2 % for the year ended june 30 , 2012 , from 0.9 % for the year ended june 30 , 2011. change in contingent consideration represents the change in the fair value of contingent consideration due to former shareholders of acquired operations and totaled income of $ 0.9 million for the year ended june 30 , 2012. there were no such costs during the comparable prior period . as a percentage of net revenues , the change in contingent consideration was 1.1 % for the year ended june 30 , 2012 . 27 income from operations was $ 4.5 million for the year ended june 30 , 2012 , compared to income from operations of $ 5.2 million for the year ended june 30 , 2011. other expense was $ 0.9 million for the year ended june 30 , 2012 , as compared to other expense of $ 0.1 million during year ended june 30 , 2011. the increase is primarily associated with interest expense incurred with our acquisitions of dba , isla , and albs .
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results of operations basis of presentation the results of operations discussion that appears below has been presented utilizing a combination of historical and , where relevant , pro forma unaudited information to include the effects on our consolidated financial statements of our acquisitions of dba , isla , and albs . the pro forma results are developed to reflect a consolidation of the historical results of operations of the company and adjusted to include the historical results of dba , isla , and albs , as if we had acquired all of them as of july 1 , 2010. the pro forma results are also adjusted to reflect a consolidation of the historical results of operations of dba , isla , albs , and the company as adjusted to reflect the amortization of acquired intangibles and are also provided in the financial statements included within this report . the pro forma financial data is not necessarily indicative of results of operations that would have occurred had this acquisition been consummated at the beginning of the periods presented or which might be attained in the future . fiscal year ended june 30 , 2012 , compared to fiscal year ended june 30 , 2011 we generated transportation revenue of $ 297.0 million and net transportation revenue of $ 84.7 million for the year ended june 30 , 2012 , as compared to transportation revenue of $ 203.8 million and net transportation revenue of $ 62.5 million for the year ended june 30 , 2011. net income was $ 1.9 million for the year ended june 30 , 2012 , compared to net income of $ 2.9 million for the year ended june 30 , 2011. we had adjusted ebitda of $ 7.5 million and $ 6.8 million for years ended june 30 , 2012 and 2011 , respectively .
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these expenses also include depreciation of central office assets as well as the amortization of intellectual property and other assets . certain store expenses such as store payroll and credit card fees historically have increased or decreased proportionately with net retail sales . preopening : these expenses include costs incurred prior to store openings , remodels and relocations including certain store set-up , labor and hiring costs , rental charges , payroll , marketing , travel and relocation costs . they are expensed as incurred . s tores company-owned stores : the number of build-a-bear workshop stores in the uni ted states , canada , puerto rico ( collectively , north america ) , the united kingdom , ireland and denmark ( collectively , europe ) and china for the last three fiscal years are summarized as follows : replace_table_token_5_th during 2017 , we expect to continue to make improvements to an aged store fleet by leveraging the new discovery format in conjunction with select natural lease events . we also expect to close certain stores in accordance with natural lease events as an ongoing part of our real estate management and day-to-day operational plans . current plans include expansion into more non-traditional locations , made possible by a new , lower capital , more flexible “ concourse shop ” model . concourse shops are stand-alone shops with approximately 200 square feet designed to be operated in open , concourse areas of malls or other covered pedestrian areas . we currently expect to add 20 to 25 new locations , with approximately 15 being concourse shops , in fiscal 2017 and close 5 to 10 existing locations to finish 2017 with 356 to 366 company-owned retail locations . w e also operate in a number of other non-traditional locations , such as a ballpark , a zoo and science center . additionally , we operate shop-in-shop locations within other retailers ' stores . in 2016 , we had three permanent shop-in-shop locations and seven seasonal locations open only in the fourth quarter . as planned , two of these locations closed in the last week of fiscal 2016 and the remaining five locations closed in the first week of 2017. we also operate temporary stores , which generally have lease terms of six to eighteen months . these locations are intended to capitalize on short-term opportunities in specific locations . in 2015 , we opened our first true outlet format stores , in which we offer a value-oriented merchandise assortment , targeting locations near kid-centric tourist destinations . as of december 31 , 2016 , we operated 22 temporary and 11 outlet stores . 21 international franchise locations : our first franchisee location was opened in november 2003. all franchised stores have similar signage , store layout and merchandise assortments as our company-owned heritage stores . as of december 31 , 2016 , we had eight master franchise agreements , which typically grant franchise rights for a particular country or group of countries , covering an aggregate of 14 countries . the number of international , franchised stores opened and closed for the periods presented below are summarized as follows : replace_table_token_6_th the distribution of stores among these countries is as follows : replace_table_token_7_th ( 1 ) germany master franchise agreement includes austria and switzerland where stores have not yet opened ( 2 ) gulf states master franchise agreement includes kuwait , bahrain , qatar , and the united arab emirates and oman where we do not currently have a store open in the ordinary course of business , we anticipate signing additional master franchise agreements in the future and terminating other such agreements . we believe there is a market potential for approximately 300 international stores outside of the united states , canada , the united kingdom , ireland and denmark . in 2016 , we began to source fixtures and other supplies for our franchisees from china which significantly reduced the capital and lowered the expenses required to open stores . we also leveraged new formats that have been developed for our company-owned operations such as shop-in-shops . as a result , franchisees opened 22 locations in 2016 and are expected to ad d a further ten stores in 2017. additionally , our international franchisees are following our successful lead and adopting the discovery format with five discovery locations opened in fiscal 2016. we expect to develop market expansion through both new and existing franchisees in 2017 and beyond . results of operations 201 6 overview while significant progress was made on key platforms of our long-term strategic plan , results in 2016 were disappointing given the prior three consecutive years of comparable sales increases and improved profitability which we believe are more indicative of the consumer affinity for our brand and progress that has been made since the onset of our strategic plan in 2013. after identifying key causal factors that led to these results , we are focused on making the necessary adjustments in order to return to a positive comparable sales position and to evolve our strategies in order to deliver sustained profitable growth and enhance long-term shareholder value . we expect 2017 to be a transitional year as adjustments are made and key aspects of our longer term strategies are put in place . we believe we are positioning ourselves for the future through the continued development and implementation of our four key strategic initiatives of channel evolution , product expansion , brand and experience amplification and long-term profitability improvement . 22 the following table sets forth , for the periods indicated , selected statement of operation s data expressed as a percentage of total revenues , except where otherwise indicated . story_separator_special_tag percentages will not total due to cost of merchandise sold being expressed as a percentage of net retail sales and commercial revenue and immaterial rounding : replace_table_token_8_th ( 1 ) cost of merchandise sold – retail and cost of merchandise sold – commercial are expressed as a percentage of net retail sales and commercial revenue , respectively . ( 2 ) retail gross margin represents net retail sales less cost of merchandise sold – retail ; retail gross margin percentage represents retail gross margin divided by net retail sales . fiscal year ended december 31 , 2016 compared to fiscal year ended january 2 , 201 6 total revenues . net retail sales were $ 357.6 million for fiscal 2016 , compared to $ 372.7 million for fiscal 2015 , a decrease of $ 15.1 million . the components of this decrease are as follows : replace_table_token_9_th commercial revenue was $ 4.3 million for fiscal 2016 compared to $ 2.8 million for fiscal 201 5 , an increase of $ 1.5 million . this increase was primarily due to the addition of new wholesale customers and growth in outbound licensing activity in 2016. revenue from international franchise fees was $ 2.3 million for fiscal 2016 compared to $ 2.2 million for fiscal 2015. this $ 0.1 million increase was primarily the result of having more franchise locations open throughout the majority of the year . retail gross margin . retail gross margin was $ 161.7 million in fiscal 2016 compared to $ 175.6 million in fiscal 2015 , a decrease of $ 13.9 million , or 7.9 % . as a percentage of net retail sales , retail gross margin decreased to 45.2 % for fiscal 2016 from 47.1 % for fiscal 2015 , a decrease of 190 basis points as a percentage of net retail sales . this decline in margin was primarily attributable to deleverage on fixed occupancy expenses , including store asset impairments and the negative impact of currency on margin in the united kingdom . 23 selling , general and administrative . selling , general and administrative expenses were $ 157.2 million for fiscal 2016 as compared to $ 159.6 million for fiscal 2015 , a decrease of $ 2.4 million , or 1.5 % . as a percentage of total revenues , selling , general and administrative expenses were 43.2 % for fiscal 2016 , compared to 42.3 % in fiscal 2015. the decrease in dollars was primarily attributable to lower marketing expenses and incentive compensation partially offset by charges related to a duty dispute in the uk , china start-up costs , and other costs associated with restructuring and a review of strategic alternatives . the decrease as a percentage of total revenues was driven by the deleverage of these expenses given the revenue decline in fiscal 2016 as compared to fiscal 2015. store preopening . store preopening expenses were $ 3.5 million in fiscal 2016 as compared to $ 1.9 million in fiscal 2015. the increase was attributable to the increase in the number of new and remodeled discovery format stores opened in fiscal 2016 as compared to the prior year . interest expense ( income ) , net . interest expense , net of interest income , was $ 5,000 for fiscal 2016. in fiscal 2015 , interest income , net of interest expense , was $ 0.1 million . provision for income taxes . income tax expense in fiscal 2016 was $ 3.9 million compared to an income tax benefit of $ 9.4 million in fiscal 2015. the 2016 effective rate of 74.1 % differed from the statutory rate of 34 % primarily due to the effect of establishing a full valuation allowance in certain foreign jurisdictions and other discrete tax adjustments . the 2015 effective tax rate of ( 52.8 ) % differed from the statutory rate of 34 % primarily due to the reversal of all of the valuation allowance on u.s. deferred tax assets at january 2 , 2016. fiscal year ended january 2 , 2016 ( 5 2 weeks ) compared to fiscal year ended january 3 , 2015 ( 5 3 weeks ) total revenues . net retail sales were $ 372.7 million for fiscal 2015 , compared to $ 387.7 million for fiscal 2014 , a decrease of $ 15.0 million . the components of this decrease are as follows : replace_table_token_10_th revenue from international franchise fees was $ 2 . 2 million for fiscal 2015 compared to $ 2.5 million for fiscal 2014. this $ 0.3 million decrease was primarily the result of having fewer franchise locations open throughout the majority of the year . commercial revenue was $ 2.8 million for fiscal 2015 compared to $ 2.1 million for fiscal 2014 , an increase of $ 0.7 million . this increase was primarily due to an increase in wholesale activity in 2015. retail g ross margin . retail gross margin was $ 175.6 million in fiscal 2015 compared to $ 176.8 million in fiscal 2014 , a decrease of $ 1.2 million , or 0.7 % . as a percentage of net retail sales , retail gross margin increased to 47.1 % for fiscal 2015 from 45.6 % for fiscal 2014 , an increase of 150 basis points as a percentage of net retail sales . this improvement in margin was primarily attributable to 150 points of expansion in merchandise margin while efficiencies in the supply chain were offset by deleverage on fixed occupancy expenses . selling , general and administrative . selling , general and administrative expenses were $ 159.6 million for fiscal 2015 as compared to $ 163.3 million for fiscal 2014 , a decrease of $ 3.7 million , or 2.2 % . as a percentage of total revenues , selling , general and administrative expenses were 42.3 % for fiscal 2015 , compared to 41.6 % in fiscal 2014. the decrease in dollars was primarily attributable to lower variable
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seasonality and quarterly results the following is a summary of certain unaudited quarterly results of operations data for each of the last two fiscal years . replace_table_token_13_th ( 1 ) retail g ross margin represents net retail sales less cost of retail merchandise sold . our operating results for one period may not be indicative of results for other periods , and may fluctuate significantly because of a variety of factors , including , but not limited to : ( 1 ) fluctuations in the profitability of our stores ; ( 2 ) increases or decreases in comparable sales and total revenues ; ( 3 ) changes in general economic conditions and consumer spending patterns ; ( 4 ) the timing and frequency of our marketing initiatives including national media appearances and other public relations events ; ( 5 ) changes in foreign currency exchange rates ; ( 6 ) seasonal shopping patterns and holiday and vacation schedules ; ( 7 ) the timing of store closures , relocations and openings and related expenses ; ( 8 ) the effectiveness of our inventory management ; ( 9 ) changes in consumer preferences ; ( 10 ) the continued introduction and expansion of merchandise offerings ; ( 11 ) actions of competitors or mall anchors and co-tenants ; ( 12 ) weather conditions ; and ( 13 ) the impact of a 53rd week in our fiscal year , which occurs approximately every six years . the timing of store openings , closures and remodels may cause fluctuations in quarterly results due to the changes in revenues and expenses associated with each store location . we typically incur most preopening costs for a new store , remodeled or relocated store in the three months immediately preceding the store 's opening . expenses related to store closings are typically incurred in stages : when the decision is made to close the store , when the closure is communicated to store associates and at the time of closure .
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mr. nelly served as vice president and treasurer from april 2015 to february 2019 ; senior director of finance from april 2011 until march 2015 ; and director of finance from january 2008 to march 2011. prior to joining enterprise , mr. nelly spent 10 years with various corporate and investment banks where he executed transactions and maintained relationships with midstream and upstream energy companies and gained experience in strategic advisory , valuation , mergers and acquisitions , and capital raising . 117 robert d. sanders mr. sanders was elected executive vice president , asset optimization in january 2020 and previously story_separator_special_tag for the years ended december 31 , 2019 , 2018 and 2017 the following discussion and analysis of our financial condition , results of operations and related information for the years ended december 31 , 2019 and 2018 , including applicable year-to-year comparisons , should be read in conjunction with our consolidated financial statements and accompanying notes included under part ii , item 8 of this annual report . our financial statements have been prepared in accordance with generally accepted accounting principles ( “ gaap ” ) in the united states ( “ u.s. ” ) . discussion and analysis of matters pertaining to the year ended december 31 , 2017 and year-to-year comparisons between the years ended december 31 , 2018 and 2017 are not included in this form 10-k , but can be found under part ii , item 7 of our annual report on form 10-k for the year ended december 31 , 2018 that was filed on march 1 , 2019. key references used in this management 's discussion and analysis unless the context requires otherwise , references to “ we , ” “ us , ” “ our ” or “ enterprise ” are intended to mean the business and operations of enterprise products partners l.p. and its consolidated subsidiaries . references to “ epd ” mean enterprise products partners l.p. on a standalone basis . references to “ epo ” mean enterprise products operating llc , which is an indirect wholly owned subsidiary of epd , and its consolidated subsidiaries , through which epd conducts its business . enterprise is managed by its general partner , enterprise products holdings llc ( “ enterprise gp ” ) , which is a wholly owned subsidiary of dan duncan llc , a privately held texas limited liability company . the membership interests of dan duncan llc are owned by a voting trust , the current trustees ( “ dd llc trustees ” ) of which are : ( i ) randa duncan williams , who is also a director and chairman of the board of directors ( the “ board ” ) of enterprise gp ; ( ii ) richard h. bachmann , who is also a director and vice chairman of the board of enterprise gp ; and ( iii ) dr. ralph s. cunningham , who is also an advisory director of enterprise gp . ms. duncan williams and mr. bachmann also currently serve as managers of dan duncan llc along with w. randall fowler , who is also a director and the co-chief executive officer and chief financial officer of enterprise gp . references to “ epco ” mean enterprise products company , a privately held texas corporation , and its privately held affiliates . a majority of the outstanding voting capital stock of epco is owned by a voting trust , the current trustees ( “ epco trustees ” ) of which are : ( i ) ms. duncan williams , who serves as chairman of epco ; ( ii ) dr. cunningham , who serves as vice chairman of epco ; and ( iii ) mr. bachmann , who serves as the president and chief executive officer of epco . ms. duncan williams and mr. bachmann also currently serve as directors of epco along with mr. fowler , who is also the executive vice president and chief financial officer of epco . epco , together with its privately held affiliates , owned approximately 32 % of epd 's limited partner common units at december 31 , 2019. as generally used in the energy industry and in this annual report , the acronyms below have the following meanings : /d = per day mmbbls = million barrels bbtus = billion british thermal units mmbpd = million barrels per day bcf = billion cubic feet mmbtus = million british thermal units bpd = barrels per day mmcf = million cubic feet mbpd = thousand barrels per day tbtus = trillion british thermal units 66 cautionary statement regarding forward-looking information this annual report on form 10-k for the year ended december 31 , 2019 ( our “ annual report ” ) contains various forward-looking statements and information that are based on our beliefs and those of enterprise gp , as well as assumptions made by us and information currently available to us . when used in this document , words such as “ anticipate , ” “ project , ” “ expect , ” “ plan , ” “ seek , ” “ goal , ” “ estimate , ” “ forecast , ” “ intend , ” “ could , ” “ should , ” “ would , ” “ will , ” “ believe , ” “ may , ” “ potential ” and similar expressions and statements regarding our plans and objectives for future operations are intended to identify forward-looking statements . although we and enterprise gp believe that our expectations reflected in such forward-looking statements are reasonable , neither we nor enterprise gp can give any assurances that such expectations will prove to be correct . forward-looking statements are subject to a variety of risks , uncertainties and assumptions as described in more detail under part i , item 1a of this annual report . if one or more of these risks or uncertainties materialize , or if underlying assumptions prove incorrect , our actual results may vary materially from those anticipated , estimated , projected or expected . story_separator_special_tag in addition , management announced its intention to use approximately 2.0 % of net cash flow provided by operating activities , or cash flow from operations ( “ cffo ” ) , in 2020 to repurchase epd common units under the buyback program approved in january 2019 ( the “ 2019 buyback program ” ) . for information regarding the 2019 buyback program , including repurchases of common units in 2019 , see “ liquidity and capital resources – common unit buyback program ” within this part ii , item 7. enterprise begins service at mentone natural gas processing facility in december 2019 , we completed the first processing train at our mentone cryogenic natural gas processing facility ( “ mentone i ” ) and placed it into service . the mentone facility , which is located in loving county , texas , has a current capacity to process 300 mmcf/d of natural gas and extract more than 40 mbpd of ngls . mentone and its related infrastructure further extends our presence in the delaware basin and provides producers access to our fully integrated midstream asset network , including our texas intrastate system and shin oak ngl pipeline . we own and operate the mentone facility and related infrastructure . with mentone i in operation , we have the capability to process up to 1.6 bcf/d of natural gas and extract up to 250 mbpd of ngl production from our processing facilities in the delaware basin . on a related note , we completed and placed into service a third processing train ( “ orla iii ” ) at our cryogenic natural gas processing facility located near orla , texas in reeves county in july 2019. the orla facility is capable of processing up to 900 mmcf/d of natural gas and extracting up to 140 mbpd of ngls . like mentone , the orla facility and related infrastructure supports continued growth of ngl-rich natural gas production from the delaware basin . we own and operate the orla facility . 68 enterprise begins service at bulldog natural gas processing plant in november 2019 , we placed our bulldog cryogenic natural gas processing plant , which is located near carthage , texas , into service . the bulldog plant has the capability to process up to 200 mmcf/d of natural gas and extract up to 12 mbpd of ngls . when combined with our legacy panola cryogenic plant , bulldog provides us with the capacity to process up to a total of 320 mmcf/d of natural gas and extract up to 18 mbpd of ngls in the region . the new plant supports continued growth of natural gas production from the cotton valley and haynesville formations in east texas . in addition , the bulldog plant complements our value chain as the mixed ngls produced at the plant are transported on the panola pipeline to mont belvieu for fractionation . enterprise begins service at isobutane dehydrogenation unit in december 2019 , we completed construction and placed our isobutane dehydrogenation ( “ ibdh ” ) unit into service . the facility , which is located at our mont belvieu complex and supported by long-term , fee-based contracts , is capable of processing approximately 25 mbpd of butane into nearly 1 billion pounds per year of isobutylene . production from the ibdh plant will enable us to optimize our methyl tertiary butyl ether ( “ mtbe ” ) and high purity isobutylene ( “ hpib ” ) assets and meet growing market demand for isobutylene . steam crackers and refineries have historically been the major source of propane and butane olefins for downstream use ; however , with the increased use of light-end feedstocks such as ethane , the need for “ on purpose ” olefins production has increased . like our pdh facility , the ibdh plant will help meet market demand where traditional supplies have been reduced . the ibdh plant will increase our production of high purity and low purity isobutylene , both of which are used as feedstocks to manufacture lubricants , rubber products and fuel additives . enterprise begins service at ethylene export terminal in december 2019 , we placed our ethylene export terminal into limited service , with the first cargo of 25 million pounds of ethylene exported in january 2020. the terminal , which we operate , is located at our morgan 's point facility on the houston ship channel and features two docks and the capacity to load 2.2 billion pounds of ethylene per year . a refrigerated storage tank for 66 million pounds of ethylene is being constructed on-site that will allow the terminal to load ethylene up to a rate of 2.2 million pounds per hour . full commercial operations at the terminal are expected in the fourth quarter of 2020 once certain refrigeration assets are complete . we own a 50 % member interest in enterprise navigator ethylene terminal llc , which owns the export facility . our ethylene system is being developed to serve as an open market storage and trading hub for the ethylene industry using storage capacity , connections to multiple ethylene pipelines , and high-volume export capabilities . in support of our ethylene business , we recently placed into service a high-capacity underground ethylene storage well at our mont belvieu complex having a storage capacity of 600 million pounds of ethylene . the storage well is connected to our morgan 's point ethylene export terminal by a 16-mile pipeline , which was placed into service in december 2019. an additional 8 miles of ethylene pipelines extending from morgan 's point to bayport , texas are under construction and expected to be completed and placed into service in the fourth quarter of 2020. in may 2019 , we announced plans to further expand our ethylene pipeline and logistics system by constructing the baymark ethylene pipeline in south texas , which is a leading growth area for new ethylene crackers and related facilities . the baymark pipeline will originate in bayport , texas and extend approximately 90 miles to markham , texas .
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cash flow statement highlights the following table summarizes our consolidated cash flows from operating , investing and financing activities for the years indicated ( dollars in millions ) . for additional information regarding our cash flow amounts , please refer to the statements of consolidated cash flows included under part ii , item 8 of this annual report . replace_table_token_26_th 92 net cash flows provided by operating activities are largely dependent on earnings from our consolidated business activities . changes in energy commodity prices may impact the demand for natural gas , ngls , crude oil , petrochemical and refined products , which could impact sales of our products and the demand for our midstream services . changes in demand for our products and services may be caused by other factors , including prevailing economic conditions , reduced demand by consumers for the end products made with hydrocarbon products , increased competition , adverse weather conditions and government regulations affecting prices and production levels . we may also incur credit and price risk to the extent customers do not fulfill their obligations to us in connection with our marketing activities and long-term take-or-pay agreements . risks of nonpayment and nonperformance by customers are a major consideration in our businesses , and our credit procedures and policies may not be adequate to sufficiently eliminate customer credit risk . we manage our exposure to credit risk through credit analysis , credit approvals , credit limits and monitoring procedures , and for certain transactions may utilize letters of credit , prepayments , net out agreements and guarantees . however , these procedures and policies do not fully eliminate customer credit risk . we have a concentration of trade receivable balances due from independent and major integrated oil and gas companies and other pipelines and wholesalers .
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actual results could differ materially for a variety of reasons , including , among others : the effects on the airline industry and the global economy of events such as terrorist activity , changes in oil prices and other disruptions to the world markets ; trends in the airline industry and our ability to capitalize on those trends , including growth rates of markets and other economic factors ; risks associated with owning and leasing jet engines and aircraft ; our ability to successfully negotiate equipment purchases , sales and leases , to collect outstanding amounts due and to control costs and expenses ; changes in interest rates and availability of capital , both to us and our customers ; our ability to continue to meet the changing customer demands ; regulatory changes affecting airline operations , aircraft maintenance , accounting standards and taxes ; and the market value of engines and other assets in our portfolio . these risks and uncertainties , as well as other risks and uncertainties that could cause our actual results to differ significantly from management 's expectations , are described in greater detail in item 1a “ risk factors ” of part i which , along with the other discussion in this report , describes some , but not all , of the factors that could cause actual results to differ significantly from management 's expectations . general . our core business is acquiring and leasing commercial aircraft and aircraft engines and related aircraft equipment pursuant to operating leases , all of which we sometimes collectively refer to as “ equipment. ” as of december 31 , 2019 , all of our leases were operating leases with the exception of two leases entered into during the first quarter of 2019 which are classified as notes receivable under asu 2016-02. as of december 31 , 2019 , we had 85 lessees in 41 countries . our portfolio is continually changing due to acquisitions and sales . as of december 31 , 2019 , our lease portfolio consisted of 263 engines , 12 aircraft , 10 other leased parts and equipment , and one marine vessel with an aggregate net book value of $ 1,650.9 million . as of december 31 , 2019 , we also managed 450 engines , aircraft and related equipment on behalf of other parties . our wholly owned subsidiary willis asset management limited ( “ willis asset management ” ) is focused on the engine management and consulting business . willis aeronautical services , inc. ( “ willis aero ” ) is a wholly-owned subsidiary whose primary focus is the sale of aircraft engine parts and materials through the acquisition or consignment of aircraft and engines . in 2011 we entered into an agreement with mitsui & co. , ltd. to participate in a joint venture formed as a dublin-based irish limited company , wmes , for the purpose of acquiring and leasing jet engines . each partner holds a fifty percent interest in the joint venture . wmes owns a lease portfolio of 36 engines and five aircraft with a net book value of $ 306.0 million at december 31 , 2019 . our investment in the joint venture was $ 44.1 million as of december 31 , 2019 . in 2014 we entered into an agreement with casc to participate in casc willis , a new joint venture based in shanghai , china . each partner holds a fifty percent interest in the joint venture . the company acquires and leases jet engines to chinese airlines and concentrates on meeting the fast growing demand for leased commercial aircraft engines and aviation assets in the people 's republic of china . during 2016 , casc was reorganized , with portions of its partnership interest in casc willis being transferred to three chinese airlines and another government-owned entity . the 2016 casc reorganization resulted in no voting structure change to the joint venture . casc 23 willis owned a lease portfolio of four engines with a net book value of $ 49.2 million as of december 31 , 2019 . our investment in the joint venture was $ 13.8 million as of december 31 , 2019 . we actively manage our portfolio and structure our leases to maximize the residual values of our leased assets . our leasing business focuses on popular stage iv commercial jet engines manufactured by cfmi , general electric , pratt & whitney , rolls royce and international aero engines . these engines are the most widely used engines in the world , powering airbus , boeing , bombardier and embraer aircraft . recent developments . currently , an independent committee established by our board of directors is reviewing and negotiating a proposal from our chief executive officer and largest investor ( individually and together with an entity controlled by him , the “ willis parties ” ) and our senior vice president , corporate development ( together with the willis parties , the “ group ” ) to acquire the company pursuant to a merger . the group has not yet submitted a complete proposal for consideration by the independent committee , including indicative financing terms . consummation of any merger transaction will be subject to approval by the independent committee of the terms of a complete proposal submitted for consideration as well as the execution of definitive merger documentation . there can be no assurance regarding the terms and details of any transaction , that any future proposal by the group will be made , that any proposal made by the group will be accepted by the independent committee or that any merger transaction will ultimately be consummated . critical accounting policies and estimates the preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . story_separator_special_tag management continuously monitors the aviation industry and evaluates any trends , events or uncertainties involving airlines , individual aircraft and engine models , as well as the engine leasing and sale market which would materially affect the methodology or assumptions employed by wlfc . we do not consider there to be any trends , events or uncertainties that currently exist or that are reasonably likely to occur that would materially affect our methodology or assumptions . however , should any arise , we will adjust our methodology and our disclosure accordingly . spare parts inventory is stated at lower of cost or net realizable value . an impairment charge for excess or inactive inventory is recorded based upon an analysis that considers current inventory levels , historical usage patterns , future sales expectations and salvage value . accounting for maintenance expenditures and maintenance reserves . use fees received are recognized in revenue as maintenance reserve revenue if they are not reimbursable to the lessee . use fees that are reimbursable are recorded as a maintenance reserve liability until they are reimbursed to the lessee , the lease terminates , or the obligation to reimburse the lessee for such reserves ceases to exist , at which time they are recognized in revenue as maintenance reserve revenue . our expenditures for maintenance are expensed as incurred . expenditures that meet the criteria for capitalization are recorded as an addition to equipment recorded on the balance sheet . recent accounting pronouncements the most recent adopted and to be adopted accounting pronouncements are described in note 1 ( w ) to our consolidated financial statements included in this annual report on form 10-k. story_separator_special_tag 2018 , were $ 1,251.0 million and $ 1,337.3 million , respectively . after adjustment for interest rate derivative instruments , $ 197.0 million and $ 327.0 million , respectively , was tied to one-month libor . as of december 31 , 2019 and 2018 , the company held $ 200 million and $ 100 million of interest rate derivative instruments on this debt . as of december 31 , 2019 and 2018 one-month libor was 1.76 % and 2.50 % , respectively . income taxes . income tax expense for the year ended december 31 , 2019 increased to $ 22.0 million from $ 13.0 million for the comparable period in 2018 . the effective tax rate for the years ended december 31 , 2019 and december 31 , 2018 was 24.7 % and 23.2 % , respectively . the increase in the effective tax rate was predominantly due to non-deductible officer compensation and state taxes . 26 financial position , liquidity and capital resources at december 31 , 2019 , the company had $ 63.7 million of cash , cash equivalents and restricted cash . at december 31 , 2019 , $ 4.7 million in cash and cash equivalents and restricted cash were held in foreign subsidiaries . we do not intend to repatriate the funds held in foreign subsidiaries to the united states . in the event that we decide to repatriate these funds to the united states , we would be required to accrue and pay taxes upon the repatriation . we finance our growth through borrowings secured by our equipment lease portfolio . cash of approximately $ 340.1 million and $ 759.4 million in the years ended december 31 , 2019 and 2018 , respectively , was derived from this borrowing activity . in these same time periods $ 428.1 million and $ 504.8 million , respectively , was used to pay down related debt . preferred stock dividends in october 2016 , the company sold and issued to development bank of japan inc. ( “ dbj ” ) an aggregate of 1,000,000 shares of the company 's 6.5 % series a preferred stock , $ 0.01 par value per share ( the “ series a preferred stock ” ) at a purchase price of $ 20.00 per share . the net proceeds to the company after deducting investor fees were $ 19.8 million . in september 2017 , the company sold and issued to dbj an aggregate of 1,500,000 shares of the company 's 6.5 % series a-2 preferred stock , $ 0.01 par value per share ( the “ series a-2 preferred stock ” ) at a purchase price of $ 20.00 per share . the net proceeds to the company after deducting issuance costs were $ 29.7 million . the company 's series a-1 preferred stock and series a-2 preferred stock accrue quarterly dividends at the rate per annum of 6.5 % per share . during the years ended december 31 , 2019 and 2018 , the company paid total dividends of $ 3.3 million on the series a-1 and series a-2 preferred stock , respectively . cash flows discussion cash flows provided by operating activities were $ 230.3 million and $ 188.7 million in the years ended december 31 , 2019 and 2018 , respectively . cash flows from operations are driven significantly by payments made under our lease agreements , which comprise lease revenue , security deposits and maintenance reserves , and are offset by interest expense and general and administrative costs . cash received as maintenance reserve payments for some of our engines on lease are partially restricted by our debt arrangements . the lease revenue stream , in the short-term , is at fixed rates while a portion of our debt is at variable rates . if interest rates increase , it is unlikely we could increase lease rates in the short term and this would cause a reduction in our earnings and operating cash flows . revenue and maintenance reserves are also affected by the amount of equipment off lease . approximately 86 % and 88 % , by book value , of our assets were on-lease as of december 31 , 2019 and december 31 , 2018 , respectively . the average utilization rate for the year ended december 31 , 2019 and 2018 was approximately 88 % and 89 % , respectively .
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results of operations year ended december 31 , 2019 compared to the year ended december 31 , 2018 revenue is summarized as follows : replace_table_token_2_th lease rent revenue . our lease rent revenue for the year ended december 31 , 2019 increased by 8.6 % over the comparable period in 2018 . lease rent revenue consists of rental income from long-term and short-term engine leases , aircraft leases , and other leased parts and equipment . the increase is primarily driven by an increase in lease rental rates . the aggregate net book value of equipment held for lease at december 31 , 2019 and 2018 was $ 1,650.9 million and $ 1,673.1 million , respectively , a decrease of 1.3 % . during the year ended december 31 , 2019 , 45 engines , 6 aircraft , one marine vessel and other lease equipment were added to our lease portfolio at a total cost 25 of $ 289.4 million ( including capitalized costs ) . during the year ended december 31 , 2018 , 38 engines and 7 aircraft were added to our lease portfolio at a total cost of $ 421.9 million ( including capitalized costs ) . maintenance reserve revenue . our maintenance reserve revenue for the year ended december 31 , 2019 increased 25.3 % to $ 109.0 million from $ 87.0 million for the year ended december 31 , 2018 . assets out on lease with “ non-reimbursable ” usage fees , generated $ 71.4 million of short term maintenance revenues compared to $ 63.7 million generated in the comparable prior period . long term maintenance revenue increased to $ 37.6 million for the year ended december 31 , 2019 compared to $ 23.3 million in 2018 as a result of more long-term leases coming to an end during 2019 as compared to the prior year . spare parts and equipment sales .
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54 ultra clean holdings , inc. notes to consolidated financial statements ( continued ) on june 10 , 2010 , the stockholders of the company approved amendments to the company 's 2003 amended and restated stock incentive plan , which included : an increase in share authorization by 1,500,000 common shares ; the elimination of the company 's ability to increase further the number of shares under the plan without stockholder approval ; and makes certain other changes to the 2003 amended and restated stock incentive plan , all of which are more fully described in the company 's definitive proxy statement filed on april 23 , 2010. option activity under the 2003 incentive plan is as follows : replace_table_token_23_th the following table summarizes information with respect to options outstanding and exercisable at december 30 , 2011 : replace_table_token_24_th 55 ultra clean holdings , inc. notes to consolidated financial statements ( continued ) for the fiscal years 2011,2010 and 2009 , the intrinsic value of the company 's story_separator_special_tag this section and other parts of this annual report on form 10-k contain forward-looking statements that involve risks and uncertainties . forward-looking statements can also be identified by words such as anticipates , projection , forecast , estimates , intends , may , will , should , continue , expects , believes , plans , predicts , and similar terms . forward-looking statements are not guarantees of future performance and the company 's actual results may differ significantly from the result discussed in the forward-looking statements . factors that might cause such differences include , but are not limited to , those discussed in item 1a risk factors above . the following discussion should be read in conjunction with the consolidated financial statement and notes thereto included in item 8 of this report . the company assumes no obligation to revise or update any forward-looking statements for any reason , except as required by law . overview we are a leading developer and supplier of critical subsystems , primarily for the semiconductor capital equipment industry . we also leverage the specialized skill sets required to support semiconductor capital equipment to serve the technologically similar markets in the flat panel , medical , energy and research industries , collectively referred to as other addressed industries . we develop , design , prototype , engineer , manufacture and test subsystems which are highly specialized and tailored to specific steps in the semiconductor manufacturing process as well as the manufacturing process in other addressed industries . our revenue is derived primarily from the sale of gas delivery systems and other critical subsystems including chemical mechanical planarization ( cmp ) subsystems , chemical delivery modules , top-plate assemblies , frame assemblies , process modules and other high level assemblies . the results of our operations are largely dependent on the demand for semiconductors , which is ultimately driven by demand for electronic products . these demands can vary depending on cyclical conditions of the industries we serve as well as global economic conditions . for example , our financial results for fiscal years 2011 and 2010 reflect significantly increased demand for our products over fiscal 2009 , a year when demand for critical subsystems for the semiconductor capital equipment industry as well as other addressed industries was significantly reduced due to extremely unfavorable global economic conditions . we also serve a relatively limited number of customers , especially in the semiconductor capital equipment business , as it is characterized by a limited number of large participants . as a result our revenue is highly concentrated . financial results for fiscal 2011 over fiscal 2010 reflected a modest increase in demand for our products , as our sales were $ 452.6 million for fiscal year 2011 compared to $ 443.1 million for fiscal year 2010. we did experience a slight downturn in our business during the second half of fiscal 2011 , primarily in the semiconductor capital equipment and energy industries ; however , we do not expect this downturn to continue into fiscal 2012. our three largest customers in fiscal 2011 were applied materials , inc. , lam research corporation and fei company , two of which each accounted for 10 % or more of our sales for fiscal year 2011. these customers , as a group , accounted for 68 % of our sales for fiscal 2011. two of our largest semiconductor customers , novellus systems and lam research , recently announced that they had entered into a merger agreement pursuant to which they would combine businesses . also , in november 2011 , applied materials , inc. completed the acquisition of varian semiconductor equipment associates , inc. , one of our customers . we will continue to assess the potential impact on our future operating results ; however , at this time we do not believe either of these two mergers will have a significant impact , if any , on our business going forward . in addition , we will be terminating our agreement for manufacturing services to fei company in april 2012 as fei has chosen to insource their production , however , we will continue to provide services for pay to fei for up to six months subsequent to termination of the agreement . we do not believe the loss of fei will have a material effect on our fiscal 2012 operating results . story_separator_special_tag as of december 30 , 2011 , we maintained a full valuation allowance on the deferred tax assets of one of our china subsidiaries . during the fourth quarter of fiscal 2011 we reversed all of the valuation allowance related to our u.s. subsidiaries . in order to reverse a valuation allowance , sec guidance requires us to review our cumulative twelve-quarter income/loss as well as our ability to generate sufficient future taxable income to realize our net deferred tax assets . during fiscal 2011 , we conducted quarterly reviews of each of our subsidiaries . our u.s. subsidiaries reflected a cumulative twelve quarter profit at the end of the fourth quarter of fiscal 2011 compared to a cumulative twelve quarter loss at the end of the previous quarter , and based on financial trends of our u.s. subsidiaries at the close of fiscal 2011 we determined with a higher level of confidence that we would generate sufficient taxable income to realize our deferred tax assets . therefore , we concluded that it was appropriate to release all of the valuation allowance remaining after adjustment for true-ups and changes in deferred tax assets , or $ 6.7 million , related to our u.s. subsidiaries . we also concluded that due to a fourth quarter 2011 net loss and financial trends of one of our chinese subsidiaries , it was appropriate to increase the valuation allowance $ 125,000 to $ 441,000 , thereby maintaining a full reserve on the deferred tax assets of that subsidiary . during fiscal 2011 we also released $ 0.4 million of valuation allowance due to true-ups and changes in deferred tax assets for which we maintained a full valuation allowance . the total valuation allowance on our consolidated deferred tax assets as of december 31 , 2011 , was $ 441,000 . 27 our ability to realize deferred tax assets depends on its ability to generate sufficient taxable income of the same character within the carryback or carry forward periods . in assessing future gaap taxable income , we have considered all sources of taxable income available to realize its deferred tax assets including the future reversal of existing temporary differences , future taxable income exclusive of reversing temporary differences and carry forwards , taxable income in carryback years and tax-planning strategies . if changes occur in the assumptions underlying our tax planning strategies or in the scheduling of the reversal of our deferred tax liabilities , the valuation allowance may need to be adjusted in the future . year ended december 31 , 2010 compared with year ended january 1 , 2010 sales sales for the year ended december 31 , 2010 increased $ 283.4 million , or 177.4 % , to $ 443.1 million from $ 159.8 million for the year ended january 1 , 2010. the increase in sales for 2010 reflects a recovery of semiconductor equipment demand since the overall slowdown in the industry . substantially all of the revenue increase was attributable to volume increases with existing customers . gross profit gross profit for the year ended december 31 , 2010 increased to $ 59.1 million , or 13.3 % of sales , from $ 8.0 million , or 5.0 % of sales , for the year ended january 1 , 2010. our gross margin for 2010 increased from 2009 primarily as a result of increased unit volume manufactured due to increased sales for fiscal 2010 and greater factory utilization . our gross margin for 2009 reflected low unit volume manufactured due to decreased sales during fiscal 2009 , lower factory utilization and employee severance charges resulting from a series of reductions in force . research and development expense research and development expense increased to $ 5.5 million , or 1.2 % of sales , for the year ended december 31 , 2010 compared to $ 3.2 million , or 2.0 % of sales for the year ended january 1 , 2010. the increase in expense is primarily a result of higher payroll and related benefit costs as a result of headcount increases . sales and marketing expense sales and marketing expense was $ 6.9 million and $ 4.7 million for the years ended december 31 , 2010 and january 1 , 2010 , respectively . the increase in spending was due primarily to increased headcount related expenses and higher sales commissions . as a percentage of sales , sales and marketing expense decreased to 1.6 % for the year ended december 31 , 2010 compared to 2.9 % for the year ended january 1 , 2010 due to the substantially higher revenue base in 2010 compared to 2009. general and administrative expense general and administrative expense increased to $ 21.3 million , or 4.8 % of sales , for the year ended december 31 , 2010 , from $ 16.2 million , or 10.1 % of sales , for the year ended january 1 , 2010. the increase in expense is due to primarily to increased payroll and related benefit costs as a result of increases in headcount and terminations costs for executives , partially offset by reductions in fees for outside professional services . interest and other income ( expense ) , net interest and other income ( expense ) , net for fiscal year 2010 was $ ( 0.7 ) million compared to $ ( 0.8 ) million for fiscal 2009. components of interest and other income ( expense ) , net related primarily to interest expense for both fiscal 2010 and 2009. interest expense for 2010 was approximately $ ( 0.9 ) million compared to $ ( 0.8 ) million for 2009 and was slightly higher due to the $ 8.0 million term loan entered into in the fourth quarter of 2010. offsetting 2010 interest expense was miscellaneous income including gains on sales of assets .
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unaudited quarterly financial results the following table sets forth statement of operations data , in thousands , for the periods indicated . the information for each of these periods is unaudited and has been prepared on the same basis as our audited consolidated financial statements included herein and includes all adjustments , consisting only of normal 31 recurring adjustments that we consider necessary for a fair presentation of our unaudited operations data for the periods presented . historical results are not necessarily indicative of the results to be expected in the future ( in thousands ) : replace_table_token_5_th our operating results for fiscal 2011 reflect the reversal of a tax valuation allowance of $ 6.7 million in the fourth quarter . liquidity and capital resources we have required capital principally to fund our working capital needs , satisfy our debt obligations , maintain our equipment and purchase new capital equipment . as of december 30 , 2011 , we had unrestricted cash of $ 52.2 million compared to $ 34.7 million as of december 31 , 2010. for fiscal year 2011 , we generated cash from operating activities of $ 23.7 million compared to using cash of $ 4.9 million for fiscal year 2010. operating cash flows generated for fiscal year 2011 were from : $ 23.7 million of net income ; net non-cash activity , including depreciation and amortization of $ 2.9 million and stock-based compensation of $ 4.4 million ; decreases in accounts receivable of $ 13.5 million and inventory of $ 3.8 million . offsetting cash inflows were decreases in accounts payable of $ 16.5 million and accrued compensation of $ 0.9 million , an increase in deferred income tax of $ 6.3 million and a decrease of $ 3.8 million in inventory .
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on october 1 , 2014 we completed the sale of our amk business . we have reflected the results of amk as discontinued operations in the consolidated statements of operations for all periods presented . accordingly , historical consolidated statements of operations included in the management 's discussion and analysis of financial condition and results of operations have been restated to reflect the discontinued operation . nobelclad nobelclad manufactures clad metal plates and transition joints , which are made from clad plates , for sale to customers that fabricate industrial equipment for various industries , including oil and gas , petrochemicals , alternative energy , hydrometallurgy , aluminum production , shipbuilding , power generation , industrial refrigeration , and similar industries . while a large portion of the demand for our clad metal products is driven by new plant construction and large plant expansion projects , maintenance and retrofit projects at existing chemical processing , petrochemical processing , oil refining , and aluminum smelting facilities also account for a significant portion of total demand . these industries tend to be cyclical in nature and timing of new order inflow remains difficult to predict ; however , we believe that our nobelclad segment is well-positioned in the marketplace . cost of products sold for nobelclad includes the cost of metals and alloys used to manufacture clad metal plates , the cost of explosives , employee compensation and benefits , freight , outside processing costs , depreciation of manufacturing facilities and equipment , manufacturing supplies and other manufacturing overhead expenses . we use backlog as a primary means to measure the immediate outlook for our nobelclad business . we define “ backlog ” at any given point in time as all firm , unfulfilled purchase orders and commitments at that time . generally speaking , we expect to fill most backlog orders within the following 12 months . from experience , most firm purchase orders and commitments are realized . our nobelclad backlog increased to $ 41,832 at december 31 , 2015 from $ 41,244 at december 31 , 2014 . dynaenergetics dynaenergetics manufactures shaped charges , detonators and detonating cord , and bidirectional boosters and perforating guns for sale to customers that perform the perforation of oil and gas wells and from sales of seismic products to customers involved in oil and gas exploration activities . cost of products sold for dynaenergetics includes the cost of metals , explosives and other raw materials used to manufacture shaped charges , detonating products and perforating guns as well as employee compensation and benefits , depreciation of manufacturing facilities and equipment , manufacturing supplies and other manufacturing overhead expenses . 2015 results nobelclad continued to experience margin squeeze due to pricing pressure and customer and product mix . however , the effect has been offset by the benefits of the restructuring activities it undertook beginning in the fourth quarter of 2014 in the form of more streamlined production and lower costs . subsequent to the close of 2015 , nobelclad was awarded a $ 6.3 million order for specialized explosion clad plates to be used in the fabrication of equipment for a semiconductor material production facility in east asia . the order will be reflected in nobelclad 's first-quarter order backlog , and is expected to ship during the second quarter . the plates will be manufactured at nobelclad 's plant in liebenscheid , germany , which is close to the metal suppliers . 27 despite low oil prices and decreased well-completion activities in and outside of north america , we were able to increase dynaenergetics ' customer penetration in the perforating market in 2015. unit sales of dynaselect continued to grow during 2015 , as an increasing number of operators and service providers are leveraging the reliability , efficiency and safety of this industry-leading product . in the third quarter of 2015 , dynaenergetics completed field trials of its factory-assembled dynastage perforating system and entered into a principal partner agreement with weatherford international , our primary testing partner and one of the world 's largest oilfield services companies . weatherford became the first oilfield service company to deploy our dynastage product , a factory-assembled , performance-assured well perforating system incorporating the safety features of our advanced detonator technologies . we expect that our efforts to educate end users about dynastage 's efficiency and safety benefits will lead to increased sales growth and market penetration in the future . in january 2016 , dynaenergetics obtained all the permits necessary to manufacture industrial explosives at its new shaped charge plant in tyumen , siberia . test runs of the manufacturing line will commence in march 2016 , and after passing internal quality checks , the charges will be tested in several russian oil fields to ensure real-world performance . this process should be complete by the middle of the second quarter , at which point we expect to begin supplying the russian oil and gas market with high-performance charges and guns . during the fourth quarter of 2015 , to alleviate the risk that the slowdown in our core energy markets and the near-term financial impact our restructuring programs put on our leverage and debt-service-coverage ratios , we negotiated an amended credit agreement , which increases those ratios and grants us additional financial flexibility for the coming year . restructuring during 2015 , we executed several programs to enhance operating efficiencies across our businesses , including closing distribution and production centers , consolidating manufacturing to more cost-effective locations , and reducing corporate headcount . the total restructuring charges for 2015 and 2014 were $ 4,063 and $ 6,781 , respectively . in the first quarter of 2015 , we launched several initiatives to enhance dynaenergetics ' operational efficiencies and align its production and distribution resources with the anticipated demands of the market . in january 2015 , we closed two north american distribution centers . on february 24 , 2015 , we announced the closure of a perforating gun manufacturing facility and distribution center in edmonton , alberta . story_separator_special_tag management also believes that investors may find non-gaap financial measures useful for the same reasons , although investors are cautioned that non-gaap financial measures are not a substitute for gaap disclosures . because not all companies use identical calculations , dmc 's presentation of non-gaap financial measures may not be comparable to other similarly titled measures of other companies . however , these measures can still be useful in evaluating the company 's performance against its peer companies because management believes the measures provide users with valuable insight into key components of gaap financial disclosures . for example , a company with greater gaap net income may not be as appealing to investors if its net income is more heavily comprised of gains on asset sales . likewise , eliminating the effects of interest income and expense moderates the impact of a company 's capital structure on its performance . all of the items included in the reconciliation from net income to ebitda and adjusted ebitda are either ( i ) non-cash items ( e.g. , depreciation , amortization of purchased intangibles and stock-based compensation ) or ( ii ) items that management does not consider to be useful in assessing dmc 's operating performance ( e.g. , income taxes , restructuring and impairment charges and gain on sale of assets ) . in the case of the non-cash items , management believes that investors can better assess the company 's operating performance if the measures are presented without such items because , unlike cash expenses , these adjustments do not affect dmc 's ability to generate free cash flow or invest in its business . for example , by adjusting for depreciation and amortization in computing ebitda , users can compare operating performance without regard to different accounting determinations such as useful life . in the case of the other items , management believes that investors can better assess operating performance if the measures are presented without these items because their financial impact does not reflect ongoing operating performance . we have also presented certain financial measures excluding certain one-time , non-recurring “ special items , ” including our accrued anti-dumping duties , inventory reserve adjustment , the non-cash goodwill impairment charge and restructuring charges . these are non-gaap financial measures when the special items are excluded . we believe these are important supplemental measures because they eliminate one-time , non-recurring items that have less bearing on our operating performance and so highlight trends in our business that may not otherwise be apparent when relying solely on gaap financial measures . the following is a reconciliation of the most directly comparable gaap measure to ebitda and adjusted ebidta . replace_table_token_9_th 32 year ended december 31 , 2014 compared to year ended december 31 , 2013 replace_table_token_10_th net sales the increase compared with 2013 was due to a 26 % increase in dynaenergetics revenue offset by a 18 % decrease in nobelclad revenue . gross profit the increase in gross profit margin compared with 2013 was primarily due to a a higher proportion of sales in dynaenergetics , which has higher gross profit margins than nobelclad . general and administrative expenses excluding the impacts in 2013 of $ 2,965 in non-recurring expenses associated with management retirements and a $ 756 asset impairment charge related to an information system project in russia , our general and administrative expenses increased by $ 2,815 or 13.4 % from an aggregate increase in salaries , benefits and payroll taxes of $ 1,093 , a $ 976 increase in stock-based compensation expense and a $ 327 increase in professional services . the increases were driven by year-over-year headcount additions to support business development initiatives , corporate branding and recruiting expenses . excluding the impact of non-recurring management retirement and asset impairment expenses in 2013 , general and administrative expenses , as a percentage of net sales , increased to 11.7 % in 2014 from 10.4 % in 2013. selling and distribution expenses the increase in selling and distribution expenses compared with 2013 was primarily due to a $ 1,000 aggregate increase in salaries , benefits and payroll taxes , a $ 436 increase in bad debt expense mostly from favorable adjustments in the third quarter of 2013 and an increase of $ 100 in stock-based compensation expense . amortization expense amortization expense relates to the amortization of values assigned to intangible assets in connection with our prior years acquisitions of dynaenergetics and other businesses that are now part of our dynaenergetics business segment . the $ 245 decrease in 2014 amortization expenses reflects the impact of foreign currency translation effects and a slight decrease in q4 2014 amortization expense associated with the dynaenergetics acquisition based on the amortization schedule . amortization expense for 2014 includes $ 4,777 $ 1,135 , and $ 191 relating to values assigned to customer relationships , core technology , and trademarks/trade names , respectively . amortization expense for 2013 includes $ 5,021 , $ 1,136 and $ 191 relating to values assigned to customer relationships , core technology , and trademarks/trade names , respectively . 33 restructuring charges the components of 2014 restructuring charges are detailed as follows : replace_table_token_11_th nobelclad 's restructuring relates to the shifting of the majority of clad metal plate production from facilities in both rivesaltes , france and würgendorf , germany to the new manufacturing facility in liebenscheid , germany . operating income income from operations decreased by 39.3 % to $ 6,665 in 2014 from $ 10,978 in 2013. excluding the impact of restructuring expenses , our consolidated operating income for 2014 was $ 13,446 , an increase of $ 2,468 or 22.5 % over 2013. the consolidated operating income totals for 2014 and 2013 include $ 6,381 and $ 7,217 , respectively , of unallocated corporate expenses and $ 3,588 and $ 3,401 , respectively , of stock-based compensation expense . these expenses are not allocated to our business segments and thus are not included in the below 2014 and 2013 operating income totals for nobelclad and dynaenergetics .
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results of operations year ended december 31 , 2015 compared to year ended december 31 , 2014 replace_table_token_7_th net sales the decrease compared with 2014 was due to a 7 % decrease in nobelclad and a 27 % decrease in dynaenergetics . excluding unfavorable currency , nobelclad 's net sales increased 1 % and dynaenergetics ' decreased 21 % . the net sales declined in dynaenergetics as the global downturn in the oil and gas market outweighed higher sales of new products and technologies . gross profit the decrease in gross profit and gross profit margin compared with 2014 was driven by the impact of a $ 6,374 accrual for anti-dumping and countervailing duties resulting from an unfavorable scope ruling from the department of commerce on prior imports of metals primarily used for gun carrier tubing in dynaenergetics . the decline also resulted from a lower proportion of sales in dynaenergetics relative to nobelclad , unfavorable product mix in nobelclad , lower average selling prices and increased inventory reserves in dynaenergetics and the impact of lower sales volume on fixed manufacturing overhead expenses in both segments . general and administrative expenses the decrease compared with 2014 was primarily due to a reduction in salaries of $ 1,451 , lower stock-based compensation of $ 894 , and a reduction in outside services expenses of $ 667. in the first half of 2015 we recognized incremental audit and legal expenses of $ 450 associated with the restatement of previously-issued financial statements included in our 2014 form 10-k. these one-time expenses were offset by a reduction in fees related to fewer board of directors and lower information technology spending from bringing selected services in-house and completing an erp project in nobelclad . selling and distribution expenses the increase compared with 2014 was principally due to an increase in bad debt expense .
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open market or privately negotiated purchases , either from time to time or on an accelerated basis , in story_separator_special_tag overview we are a leading molecular diagnostic company dedicated to making a difference in patient 's lives through the discovery and commercialization of transformative tests which assess a person 's risk of developing disease , guide treatment decisions and assess risk of disease progression and recurrence . we believe in improving the healthcare experience for patients and physicians by providing them with critical information to solve unmet clinical needs . by understanding the underlying genetic basis of disease , we believe that individuals who have a greater risk of developing disease can be identified and physicians may be able to use this information to improve patient outcomes and better manage patient healthcare . in addition , by understanding the rna expression levels of certain genes , we believe that we can improve patient healthcare by providing information on the aggressiveness of their disease . further , we have tests in development which analyze the expression of groups of proteins . we think this protein information will help diagnose and determine treatment for many diseases . our goal is to provide physicians with critical information that may guide the healthcare management of their patients to prevent disease , diagnose the disease at an earlier stage when it may be treatable , determine the most appropriate therapy , assess the aggressiveness of their disease or even potentially prevent disease . we employ a number of proprietary technologies , including dna , rna and protein analysis , that help us to understand the genetic basis of human disease and the role that genes and their related proteins may play in the onset and progression of disease . we use this information to guide the development of new molecular diagnostic tests that are designed to assess an individual 's risk for developing disease later in life ( predictive medicine ) , identify a patient 's likelihood of responding to drug therapy and guide a patient 's dosing to ensure optimal treatment ( personalized medicine ) , or assess a patient 's risk of disease progression and disease recurrence ( prognostic medicine ) . our business strategy for future growth is focused on three key initiatives . first , we are working to grow and expand our existing products and markets . second , we are developing our business internationally and have recently established sales operations and a reference laboratory in europe . finally , we intend to launch new transformative products across a diverse set of disease indications , complementing our current businesses in oncology , women 's health and urology . on may 31 , 2011 , we completed the acquisition of the privately-held molecular diagnostic company , rules-based medicine , inc. of austin , texas , for a cash purchase price of approximately $ 80.0 million . the acquired company has been consolidated into our operations as myriad rbm . the acquisition expanded our product pipeline into new disease states , including neuroscience disorders , infectious diseases and inflammatory diseases , and added eight new molecular diagnostic test candidates to our current product pipeline . we believe that myriad rbm 's strategic collaborations with over 20 major pharmaceutical and biotechnology companies , coupled with our position in parp inhibitors and pi3k inhibitors , will allow us to create a leading franchise in companion diagnostics . in addition , our acquisition of myriad rbm provides us with access to samples from additional patient cohorts for our diagnostic product development and is expected to enhance our industry-leading dna and rna technologies with in protein discovery and analysis . during the fiscal year ended june 30 , 2012 , we devoted our resources to supporting and growing our transformative molecular diagnostic and companion diagnostic businesses , as well as to the research and development of future molecular diagnostic and companion diagnostic candidates . see note 10 segment and related information in the notes to our consolidated financial statements for information regarding our operating segments . our consolidated revenues primarily consisted of sales of molecular diagnostic tests through our myriad genetic laboratories subsidiary and companion diagnostic service revenue through our myriad rbm subsidiary . during the year ended june 30 , 2012 , we reported net income of $ 112.2 million and diluted earnings per share of $ 1.30 that included income tax expense of $ 72.4 million . as of june 30 , 2012 , we had an accumulated deficit of $ 12.7 million . we incurred research and development expenses of $ 42.6 million , $ 27.8 million , and $ 21.9 million for the years ended june 30 , 2012 , 2011 and 2010 , respectively . our research and development expenses include costs incurred in maintaining and improving our nine current molecular diagnostic tests offerings and costs incurred for the discovery , development and validation of our pipeline of molecular diagnostic and companion diagnostic test candidates . 40 our selling , general and administrative expenses include costs associated with growing our molecular diagnostic and companion diagnostic businesses domestically and internationally . selling , general and administrative expenses consist primarily of salaries , commissions and related personnel costs for sales , marketing , customer service , billing and collection , executive , legal , finance and accounting , information technology , human resources , and allocated facilities expenses . we expect that our selling , general and administrative expenses will increase from quarter to quarter and that such increases may be substantial , depending on the number and scope of any new molecular diagnostic and companion diagnostic launches , our efforts in support of our existing molecular diagnostic tests and companion diagnostic services as well as our continued international expansion efforts . between may 2010 and august 2011 , we repurchased $ 300 million of our outstanding common stock . on august 15 , 2011 , our board of directors authorized us to repurchase an additional $ 200 million of our outstanding common stock . story_separator_special_tag a hypothetical decrease in the residual growth rate of 0.5 % would decrease the calculated fair value as a percent of book value for the companion diagnostic reporting unit by 5 % . income taxes . our income tax provision is based on income before taxes and is computed using the liability method in accordance with accounting standards codification ( asc ) 740 income taxes . deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using tax rates projected to be in effect for the year in which the differences are expected to reverse . significant estimates are required in determining our provision for income taxes . some of these estimates are based on interpretations of existing tax laws or regulations , or the expected results from any future tax examinations . various internal and external factors may have favorable or unfavorable effects on our future provision for income taxes . those factors include , but are not limited to , changes in tax laws , regulations and or rates , the results of any future tax examinations , changing interpretations of existing tax laws or regulations , changes in estimates of prior years ' items , past levels of r & d spending , acquisitions , changes in our corporate structure , and changes in overall levels of income before taxes all of which may result in periodic revisions to our provision for income taxes . developing our provision for income taxes , including our effective tax rate and analysis of potential uncertain tax positions , if any , requires significant judgment and expertise in federal and state income tax laws , regulations and strategies , including the determination of deferred tax assets and liabilities and any estimated valuation allowance we deem necessary to offset deferred tax assets . during the fiscal year ended june 30 , 2010 , we determined that a valuation allowance was not required for a substantial portion of our deferred tax assets because we have established a sufficient history of taxable income from operations . however , if we do not maintain taxable income from operations in future periods , we may increase the valuation allowance for our deferred tax assets and record material adjustments to our income tax expense . our judgment and tax strategies are subject to audit by various taxing authorities . while we believe we have provided adequately for our uncertain income tax positions in our consolidated financial statements , adverse determination by these taxing authorities could have a material adverse effect on our consolidated financial condition , results of operations or cash flows . interest and penalties on income tax items are included as a component of overall income tax expense . recent accounting pronouncements in may 2011 , the fasb issued amended standards related to fair value measurements and disclosures that result in common fair value measurement and disclosures between gaap and international financial reporting standards . 42 the standards include amendments that clarify the intent behind the application of existing fair value measurements and disclosures and the other amendments which change principles or requirements for fair value measurements or disclosures . this guidance is effective for fiscal year 2013 and is to be applied prospectively . accordingly we will adopt these standards on july 1 , 2013. the adoption is not expected to have a material effect on our financial results or disclosures . in june 2011 , the fasb issued amended standards requiring comprehensive income to be presented as either one continuous statement of comprehensive income or two separate but consecutive statements . the amended standards do not affect the reported amounts of comprehensive income . in december 2011 , the fasb deferred the requirement to present components of reclassifications of other comprehensive income on the face of the income statement that had previously been included in the june 2011 amended standard . this guidance is effective for fiscal year 2013 and is to be applied retrospectively . accordingly we will adopt these standards on july 1 , 2013. the adoption is not expected to have an impact on our financial results or disclosures but will have an impact on the presentation of comprehensive income . story_separator_special_tag size= '' 2 '' style= '' font-family : times new roman '' > an increase of approximately $ 7.9 million in bad debt expense , some of which was associated with the 23 % increase in revenues ; an increase of approximately $ 4.4 million in international administrative costs from our european operations ; and 44 an increase in share-based compensation expense of approximately $ 1.9 million . we expect that our selling , general and administrative expenses will continue to increase and that such increases may be substantial , depending on the number and scope of any new molecular diagnostic and companion diagnostic product launches , our efforts in support of our existing molecular diagnostic tests and companion diagnostic services as well as our continued international expansion efforts . interest income for the fiscal year ended june 30 , 2012 was $ 4.6 million , compared to $ 2.2 million for the prior fiscal year . the increase was due primarily to interest income recorded from a $ 25 million note receivable with crescendo bioscience , inc. , or crescendo . income tax expense for the fiscal year ended june 30 , 2012 was $ 72.4 million , for an effective rate of approximately 39 % , compared to income tax expense of $ 58.9 million and an effective rate of approximately 37 % in the 2011 period . income tax expense for the year ended june 30 , 2012 was based on the application of an annual effective tax rate , adjusted by discrete items recognized during the period . our annual effective tax rate is a product of the u.s. federal statutory rate of 35 % , a blended state income tax rate of 3 % and a 1 % impact from our international operations .
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results of operations years ended june 30 , 2012 and 2011 revenue is comprised of sales of our molecular diagnostic tests and companion diagnostic services . total revenue for the fiscal year ended june 30 , 2012 was $ 496.0 million compared to $ 402.1 million for the prior fiscal year , an increase of 23 % . of this 23 % increase in revenue , approximately 18 % is attributable to increased molecular diagnostic testing volume and approximately 5 % is due to companion diagnostic service revenue in connection with our acquisition of myriad rbm on may 31 , 2011. sales of our brac analysis test accounted for 81.7 % of our total revenues in fiscal 2012 compared to 87.8 % in the prior year . we believe that increased sales , marketing , and education efforts resulted in wider acceptance of our tests by the medical community and increased patient testing volumes . there can be no assurance that revenues will continue to increase or remain at current levels or that we will be successful in expanding the sale of our tests outside the united states . total revenue of our molecular diagnostic tests and companion diagnostic services and revenue by product as a percent of total revenue for the year ended june 30 , 2012 and 2011 were as follows : replace_table_token_8_th 43 our molecular diagnostic sales force is focused on two major markets , oncology and women 's health . sales of molecular diagnostic tests in each market for the fiscal years ended june 30 , 2012 and 2011 were as follows : replace_table_token_9_th cost of molecular diagnostic revenue is comprised primarily of salaries and related personnel costs , laboratory supplies , royalty payments , equipment costs and facilities expense . cost of molecular diagnostic testing revenue for the fiscal year ended june 30 , 2012 was $ 51.5 million compared to $ 45.6 million for the prior fiscal year .
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we also acted on important strategic priorities that will strengthen our long-term position . we expanded our retail independent customer base significantly with the kinray acquisition , created strong growth from our generic pharmaceutical programs , significantly enhanced our specialty business with the p4 healthcare acquisition , and launched a growth platform in china with our yong yu acquisition . during fiscal 2011 , our pharmaceutical segment profit increased by 26 percent , primarily due to strong performance in our generic pharmaceutical programs , including the impact of new product launches , solid performance under our branded manufacturer agreements , and the positive impact of acquisitions . our medical segment profit decreased by 14 percent , adversely affected by the increased cost of commodities used in our self-manufactured and private brand products . also during fiscal 2011 , we paid quarterly cash dividends of $ 0.195 per share , or $ 0.78 per share on an annualized basis , an increase of 11 percent over fiscal 2010. in may 2011 , the board of directors also approved a 10 percent increase in the quarterly dividend beginning in july 2011. our cash and equivalents balance was $ 1.9 billion at june 30 , 2011 , compared to $ 2.8 billion at june 30 , 2010. we used $ 2.3 billion for acquisitions and received $ 1.4 billion of net cash provided by operations and $ 706 million from the sale of our remaining investment in carefusion . we plan to continue to execute a balanced deployment of available capital to position ourselves for sustainable competitive advantage and to enhance shareholder value . trends within our pharmaceutical segment , we expect branded pharmaceutical price appreciation in fiscal 2012 to be similar to fiscal 2011. we also expect significant new generic pharmaceutical launches in fiscal 2012 ; however , their impact on our gross margin can vary significantly depending on timing , size , and number of entrants , and may be less in fiscal 2012 than in fiscal 2011. in addition , we expect our recent acquisitions to have a positive year-over-year impact on revenue and operating earnings . finally , we may have a negative impact from a lifo charge in fiscal 2012. within our medical segment , variability in the cost of commodities such as oil-based resins , cotton , latex , diesel fuel and other commodities can have a significant impact on the cost of products sold . in fiscal 2012 , we anticipate a negative year-over-year impact from higher commodity prices . in addition , given the current economic and healthcare environments , we expect healthcare utilization , including surgical procedures , to remain somewhat sluggish in fiscal 2012 . 20 acquisitions in december 2010 , we acquired kinray for a cash payment of $ 1.3 billion . this acquisition expanded the ability of our pharmaceutical distribution business to serve retail independent pharmacies in the northeastern united states . in november 2010 , we acquired yong yu , a leading health care distribution business in china , for $ 458 million , including the assumption of $ 57 million in debt . the pharmaceutical market in china is expected to grow significantly faster than the market in the united states over the next few years . in july 2010 , we completed the acquisition of p4 healthcare , a specialty pharmaceutical services company , for a cash payment of $ 506 million . this acquisition contributes to the expansion of our presence in specialty pharmaceutical services and distribution . the acquisition agreement also included a contingent consideration obligation of up to $ 150 million over the next three years . since we completed the acquisition , we have made a cash payment of $ 10 million for the first measurement period . subsequent to june 30 , 2011 , we amended the agreement with the former owners to extend the last measurement period by one year and to reduce the maximum contingent consideration payout to $ 100 million . at june 30 , 2011 , we estimate the remaining contingent consideration obligation to have a fair value of $ 75 million . the three acquisitions are reported within our pharmaceutical segment . for fiscal 2011 , they increased revenues by $ 2.9 billion and operating earnings by $ 61 million compared to fiscal 2010. see note 2 of the notes to consolidated financial statements for additional information on the kinray , yong yu and p4 healthcare acquisitions . spin-off of carefusion effective august 31 , 2009 , we separated our clinical and medical products business through the distribution to our shareholders of 81 percent of the then outstanding common stock of carefusion and retained the remaining 41.4 million shares of carefusion common stock . during fiscal 2011 and 2010 , we disposed of 30.5 million and 10.9 million shares of carefusion common stock , respectively . on july 22 , 2009 , we entered into a separation agreement with carefusion to effect the spin-off and provide a framework for our relationship with carefusion after the spin-off . in addition , on august 31 , 2009 , we entered into a transition services agreement , a tax matters agreement and an accounts receivable factoring agreement with carefusion , among other agreements . under the transition services agreement , during fiscal 2011 and 2010 , we recognized $ 65 million and $ 99 million , respectively , in transition service fees , which approximately offsets the costs associated with providing the transition services . substantially all of the transition service arrangements expired in fiscal 2011 and early fiscal 2012. we expect that transition service fees in fiscal 2012 will be substantially less than in fiscal 2011 and that the loss of fees in fiscal 2012 will be partially offset by cost reductions . for periods subsequent to fiscal 2012 , we have plans in place to largely offset the loss of fees with cost reductions . story_separator_special_tag the principal drivers for the decrease during fiscal 2010 were pricing changes on renewed customer contracts , fewer significant generic pharmaceutical launches than the prior year and the medicine shoppe franchise transformation . the decline in segment profit was partially offset by contributions from our generic programs , disciplined cost controls and increased margin from branded pharmaceutical sales . segment profit from bulk sales increased $ 20 million in fiscal 2011 as compared to fiscal 2010 and was 11 percent of pharmaceutical segment profit in both years . segment profit from non-bulk sales increased $ 243 million in fiscal 2011 as compared to fiscal 2010 and was 89 percent of pharmaceutical segment profit in both years . the generic pharmaceutical items and acquisitions discussed above primarily impacted segment profit from non-bulk sales . medical segment compared to the prior year , results for fiscal 2011 were adversely affected by increased cost of commodities used in our self-manufactured and private brand products partially offset by increased sales volume . results also were impacted by the negative year-over-year impact of recognizing in fiscal 2010 a one-time gain related to previously deferred intercompany revenue for sales to carefusion . the principal drivers for the increase during fiscal 2010 were growth in sales to certain existing customers and decreased cost of raw materials associated with commodity price movements . results were also positively affected by the one-time gain related to previously deferred intercompany revenue for sales to carefusion . segment profit growth was partially dampened from increased spending on strategic projects . 25 consolidated operating earnings in addition to revenue , gross margin and sg & a discussed above , operating earnings were impacted by the following : replace_table_token_12_th restructuring and employee severance fiscal 2011 , 2010 and 2009 restructuring and employee severance charges included $ 7 million , $ 65 million and $ 74 million , respectively , of costs arising from the spin-off . acquisition-related costs during fiscal 2011 , net acquisition-related costs included $ 21 million , related to the kinray , yong yu and p4 healthcare acquisitions . the costs were partially offset by $ 6 million of income as a result of a decrease in the contingent consideration liability relating to the p4 healthcare acquisition , which reflects actual performance for the first measurement period and changes in our estimate of performance in future measurement periods . see note 2 of the notes to consolidated financial statements for additional information on this change . impairments and loss on sale of assets in fiscal 2010 , we recognized an impairment charge of $ 18 million related to the write-down of specialtyscripts , a business within our pharmaceutical segment . we completed the sale of specialtyscripts during the third quarter of fiscal 2010. litigation ( recoveries ) /charges , net in fiscal 2010 , we received income of $ 41 million resulting from settlement of a class action antitrust claim in which we were a class member . in addition , we received $ 26 million of income for insurance proceeds released from escrow after litigation , commenced against certain directors and officers in 2004 , was resolved . earnings before income taxes and discontinued operations in addition to items discussed above , earnings before income taxes and discontinued operations were impacted by the following : replace_table_token_13_th interest expense , net the decrease in interest expense for fiscal 2011 was primarily due to the favorable impact of interest rate swaps . 26 loss on extinguishment of debt during fiscal 2010 , we recognized a $ 40 million loss from the early retirement of over $ 1.1 billion of debt securities through a tender offer . gain on sale of investment in carefusion common stock we recognized $ 75 million and $ 45 million of income during fiscal 2011 and 2010 , respectively , related to realized gains from the sale of shares of carefusion common stock . provision for income taxes generally , fluctuations in the effective tax rate are due to changes within international and united states state effective tax rates resulting from our business mix and discrete items . a reconciliation of the provision based on the federal statutory income tax rate to our effective income tax rate from continuing operations is as follows for fiscal 2011 , 2010 and 2009 ( see note 9 of notes to consolidated financial statements for a detailed disclosure of the effective tax rate reconciliation ) : replace_table_token_14_th fiscal 2011 compared to fiscal 2010 the effective tax rate was favorably impacted by $ 28 million , or 1.9 percentage points , attributable to recognizing no income tax expense on the sale of carefusion stock due to the release of a previously established deferred tax valuation allowance . an unfavorable charge attributable to earnings no longer indefinitely invested offshore in fiscal 2010 favorably impacted the year-over-year comparison of the effective tax rate ( see below ) . fiscal 2010 compared to fiscal 2009 the effective tax rate was unfavorably impacted by a charge of $ 168 million , or 13.9 percentage points , attributable to earnings no longer indefinitely invested offshore . the fiscal 2010 effective tax rate was also unfavorably impacted by 1.8 percentage points due to changes in our business mix resulting from the spin-off which resulted in a higher percentage of our pretax income being generated in the united states than in lower tax rate international jurisdictions . a favorable audit settlement with a state taxing authority in fiscal 2009 also unfavorably impacted the year-over-year comparison of the effective tax rate . ongoing audits the irs is currently conducting audits of fiscal years 2001 through 2010. we have received proposed adjustments from the irs related to our transfer pricing arrangements between foreign and domestic subsidiaries and the transfer of intellectual property among subsidiaries of an acquired entity prior to its acquisition by us . the irs proposed additional taxes of $ 849 million , excluding penalties and interest .
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results of operations revenue replace_table_token_8_th fiscal 2011 compared to fiscal 2010 pharmaceutical segment during fiscal 2011 , pharmaceutical revenue was positively impacted by acquisitions , net of divestitures ( $ 2.7 billion ) and increased sales to existing customers ( $ 1.8 billion ) . revenue was negatively impacted by losses of customers in excess of gains ( $ 584 million ) . revenue from bulk sales was $ 41.9 billion and $ 44.0 billion for fiscal 2011 and 2010 , respectively . during fiscal 2011 , revenue from bulk sales decreased 5 percent as a result of the conversion of branded pharmaceuticals to generic pharmaceuticals as well as a shift in sales to certain national chain customers to non-bulk from bulk . revenue from non-bulk sales was $ 51.8 billion and $ 45.8 billion for fiscal 2011 and 2010 , respectively . revenue from non-bulk sales increased 13 percent , during fiscal 2011 , primarily due to acquisitions and the previously mentioned shift in sales . all sales for kinray , yong yu and p4 healthcare are non-bulk . see item 1business for more information about bulk and non-bulk sales . medical segment medical revenue was positively impacted during fiscal 2011 by increased volume from existing customers ( $ 354 million ) . these revenue gains were partially offset by the impact of lost customers in excess of gains ( $ 165 million ) and decreased volume as a result of strong demand for flu-related products in the prior year ( $ 51 million ) . fiscal 2010 compared to fiscal 2009 pharmaceutical segment pharmaceutical segment revenue was positively impacted during fiscal 2010 by pharmaceutical price appreciation and increased volume from existing customers ( a combined impact of $ 3.4 billion ) , partially offset by losses of customers in excess of gains ( $ 1.3 billion ) .
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as of august 31 , 2016 , the balance on this note was $ 45,000. the maturity date of this note was october 15 , 2016. on february 4 , 2016 the company entered into a one year $ 235,294 unsecured promissory note with redwood with an interest rare of 10 % and $ 35,294 issue discount . as of august 31 , 2016 , the company recognized approximately $ 20,000 of note discount . as of august 31 , 2016 , the balance on this note was $ 235,294. as of august 31 , 2016 , the company recognized approximately $ 20,000 of amortization.the maturity date of this note was october 15 , 2016 . 48 lincoln park capital fund , llp : in april 2015 , the company entered into an unsecured convertible note with lincoln park capital fund , llp ( “ lincoln park ” ) pursuant to which the company issued a convertible promissory note of $ 295,000 and the right to purchase warrants upon the payment or conversion of the note principal . the conversion feature includes provisions that call for the instrument to be converted to equity at a price equal to ( i ) $ 1.00 if the company 's common stock price closes above $ 1.00 ; ( ii ) the average of the publicly reported closing bid and ask price if the company 's publicly reported common stock price closes between $ 0.50 and $ 0.99 ; or ( iii ) $ 0.50 if the company 's publicly reported common stock price closes below $ 0.50 . as a result of this feature , the conversion feature is subject to derivative accounting pursuant to asc 815. accordingly , the fair value of the conversion feature on the date of issuance was estimated using an option pricing model and recorded on the company 's consolidated balance sheet as a derivative liability and a note discount . the fair value of the conversion feature is estimated at the end of each reporting period and the change in the fair value is recorded as a non-operating gain or loss as change in value of derivatives in the company 's consolidated statement of operations . in connection with this debt , the company recorded a note discount equal to approximately $ 215,000 associated with the measurement of the warrants and conversion feature issued therewith . during the year ended august 31 , 2016 , the company recognized approximately $ 153,000 of amortization of note discount leaving a zero balance at august 31 , 2016. on august 21 , 2015 , the company entered into a one-year $ 295,000 unsecured convertible note with lincoln park . in conjunction with this note , the company issued lincoln park warrants that are exercisable for 400,000 shares of the company 's common stock over the next five ( 5 ) years at an exercise price of $ 1.00 per share . interest will accrue monthly at 10 % annually and the note is unsecured . in connection with this debt , the company recorded a note discount equal to approximately $ 247,000 associated with the measurement of the warrants and conversion issued story_separator_special_tag the discussion and analysis of our financial condition and results of operations are based on pcs link 's financial statements , which pcs link has prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires pcs link to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported revenues and expenses during the reporting periods . on an ongoing basis , pcs link evaluates such estimates and judgments , including those described in greater detail below . pcs link bases its estimates on historical experience and on various other factors that pcs link believes are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . 22 company overview based in los angeles , california with education service centers in phoenix , arizona and college station , texas , greenwood hall is a provider of technology-enabled student lifecycle management solutions that help colleges and universities increase revenue and improve student engagement and outcomes . since 2006 , greenwood hall has developed customized turnkey solutions that combine strategy , people , proven processes and robust technology to help schools effectively and efficiently improve student outcomes , as well as increase revenues and expand into new marketing channels , such as online learning . greenwood hall has served more than 70 education clients , over 80 degree programs and over 600,000 students . we provide cloud-based education management services that address the entire student lifecycle . our end-to-end services begin with recruitment and student enrollment and end with post-graduation job placement , career networking and alumni relations . our solutions are utilized by schools that need to enhance the student experience and are looking to expand into new markets such as online learning , international and or competency-based learning . all of our solutions are designed to help public and not-for-profit higher education institutions generate sustainable improvements in operating and financial results , while improving student success and satisfaction . our core services include : ( a ) enrollment management solutions , including lead generation/marketing , prospective student qualification , new student recruitment , and enrollment counseling ; ( b ) retention counseling/coaching and the reengagement of students who have dropped out of a particular institution ; and ( c ) student support solutions including help desk , career advising , student concierge , and financial aid advising services . story_separator_special_tag on an ongoing basis , management evaluates its estimates , including those related to revenue recognition , variable interest entities , allowances for doubtful accounts , the valuation of deferred income taxes , tax contingencies and long-lived assets . these estimates are based on historical experience and on various other factors that we believe to be reasonable under the circumstances . actual results could differ from those estimates . for additional information relating to these and other accounting policies , see note 1 to our financial statements appearing elsewhere in this report . our significant accounting policies are set forth in note 1 to our financial statements . of those policies , we believe that the policies discussed below may involve a higher degree of judgment and may be more critical to an accurate reflection of our financial condition and results of operations . revenue recognition the company 's contracts are typically structured into two categories , ( i ) fixed-fee service contracts that span a period of time , often in excess of one year , and ( ii ) service contracts at agreed-upon rates based on the volume of service provided , typically with a term of one year . some of the company 's service contracts are subject to guaranteed minimum amounts of service volume . the company recognizes revenue when all of the following have occurred : ( i ) persuasive evidence of an agreement with the customer exists , ( ii ) services have been rendered , ( iii ) the selling price is fixed or determinable , and ( iv ) collectability of the selling price is reasonably assured . for fixed-fee service contracts , the company recognizes revenue on a straight-line basis over the period of contract performance . costs incurred under these service contracts are expensed as incurred . 26 allowance for doubtful accounts receivable an allowance for doubtful accounts is maintained for estimated losses resulting from the inability of the company 's customers to make required payments . management specifically analyzes the age of our customer balances , historical bad debt experience , customer credit-worthiness , and changes in customer payment terms when making estimates of the collectability of the company 's trade accounts receivable balances . if the company determines that the financial condition of any of its customers has deteriorated , whether due to customer specific or general economic issues , an increase in the allowance may be made . after all attempts to collect a receivable have failed , the receivable is written off . based on the information available , management believes the company 's accounts receivable , net of the allowance for doubtful accounts , are collectable . income taxes the company accounts for income taxes in accordance with asc 740-10 , “ income taxes , ” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns . under this method , deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income . valuation allowances are established , when necessary , to reduce deferred tax assets to the amount expected to be realized . the provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities . derivative liabilities we account for stock purchase warrants as either equity or liabilities based upon the characteristics and provisions of each instrument . warrants classified as equity are recorded as additional paid-in capital on our consolidated balance sheet and no further adjustments to their valuation are made . some of our warrants were determined to be ineligible for equity classification because of provisions that may result in an adjustment to their exercise price . warrants classified as derivative liabilities and other derivative financial instruments that require separate accounting as assets or liabilities are recorded on our consolidated balance sheet at their fair value on the date of issuance and are revalued on each subsequent balance sheet date until such instruments are exercised or expire , with any changes in the fair value between reporting periods recorded as other income or expense . we estimate the fair value of these liabilities using option pricing models that are based on the individual characteristics of the warrants or instruments on the valuation date , as well as assumptions for expected volatility , expected life and risk-free interest rate . the following is a discussion and analysis of the results of operations and financial condition for the years ended august 31 , 2015 and august 31 , 2016. the financial statements should not be relied on for an understanding of the current financial status of the company . overview the company was incorporated under the laws of the state of nevada on february 27 , 2012 under the name “ divio holdings , corp. ” initially , the company sold motorcycles but later discontinued the motorcycle business and was engaged in organizational efforts , obtaining initial financing and seeking a business combination . on july 22 , 2014 , divio entered into a merger agreement ( the “ merger agreement ” ) with its wholly owned subsidiary , merger sub , and pcs link , inc. ( “ pcs link ” ) . pursuant to the merger agreement , merger sub merged with and into pcs link with pcs link remaining as the surviving corporation ( the “ merger ” ) .
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results of operations replace_table_token_1_th 28 revenues : revenues decreased $ 509,809 , or 6.3 % , during the period ended august 31 , 2016 , primarily due to the one-time nature of a significant portion of revenue that was not associated with the company 's core higher education business that was booked during the first quarter of the one year period ended august 31 , 2015. recurring revenues from the company 's core higher education business increased by 46 % during period ended august 31 , 2016 , compared 2015 , primarily due to the addition of new customer contracts in fy-2016 . direct cost of services : direct cost of services decreased by $ 1,331,399 or 21.6 % , during the period ended august 31 , 2016 , largely reflecting improvements in operating efficiencies . personnel : personnel costs increased by $ 985,474 , or 48.2 % , during the period ended august 31 , 2016 , mostly because of an increase in the number of employees required to serve growth in the company 's core higher education business . selling , general and administrative : selling , general and administrative expenses decreased by $ 615,658 , or 19.5 % , during the period ended august 31 , 2016 , primarily due to a reduction in overhead costs .
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the cost story_separator_special_tag overview and recent developments we are a specialty pharmaceutical company targeting end-stage renal disease and chronic kidney disease with products for the treatment of iron deficiency and hemodialysis . we are also a manufacturer of hemodialysis concentrates/dialysates to dialysis providers and distributors in the united states and abroad . we supply approximately 25 % of the united states domestic market with dialysis concentrates and we also supply dialysis concentrates to distributors serving a number of foreign countries , primarily in the americas and the pacific rim . to date , substantially all of our sales have been concentrate products and related ancillary items . our business strategy is developing unique , proprietary renal drug therapies that we can commercialize or out-license , while also expanding our dialysis products business . these renal drug therapies support disease management initiatives to improve the quality of life and care of dialysis patients and are designed to deliver safe and effective therapy , while decreasing drug administration costs and improving patient convenience and outcome . triferic triferic is the company 's proprietary iron therapy that replaces iron and maintains hemoglobin in dialysis patients without increasing iron stores . the company has developed dialysate triferic ( ferric pyrophosphate citrate ) as the only fda approved product indicated to replace iron and maintain hemoglobin concentration in adult hdd-ckd hemodialysis patients , and is in the process of developing and seeking fda approval for i.v . triferic , a novel intravenous formulation of triferic that would be used for the same indication , if approved . a description of dialysate triferic and i.v . triferic is set forth below . dialysate triferic our dialysate formulation of triferic ( “ dialysate triferic ” ) received fda approval in 2015 and remains the only fda-approved therapy indicated to replace iron and maintain hemoglobin in adult hemodialysis patients . dialysate triferic received a centers for medicare & medicaid services ( “ cms ” ) reimbursement j-code on january 1 , 2016 , providing that dialysate triferic would be reimbursed for administration to dialysis patients within the existing fixed-price “ bundle ” of payments that cms provides to dialysis providers . because dialysate triferic reimbursement would be included in this bundled payment , we commenced efforts in early 2016 to seek so-called “ add-on ” or “ separate ” reimbursement for dialysate triferic , which is sometimes available for certain new , innovative therapies . following receipt of the reimbursement j-code in early 2016 until june 2018 , the company 's commercialization strategy for dialysate triferic was primarily focused on obtaining add-on reimbursement status from cms for dialysate triferic , at which point the company planned to commence commercializing the drug . in june 2018 , our board of directors determined , based on feedback from cms 's innovation center ( “ cmmi ” ) , that dialysate triferic was unlikely to obtain add-on reimbursement in the near term . as a result , the company changed its commercialization strategy to plan for the commercial launch of dialysate triferic with initial reimbursement within the bundle of payments to dialysis providers , while continuing to pursue add-on reimbursement , if possible , and while continuing to develop i.v . triferic ( discussed below ) . we expect to commercially launch dialysate triferic in the second quarter of 2019. while the company was pursuing the earlier strategy of delaying commercialization until receipt of add-on reimbursement approval , we built up significant inventory of active pharmaceutical ingredient ( “ api ” ) and dialysate triferic finished goods . however , due to the delays in launching and feedback received from cmmi in march 2018 regarding near-term approval , our inventory reserves for triferic increased by a total of $ 8.1 million during 2018 from $ 3.5 million as of december 31 , 2017 to $ 11.6 million as of december 31 , 2018. net of inventory destroyed or used for samples during 2018 of $ 5.8 million , we had a total inventory reserve of $ 5.8 million as of december 31 , 2018. as of december 31 , 2018 , we had $ 3.9 million of dialysate triferic finished goods inventory that could expire within the next 12 months and against which we have reserved $ 3.4 million . as of december 31 , 2018 , we also had approximately $ 4.1 million of api against which we have reserved $ 2.4 million and classified $ 1.6 million of api as non-current inventory . depending on the timing and success of our commercial launch of dialysate triferic in 2019 , additional amounts or all of our current investment in dialysate triferic finished goods inventory and some or all of our api inventory will likely need 40 to be written off . additional inventory write-offs will not have a material negative impact on our cash flow , but would have a material adverse impact on our reported results of operations and financial position . i.v . triferic we are also developing an intravenous injection of triferic ( “ i.v . triferic ” ) for use by hemodialysis patients in the united states as well as international markets . a clinical equivalence study of i.v . triferic infusion presentation has been completed and , on the basis of the clinical and non-clinical data prepared by the company , we intend to submit a new drug application ( “ nda ” ) seeking fda approval to market i.v . triferic in the united states for the clinical indication of replacing iron and maintaining hemoglobin in adult hemodialysis patients in the second quarter of 2019. the november 2018 cms guidance provided interpretative guidance regarding the cms transitional drug add on pricing adjustment ( “ tdapa ” ) program and its potential application to i.v . triferic . based on the cms guidance , the company believes that , if approved by the fda on or after january 1 , 2020 , i.v . triferic may be eligible for separate sole source payment with a separate j-code for a two-year timeframe . story_separator_special_tag general the actual amount of cash that we will need to execute our business strategy is subject to many factors , including , but not limited to , the expenses and revenue associated with the commercial launch of dialysate triferic and i.v . triferic , if approved , in the united states ; the timing and magnitude of cash received from drug product sales ; and the timing and expenditures associated with the development of triferic for international markets ; and the costs associated with ongoing litigation and investigatory matters . we may elect to raise capital in the future through one or more of the following : ( i ) equity and debt raises through the equity and capital markets , though there can be no assurance that we will be able to secure additional capital or funding on acceptable terms , of if at all ; and ( ii ) strategic transactions , including potential alliances and collaborations focused on markets outside the u.s. , as well as potential combinations ( including by merger or acquisition ) or other corporate transactions . in particular , our baxter agreement prohibits us from entering into a contract that would encumber the assets used in our concentrate business without the prior written consent of baxter . due to the fact that the assets used in our concentrate business currently constitute a substantial portion of the tangible assets we own other than our drug inventory , we may not be able to , or we may find it difficult , to obtain secured debt financing without the consent of baxter . we believe that our ability to fund our activities in the long term will be highly dependent upon our ability to successfully launch dialysate triferic and to obtain regulatory approval for , and successfully launch , i.v . triferic . our commercialization of dialysate triferic and i.v . triferic ( if approved ) is subject to significant risks and uncertainties , such that there can be no assurance that we will be successful in completing the commercialization in accordance with our plans , or at all . if our commercialization of dialysate triferic and or i.v . triferic should be delayed for any reason , we may be forced to implement cost-saving measures that may potentially have a negative impact on our activities and potentially the results of our research and development programs . even if we begin commercialization of dialysate triferic as planned , if the results are unsuccessful , we may be unable to secure the additional capital that we will require to continue our research and development activities and operations , which could have a material adverse effect on our business if we are 43 unable to raise the required capital , we may be forced to curtail all of our activities and , ultimately , cease operations . even if we are able to raise sufficient capital , such financings may only be available on unattractive terms , or result in significant dilution of shareholders ' interests and , in such event , the market price of our common stock may decline . cash used in operating activities net cash used in operating activities was $ 20.4 million for the year ended december 31 , 2018. the net loss for this period was higher than net cash used in operating activities by $ 11.7 million , which was primarily attributable to non-cash expenses of $ 15.1 million , consisting of , $ 8.8 million of inventory reserves , $ 4.4 million of stock-based compensation , $ 1.1 million of research and development licenses acquired , $ 0.7 million of depreciation and amortization , and $ 0.2 million of realized losses on sale of investments available-for-sale , primarily offset by an increase of $ 0.8 million in inventory , a decrease of $ 2.4 million in deferred revenue related to the recognition of revenue from our licensing agreements , an increase of $ 0.6 million in accounts receivable related to increases in revenues related to our international sales and an increase of $ 0.4 million in settlement fees related to the settlement agreement between the company and its former directors and officers . net cash used in operating activities was $ 21.1 million for the year ended december 31 , 2017. the decrease in cash is primarily due to $ 6.3 million of research and development expenses , as well as substantial amounts for legal and professional fees related to litigation , the settlement with baxter and the contested 2017 director election . cash provided by investing activities net cash provided by investing activities was $ 12.7 million during the year ended december 31 , 2018. the net cash provided was primarily due to the sale of our available-for-sale investments of $ 33.9 million , offset by $ 20.2 million used for the purchase of investments available-for-sale , $ 0.7 million for the purchase of equipment and $ 0.3 million for the purchase of research and development licenses acquired . net cash provided by investing activities was $ 14.5 million during the year ended december 31 , 2017. the net cash provided was primarily due to the sale of our available-for-sale investments of $ 51.9 million , offset by $ 35.7 million used for the purchase of investments available-for-sale and $ 1.7 million for the purchase of equipment . cash used in financing activities net cash provided by financing activities was $ 22.0 million during the year ended december 31 , 2018. the net cash provided was primarily due to the proceeds received from the issuance of the company 's common stock of $ 21.9 million , net of issuance costs , and proceeds received from the exercise of employee stock options of $ 0.1 million . net cash used in financing activities was $ 2.2 million during the year ended december 31 , 2017. the net cash used was related to $ 2.3 million of restricted stock retained in satisfaction of tax liabilities offset by $ 0.1 million of proceeds from the issuance of common shares .
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results of operations for the years ended december 31 , 2018 and december 31 , 2017 sales during the year ended december 31 , 2018 , our sales were $ 63.4 million compared to sales of $ 57.3 million during the year ended december 31 , 2017. the increase of $ 6.1 million was primarily due to higher domestic dialysis concentrate sales primarily due to increased pass through delivery costs billed to baxter . our international sales increased by approximately $ 2.1 million , or 31 % compared to the year ended december 31 , 2017 , primarily due to increased purchases from our largest international customers . revenue recognized from licensing fees was $ 2.4 million and $ 2.3 million for years ended december 31 , 2018 and 2017 , respectively . gross profit cost of sales during the year ended december 31 , 2018 was $ 65.0 million , resulting in a gross loss of $ 1.6 million in 2018 , compared to cost of sales of a $ 53.6 million and gross profit of $ 3.7 million during the year ended december 31 , 2017. gross profit declined by $ 5.3 million in 2018 compared to 2017 , due primarily to an increase in inventory reserves and write-offs of our triferic inventory of $ 4.6 million and a gross profit decrease of $ 0.6 million in our dialysis concentrates products . the decrease in gross profit for our dialysis concentrates products was primarily attributable to increased distribution costs and lower pricing under our distribution agreement with baxter , partially offset by increased unit volume growth . recently implemented government regulation in the trucking industry has further negatively impacted a nationwide driver shortage resulting in increased costs for both incoming materials and shipments within the united states . we expect this trend to continue to increase shipping costs for our dialysis concentrate products in the near term .
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interest on the term b loan charged under the credit agreement was also increased by 3.00 % per annum , however the story_separator_special_tag overview we provide technology-enabled audit , recovery , customer care , and related analytics services in the united states . our services help identify improper payments , and in some markets , restructure and recover delinquent or defaulted assets and improper payments for both government and private clients in a broad range of markets . our clients typically operate in complex and regulated environments and outsource their audit and recovery needs in order to reduce losses on billions of dollars of defaulted student loans , improper healthcare payments and delinquent state tax and federal treasury and other receivables . we also provide complex customer care services for clients across our various markets . we generally provide our services on an outsourced basis , where we handle many or all aspects of our clients ' audit and recovery processes . our revenue model is generally success-based as we earn fees on the aggregate correct audits and or amount of funds that we enable our clients to recover . our services do not require any significant upfront investments by our clients and offer 26 our clients the opportunity to recover significant funds otherwise lost . because our model is based upon the success of our efforts , our business objectives are aligned with those of our clients and we are generally not reliant on their spending budgets . furthermore , our business model does not require significant capital as we do not purchase loans or obligations . sources of revenues we derive our revenues from services for clients in a variety of different markets . these markets include our two largest markets , student lending and healthcare , as well as our other markets which include but are not limited to delinquent state and federal taxes and federal treasury and other receivables . replace_table_token_4_th student lending we derive the majority of our revenues from the recovery of student loans . these revenues are contract-based and consist primarily of contingency fees based on a specified percentage of the amount we enable our clients to recover . our contingency fee percentage for a particular recovery depends on the type of recovery facilitated . our clients in the student loan recovery market mainly consist of several of the largest guaranty agencies , or gas . in addition , we have a long history of also providing recovery services to the department of education . on january 11 , 2018 , the department of education awarded us one of two new contracts for student loan recovery services . certain other vendors who did not receive contract awards from the department of education , have filed protests with the court of federal claims regarding the department of education 's award of these contracts . the outcome of these protests is pending . we believe the size and the composition of our student loan inventory at any point provides us with a significant degree of revenue visibility for our student loan revenues . based on data compiled from over two decades of experience with the recovery of defaulted student loans , at the time we receive a placement of student loans , we are able to make a reasonably accurate estimate of the recovery outcomes likely to be derived from such placement and the revenues we are likely able to generate based on the anticipated recovery outcomes . our key metric in evaluating our student lending business is placement volume . our placement volume represents the dollar volume of defaulted student loans first placed with us during the specified period by public and private clients for recovery . placement volume allows us to measure and track trends in the amount of inventory our clients in the student lending market are placing with us during any period . the revenues associated with the recovery of a portion of these loans may be recognized in subsequent accounting periods , which assists management in estimating future revenues and in allocating resources necessary to address current placement volumes . replace_table_token_5_th 27 there are five potential outcomes to the student loan recovery process from which we generate revenues . these outcomes include : full repayment , recurring payments , rehabilitation , loan restructuring and wage garnishment . of these five potential outcomes , our ability to rehabilitate defaulted student loans is the most significant component of our revenues in this market . generally , a loan is considered successfully rehabilitated after the student loan borrower has made nine consecutive qualifying monthly payments and our client has notified us that it is recalling the loan . once we have structured and implemented a repayment program for a defaulted borrower , we ( i ) earn a percentage of each periodic payment collected up to and including the final periodic payment prior to the loan being considered “ rehabilitated ” by our clients , and ( ii ) if the loan is “ rehabilitated , ” then we are paid a one-time percentage of the total amount of the remaining unpaid balance or in the case of our work for the department of education , a fixed fee of $ 1,710 for each rehabilitated loan . the fees we are paid vary by recovery outcome as well as by contract . for non-government-supported student loans we are generally only paid contingency fees on two outcomes : full repayment or recurring repayments . the table below describes our typical fee structure for each of these five outcomes . story_separator_special_tag we accrue an estimated liability for appeals based on the amount of commissions received which are subject to appeal and which we estimate are probable of being returned to providers following successful appeal . the $ 18.5 million balance as of december 31 , 2017 , represents our best estimate of the probable amount that we may be required to refund related to appeals of claims for which commissions were previously collected . the term of our first medicare recovery audit contract with cms , for region a , expired on january 31 , 2018. during the term of this contract , we accrued an estimated liability for fees we may be required to return in connection with successful appeals by providers . our estimates for this appeals liability are based on our historical experience with the medicare rac appeal process . as the term of the original contract expired , cms issued a letter to us on january 2 , 2018 , stating that performant will no longer be obligated to support the appeals process or maintain an appeal reserve after the january 31 , 2018 contract termination date . in addition to the estimated liability for appeals , we also maintained a separate net payable to client liability for appeals decisions which had been decided , but not yet refunded to cms . on january 31 , 2018 , cms issued to us their final letter of demand which reconciled all outstanding payables to cms for the old region a contract . accordingly , during the first quarter 2018 , we expect to release approximately $ 21.5 million of the estimated liability for appeals and the net payable to client balances . this will increase first quarter 2018 revenue by an amount equal to the total liability released . in conjunction with the release , we also expect to derecognize approximately $ 7.1 million of prepaid expenses and other current assets reflecting accrued receivables associated with amounts due from subcontractors for decided and yet-to-be decided appeals . we will maintain a smaller estimated liability for appeals as we continue to assess the remaining estimated liability for refunds and appeals overturned prior to the expiration of the contract term . in connection with the award of our first rac contract , we outsourced certain aspects of our healthcare recovery process to three different subcontractors . two of these subcontractors provided a specific service to us in connection with our claims recovery process , with the third subcontractor , whose services were terminated in december 2016 , formerly providing all of the audit and recovery services for claims within a portion of our region . we recognize all of the revenues generated by the claims recovered through our subcontractor relationships , and we recognize the fees that we pay to these subcontractors in our expenses . for our commercial healthcare business , our business strategy is focused on utilizing our technology-enabled services platform to provide audit , recovery and analytical services for private healthcare payors . we have entered into contracts with several private payors , although these contracts are in the early stage of implementation . revenues from our commercial healthcare clients were $ 8.5 million for 2017 compared to $ 5.7 million in 2016 . other we also derive revenues from the recovery of delinquent state and federal taxes , and federal treasury and other receivables , default aversion services for certain clients including financial institutions and the licensing of hosted technology solutions to certain clients . for our hosted technology services , we license our system and integrate our technology into our 29 clients ' operations , for which we are paid a licensing fee . our revenues for these services include contingency fees , fees based on dedicated headcount to our clients and hosted technology licensing fees . costs and expenses we generally report two categories of operating expenses : salaries and benefits and other operating expense . salaries and benefits expenses consist primarily of salaries and performance incentives paid and benefits provided to our employees . other operating expense includes expenses related to our use of subcontractors , other production related expenses , including costs associated with data processing , retrieval of medical records , printing and mailing services , amortization and other outside services , as well as general corporate and administrative expenses . factors affecting our operating results our results of operations are influenced by a number of factors , including allocation of placement volume , claim recovery volume , contingency fees , regulatory matters , client retention and macroeconomic factors . allocation of placement volume our clients have the right to unilaterally set and increase or reduce the volume of defaulted student loans or other receivables that we service at any given time . in addition , many of our recovery contracts for student loans and other receivables are not exclusive , with our clients retaining multiple service providers to service portions of their portfolios . accordingly , the number of delinquent student loans or other receivables that are placed with us may vary from time to time , which may have a significant effect on the amount and timing of our revenues . we believe the major factors that influence the number of placements we receive from our clients in the student loan market include our performance under our existing contracts and our ability to perform well against competitors for a particular client . to the extent that we perform well under our existing contracts and differentiate our services from those of our competitors , we may receive a relatively greater number of placements under these existing contracts and may improve our ability to obtain future contracts from these clients and other potential clients . further , delays in placement volume , as well as acceleration of placement volume , from any of our large clients may cause our revenues and operating results to vary from quarter to quarter .
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results of operations year ended december 31 , 2017 compared to the year ended december 31 , 2016 the following table represents our historical operating results for the periods presented : replace_table_token_6_th revenues total revenues were $ 132.0 million for the year ended december 31 , 2017 , a decrease of $ 9.3 million or 7 % , compared to total revenues of $ 141.4 million for the year ended december 31 , 2016 . the decrease is due to a decline in revenues in both our student lending and healthcare markets . 32 student lending revenues were $ 94.3 million for the year ended december 31 , 2017 , representing a decrease of $ 15.3 million , or 14 % , compared to the year ended december 31 , 2016 . this decrease was primarily a result of the expiration of the department of education contract in april 2015 and subsequent wind down , partially offset by an increase in revenue as a result of an increase in the number of borrowers that are participating in the rehabilitation programs with our guaranty agency clients . healthcare revenues were $ 10.0 million for the year ended december 31 , 2017 , representing a decrease of $ 1.4 million , or 12 % , compared to the year ended december 31 , 2016 . this decrease was due primarily to the wind down of our first rac contract during 2017 , offset by an approximately $ 2.9 million increase in revenues from commercial healthcare customers . salaries and benefits salaries and benefits expense was $ 82.2 million for the year ended december 31 , 2017 , an increase of $ 3.3 million , or 4 % , compared to salaries and benefits expense of $ 78.9 million for the year ended december 31 , 2016 .
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recent accounting developments asu 2016-13. in june 2016 , the fasb issued asu 2016-13 , financial instruments—credit losses ( topic 326 ) , 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 thereto in “ item 8. financial statements and supplementary data. ” the discussion below contains forward-looking statements that are based upon our current expectations and are subject to uncertainty and changes in circumstances including those identified in “ cautionary note regarding forward-looking statements ” above . actual results may differ materially from these expectations due to potentially inaccurate assumptions and known or unknown risks and uncertainties . such forward-looking statements should be read in conjunction with our disclosures under “ item 1a . risk factors. ” overview we provide a full range of well services to major oil companies and independent oil and natural gas production companies to produce , maintain and enhance the flow of oil and natural gas throughout the life of a well . these services include rig-based and coiled tubing-based well maintenance and workover services , well completion and recompletion services , fluid management services , fishing and rental services and other ancillary oilfield services . additionally , certain of our rigs are capable of specialty drilling applications . we operate in most major oil and natural gas producing regions of the continental united states . we previously had operations in canada and russia , which were sold in the second and third quarters of 2017 , respectively . the demand for our services fluctuates , primarily in relation to the price ( or anticipated price ) of oil and natural gas , which , in turn , is driven primarily by the supply of , and demand for , oil and natural gas . generally , as supply of those commodities decreases and demand increases , service and maintenance requirements increase as oil and natural gas producers attempt to maximize the productivity of their wells in a higher priced environment . however , in the lower oil and natural gas price environment that has persisted since late 2014 , demand for service and maintenance has decreased as oil and natural gas producers decrease their activity . in particular , the demand for new or existing field drilling and completion work is driven by available investment capital for such work and our customers have significantly curtailed their capital spending beginning in 2015 and continuing into 2019. because these types of services can be easily “ started ” and “ stopped , ” and oil and natural gas producers generally tend to be less risk tolerant when commodity prices are low or volatile , we may experience a more rapid decline in demand for well maintenance services compared with demand for other types of oilfield services . further , in a lower-priced environment , fewer well service rigs are needed for completions , as these activities are generally associated with drilling activity . in the fourth quarter of 2019 , we took steps to reduce our labor costs and exit certain operations and areas to focus on certain markets . additionally , we took steps to reduce our overhead , given the reduced operating footprint , which we believe will improve our operating cash flows and reduce our operating losses . restructuring and reverse stock split on march 6 , 2020 , we closed the previously announced restructuring of our capital structure and indebtedness ( the “ restructuring ” ) pursuant to the restructuring support agreement , dated as of january 24 , 2020 ( the “ rsa ” ) , with lenders under our prior term loan facility ( as defined below ) collectively holding over 99.5 % ( the “ supporting term lenders ” ) of the principal amount of the company 's then outstanding term loans . pursuant to or in connection with the rsa and the restructuring contemplated thereby , among other things we effected the following transactions and changes to our capital structure and governance : immediately prior to the closing of the restructuring , we completed a 1-for-50 reverse stock split of our outstanding common stock as a result of which our issued and outstanding common stock decreased from 20,659,654 to 413,258 shares ; accordingly , all share and per share information contained in this report has been restated to retroactively show the effect of this stock split ; pursuant to exchange agreements entered into at the closing of the restructuring , we then exchanged approximately $ 241.9 million aggregate outstanding principal of our term loans ( together with accrued interest thereon ) held by supporting term lenders under our prior term loan facility into ( i ) 13,362,009 newly issued shares of common stock representing 97 % of the company 's outstanding shares after giving effect to such issuance ( and without giving effect to dilution by the new warrants and mip ( each as defined below ) ) and ( ii ) $ 20 million of term loans under our new $ 51.2 million term loan facility ( the “ new term loan facility ” ) , each on a pro rata basis based on their holdings of term loans under the prior term loan facility ; distributed to our common stockholders of record as of february 18 , 2020 two series of warrants ( the “ new warrants ” ) ; 22 index to financial statements entered into the $ 51.2 million new term loan facility , of which ( i ) $ 30 million was funded at closing of the restructuring with new cash proceeds from the supporting term lenders and $ 20 million was issued in exchange for term loans held by the supporting term lenders under the prior term loan facility as described above and ( ii ) an approximate $ 1.2 million was a senior secured term loan tranche in respect of term loans held by lenders under the prior term loan facility who were not supporting term lenders ; entered into the new abl facility ( story_separator_special_tag we intend to invest in this portion of our well service rig fleet , and the needed rental equipment and services , either through organic capital deployment or acquisition to capitalize on this trend and the growing population of horizontal wells that have entered or will enter the phase of their life where regular maintenance is required . performance measures the baker hughes u.s. rig count data , which is publicly available on a weekly basis , is often used as a coincident indicator of overall exploration and production ( “ e & p ” ) company spending and broader oilfield activity . in assessing overall activity in the u.s. onshore oilfield service industry in which we operate , we believe that the baker hughes u.s. land drilling rig count is the best barometer of e & p companies ' capital spending and resulting activity levels . historically , our activity levels have been highly correlated to u.s. onshore capital spending by our e & p company customers as a group . replace_table_token_6_th ( 1 ) represents the average of the monthly average prices for each of the years presented . source : u.s. energy information administration , bloomberg . ( 2 ) source : www.bakerhughes.com ( 3 ) source : www.aesc.net 24 index to financial statements internally , we measure activity levels for our well servicing operations primarily through our rig and trucking hours . generally , as capital by e & p companies increases , demand for our services also rises , resulting in increased rig and trucking services and more hours worked . conversely , when activity levels decline due to lower spending by e & p companies , we generally provide fewer rig and trucking services , which results in lower hours worked . the following table presents our quarterly rig and trucking hours from 2017 through 2019 . replace_table_token_7_th ( 1 ) key 's u.s. working days are the number of weekdays during the quarter minus national holidays . market and business conditions and outlook our core businesses depend on our customers ' willingness and ability to make expenditures to produce , develop and explore for oil and natural gas in onshore u.s. basins . industry conditions are influenced by numerous factors , such as oil and natural gas prices , the supply of and demand for oil and natural gas , domestic and worldwide economic conditions , political instability in oil producing countries , and available supply of and demand for the services we provide . higher oil prices have historically spurred additional demand for our services as oil and gas producers increase spending on production , maintenance and drilling and completion of new wells . in 2019 , oil prices began to recover from the lows experienced in late 2018. however , many of our clients did not react as favorably as expected to improved oil prices with higher spending or increases in planned expenditures that would have increased demand for our services further . we believe this is a result of our customers ' managing their activity to achieve cash flow targets and a prioritization of their maintenance activities to the highest return opportunities due to continued uncertainty around future commodity prices and their access to capital . lower spending by our customers and increased competition , primarily in completion activities , also resulted in lower activity than in the corresponding period in 2018. during the fourth quarter of 2019 , we took steps to internally realign our operations . we exited operations and areas to focus on certain markets where we had the best competitive positions . we also took steps to reduce our overhead costs , given the reduced operating footprint . while we received some benefit from these changes in the fourth quarter of 2019 , we expect to see the full benefit of the lower cost structure in 2020. in the first quarter of 2020 , we completed the restructuring thereby reducing our long-term debt and future interest expense . in addition , we received cash proceeds in the restructuring that improved our cash position . in early march of 2020 , the market has experienced a precipitous decline in oil prices in response to oil demand concerns due to the economic impacts of the covid-19 virus and anticipated increases in supply from russia and opec , particularly saudi arabia . while the impact of this oil price decline has yet to be felt in demand for our services , we expect that in response our customers will reduce activity during 25 index to financial statements this period of commodity price weakness and will also seek price reductions for our services . this current uncertainty gives us limited visibility into near term demand for our services . longer term however , we believe that commodity prices will stabilize and the continued aging of horizontal wells will increase demand for well maintenance services as customers seek to maintain or increase production through accretive regular well maintenance at economically supportive oil prices . results of operations story_separator_special_tag style= '' line-height:120 % ; padding-top:8px ; text-align : justify ; text-indent:24px ; font-size:10pt ; '' > direct operating expenses our direct operating expenses increased $ 74.1 million , or 22.3 % , to $ 406.4 million ( 77.9 % of revenues ) for the year ended december 31 , 2018 , compared to $ 332.3 million ( 76.2 % of revenues ) for the year ended december 31 , 2017 .
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consolidated results of operations the following tables set forth consolidated results of operations and financial information by operating segment and other selected information for the years ended december 31 , 2019 , 2018 and 2017 . years ended december 31 , 2019 and 2018 replace_table_token_8_th revenues our revenues for the year ended december 31 , 2019 decreased $ 107.8 million , or 20.7 % , to $ 413.9 million from $ 521.7 million for the year ended december 31 , 2018 , due to lower spending from our customers as a result of lower oil prices . these market conditions resulted in reduced customer activity , additionally , in the fourth quarter of 2019 , the company strategically exited a number of non-core and underperforming locations . see “ segment operating results — years ended december 31 , 2019 and 2018 ” below for a more detailed discussion of the change in our revenues . direct operating expenses our direct operating expenses decreased $ 72.9 million , or 17.9 % , to $ 333.5 million ( 80.6 % of revenues ) for the year ended december 31 , 2019 , compared to $ 406.4 million ( 77.9 % of revenues ) for the year ended december 31 , 2018 . this decrease is primarily a result of a decrease in employee compensation costs , fuel expense and repair and maintenance expense due to a decrease in activity levels . see “ segment operating results — years ended december 31 , 2019 and 2018 ” below for a more detailed discussion of the change in our direct operating expenses . depreciation and amortization expense depreciation and amortization expense decreased $ 25.7 million , or 31.1 % , to 57.0 million ( 13.8 % of revenues ) for the year ended december 31 , 2019 , compared to $ 82.6 million ( 15.8 % of revenues ) for the year ended december 31 , 2018 .
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for a detailed discussion of these risks and uncertainties , see the “ risk factors ” section in item 1a of this annual report on form 10-k. we caution the reader not to place undue reliance on these forward-looking statements , which reflect management 's analysis only as of the date of this form 10-k. we undertake no obligation to update forward-looking statements , which reflect events or circumstances occurring after the date of this form 10-k. overview we are a clinical-stage , oncology-focused biopharmaceutical company with a vision of transforming lives with safer , more effective therapies . we are advancing a robust pipeline of novel , potential first-in-class antibody-based therapeutics created using our probody® technology platform . these probody therapeutics are designed to be conditionally activated in the tumor microenvironment , effectively enabling them to target cancer tissues more specifically , while minimizing deleterious activity in healthy tissues and circulation . we achieve this “ conditional activation ” by modifying our probody therapeutics with a mask that is designed to block binding to target until the mask is removed by proteases . proteases are enzymes that are more abundant in the tumor microenvironment than in normal tissue , leading to potentially an enrichment of therapeutic activity in the tumor . we believe this innovative approach has the potential to improve cancer treatments in three ways by : ( 1 ) enhancing a product candidate 's therapeutic window , the balance between tolerability and activity ; ( 2 ) allowing the pursuit of targets that were previously considered “ undruggable , ” due to their presence on normal tissues ; and ( 3 ) improving combination therapies that are , otherwise , poorly tolerated . our lead product candidates , praluzatamab ravtansine ( cx-2009 ) and cx-2029 , are two conditionally activated antibody-drug conjugates ( “ adcs ” ) against the previously undruggable targets cd166 and cd71 , respectively . these cancer targets were considered inaccessible to conventional adcs due to their ubiquitous expression in many healthy tissues , but which we believe are potentially addressable with our probody technology . after demonstrating favorable tolerability and encouraging anti-tumor activity in separate dose-escalation phase 1 studies , praluzatamab ravtansine , our wholly-owned conditional adc , and cx-2029 , a conditionally activated adc partnered with abbvie , are currently in phase 2 clinical studies . our clinical-stage pipeline also includes cancer immunotherapeutic candidates against validated targets such as our wholly-owned pd-l1 inhibitor , pacmilimab ( cx-072 ) , being studied in combination with praluzatamab ravtansine . our partner , bristol myers squibb is conducting clinical studies with ctla-4-targeting probody therapeutics , bms-986249 , currently in a randomized phase 2 study , and bms-986288 , currently in a phase 1/2a study . we also have two preclinical agents in investigational new drug application ( “ ind ” ) -enabling studies , including cx-2043 , our third conditionally activated adc targeting the epithelial cell adhesion molecule ( “ epcam ” ) , a widely expressed tumor antigen . cx-2043 has demonstrated potent anti-tumor activity across multiple cancer types and superior tolerability in animal models compared to the corresponding , unmasked adc . pursuant to our partnership with amgen , we have also recently advanced cx-904 , a conditionally activated t-cell engaging bispecific antibody candidate against the epidermal growth factor receptor ( “ egfr ” ) on tumor cells and cd3 on t cells , into ind-enabling studies . we intend to file inds for both cx-2043 and cx-904 in late 2021. in december 2019 , a strain of novel coronavirus-caused disease ( now commonly known as covid-19 ) was reported to have surfaced in wuhan , china . covid-19 has since spread rapidly throughout many countries and has been declared to be a pandemic . in an effort to contain and mitigate the spread of covid-19 , many countries , including the united states , canada and countries in europe and asia , have imposed unprecedented restrictions on travel , business operations and public gatherings , and there have been business closures and limitations on business operations , which have resulted in a substantial reduction in economic activity . in march 2020 , in assessing the evolving covid-19 pandemic and related governmental restrictions , the emerging challenges for clinical trial execution within our studies and across the industry , and the need of healthcare facilities and providers to prioritize resources for management of the pandemic , we made the decision to temporarily pause new patient enrollment and new site activation in the proclaim-cx-2009-001 study of praluzatamab ravtansine . this study included a phase 2 expansion designed to evaluate praluzatamab ravtansine in patients with various cancers , including hormone receptor-positive ( “ hr+ ” ) , human epidermal growth factor receptor 2 ( “ her2 ” ) -non-amplified breast cancer . since then , we have revised our strategy for praluzatamab ravtansine to also include patients with triple-negative breast cancer ( “ tnbc ” ) . a new three-arm study , cx-2009-002 , was initiated in the fourth quarter of 2020 targeting investigators who treat breast cancer . arms a and b will evaluate praluzatamab ravtansine monotherapy at 7 mg/kg administered every three weeks in patients with hr+/her2-non-amplified breast cancer and tnbc , respectively . arm c will evaluate praluzatamab ravtansine in combination with pacmilimab in patients with tnbc . approximately 40 evaluable patients will be enrolled into each arm of the study . we also made the strategic decision , in march 2020 , to terminate the proclaim-cx-072-002 study evaluating pacmilimab in combination with ipilimumab in melanoma . this decision followed a re-evaluation of the evolving clinical , competitive and commercial landscapes in immuno-oncology , along with the impact of the covid-19 pandemic , and allowed for resources to be redirected towards our potential first-in-class assets , including a combination of praluzatamab ravtansine and pacmilimab , and to the generation of additional clinical candidates for advancement to the filing of inds and human testing . story_separator_special_tag for the foreseeable future , we do not expect to generate any revenue from the sale of products unless and until such time as our product candidates have advanced through clinical development and obtained regulatory approval . we expect that any revenue we generate in the foreseeable future will fluctuate from year to year as a result of the timing and amount of milestones and other payments from our collaboration agreements with abbvie , amgen , astellas , bristol myers squibb and any other collaboration partners , and as a result of the fluctuations in the research and development expenses we incur in the performance of assigned activities under these agreements . abbvie , one of our collaboration partners , entered into a license agreement with seattle genetics , inc. ( “ sgen ” ) to license certain intellectual property rights . as part of our collaboration agreement with abbvie , we received a sublicense to these intellectual property rights and therefore pay sgen sublicense fees . these sublicense fees are treated as reductions to the transaction price and combined with the performance obligation to which they relate . milestone payments , when considered probable of being reached and when a significant revenue reversal would not be probable of occurring , are also recorded net of the associated sublicense fees and included in the transaction price . research and development expenses our research and development expenses consist primarily of costs incurred to conduct research , such as the discovery and development of our product candidates , clinical development including activities with third parties , such as contract research organizations ( “ cro ” ) and contract development and manufacturing organizations ( “ cmo ” ) , the manufacture of drug products used in clinical trials , as well as the development of product candidates pursuant to our research , collaboration and license agreements . research and development expenses include personnel costs , including stock-based compensation expense , contractor services , laboratory materials and supplies , depreciation and maintenance of research equipment , and an allocation of related facilities costs . we expense research and development costs as incurred . we expect our research and development expenses to increase substantially in absolute dollars in the future as we advance our product candidates through clinical trials , initiate additional clinical trials , and pursue regulatory approval of our product candidates . examples include our phase 2 clinical trials for praluzatamab ravtansine ( cx-2009 ) and cx-2029 and potential future clinical trials for cx-2029 and for praluzatamab ravtansine in combination with pacmilimab ( cx-072 ) . the process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming . the actual probability of success for our product candidates may be affected by a variety of factors including : the safety and efficacy of our product candidates , early clinical data , investment in our clinical program , the ability of collaborators to successfully develop our licensed product candidates , competition , manufacturing capability and commercial viability . we may never succeed in achieving regulatory approval for any of our product candidates . as a result of the uncertainties discussed above , we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of our product candidates . general and administrative expenses general and administrative expenses include personnel costs , expenses for outside professional services and other allocated expenses . personnel costs consist of salaries , bonuses , benefits and stock-based compensation . outside professional services consist of accounting and audit services , legal and other consulting fees . allocated expenses primarily consist of rent expense related to our office and information technology related costs . interest income interest income primarily consists of interest income from our cash equivalents and short-term investments , and accretion of discounts or amortization of premiums on our short-term investments . 83 other income ( expense ) , net other income ( expense ) , net consists primarily of income ( expense ) resulting from changes to currency exchange rates . provision for ( benefit from ) income taxes income taxes are recorded in accordance with asc 740 , accounting for income taxes , or asc 740 , which provides for deferred taxes using an asset and liability approach . we recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our financial statements or tax returns . we determine our deferred tax assets and liabilities based on differences between the financial reporting and tax bases of assets and liabilities , which are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse . valuation allowances are provided , if based upon the weight of available evidence , it is more likely than not that some or all of the deferred tax assets will not be realized . we also account for uncertain tax positions in accordance with the provisions of asc 740. when uncertain tax positions exist , we recognize the tax benefit of tax positions to the extent that the benefit will more likely than not be realized . the determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances . on march 27 , 2020 , the coronavirus aid , relief , and economic security act ( cares act ) was enacted in response to the covid-19 pandemic .
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summary statement of cash flows the following table summarizes our cash flows for the periods presented : replace_table_token_5_th cash flows from operating activities 2020 during the year ended december 31 , 2020 , cash provided by operating activities was $ 5.3 million , which consisted of a net loss of $ 32.9 million , adjusted by non-cash charges of $ 20.1 million and a net increase of $ 18.1 million relating to the change of our net operating assets and liabilities . the non-cash charges primarily consisted of $ 14.8 million in stock-based compensation , $ 2.9 million in non-cash lease expense and $ 2.6 million in depreciation and amortization , which amounts were partially offset by $ 0.2 million in accretion of discounts on our short-term investments . the change of our net operating assets and liabilities was primarily due to : a net increase of $ 30.9 million in deferred revenue resulting primarily from the $ 80.0 million upfront payment from astellas as well as the $ 40.0 million milestone payment from abbvie , partially offset by the continued recognition of deferred revenue from other existing customers ; an increase of $ 0.1 million in cash flows from prepaid expenses and other current assets ; a decrease of $ 0.2 million in cash flows from other assets ; a decrease of $ 11.0 million in accrued liabilities primarily due to payment of $ 7.5 million for the immunogen 2019 license and $ 2.8 million for lease liabilities ; 88 a decrease in cashflow of $ 0.8 million from accounts receivable primarily related to research and development service fees due from astellas pursuant to the astellas agreement ; and a decrease in cashflow of $ 0.9 million from accounts payable .
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evaluation of disclosure controls and procedures under the supervision and with story_separator_special_tag story_separator_special_tag increased $ 5.2 million ( 15.2 % ) from $ 34.1 million in fiscal 2011 to $ 39.3 million in fiscal 2012 , mainly due to increased volume , as bill rates and pay rates have remained consistent between years . multifamily revenues : multifamily revenues increased $ 4.1 million ( 29.1 % ) from $ 14.1 million in fiscal 2011 to $ 18.2 million in fiscal 2012 , mainly due to an increase in volume at existing branches . bill rates and pay rates have remained consistent between years . additionally , during 2012 , the multifamily segment opened four new branches , accounting for approximately $ 0.8 million of 2012 revenue . it staffing revenues : it staffing revenues increased $ 17.4 million ( 915.8 % ) from $ 1.9 million in fiscal 2011 to $ 19.3 million in fiscal 2012. we entered into the it staffing segment in november 2011 with the acquisition of extrinsic llc . we added to the it staffing segment with the acquisition of api in december 2012. it staffing revenues represent 5 weeks of operations in fiscal 2011 and 53 weeks of operations in fiscal 2012. gross profit : gross profit represents revenues from services less cost of services , which consist of payroll , payroll taxes , payroll-related insurance , subcontractor costs , and reimbursable costs . replace_table_token_9_th 20 replace_table_token_10_th overall , our gross profit has increased $ 6.0 million ( 62.5 % ) from $ 9.6 million in fiscal 2011 to $ 15.6 million in fiscal 2012 , mainly due to the increase in revenues . as a percentage of revenue , gross profit increased from 19.1 % in fiscal 2011 to 20.3 % in fiscal 2012 mainly due the shift in mix to higher margin assignments . light industrial gross profit : light industrial gross profit increased $ 0.3 million ( 6.7 % ) from $ 4.5 million in fiscal 2011 to $ 4.8 million in fiscal 2012 , mainly due to the increase in revenue . as a percentage of revenue , gross profit decreased from 13.2 % in fiscal 2011 to 12.2 % in fiscal 2012 , mainly due to an increase in statutory costs , particularly relating to state unemployment taxes , and workers ' compensation costs . multifamily gross profit : multifamily gross profit increased $ 1.2 million ( 26.1 % ) from $ 4.6 million in fiscal 2011 to $ 5.8 million in fiscal 2012 , mainly due to an increase in revenue . as a percentage of revenue , gross profit decreased from 32.6 % in fiscal 2011 to 31.9 % in fiscal 2012 , mainly due to an increase in statutory costs and the different pricing requirements in our expansion markets . it staffing gross profit : it staffing gross profit increased $ 4.5 million ( 900.0 % ) from $ 0.5 million in fiscal 2011 to $ 5.0 million in fiscal 2012. as a percentage of revenue , gross profit slightly decreased from 26.3 % in fiscal 2011 to 25.7 % in fiscal 2012. as stated above , we entered into the it staffing segment in november 2011 with the acquisition of extrinsic llc . we added to the it staffing segment with the acquisition of api in december 2012. the it staffing revenue represents 5 weeks of operations in fiscal 2011 and 53 weeks of operations in fiscal 2012. selling , general and administrative expenses : selling , general and administrative expenses increased $ 3.7 million ( 53.6 % ) to $ 10.6 million in fiscal 2012 from $ 6.9 million in fiscal 2011 , primarily due to approximately $ 0.4 million of additional expenses incurred related to the new branches in the multifamily segment opened in fiscal 2012 , as well as an increase of approximately $ 2.2 million in expenses related to the first full year of operations in the it staffing segment . depreciation and amortization : depreciation and amortization charges increased $ 1.7 million ( 60.7 % ) to $ 4.5 million during fiscal 2012 , compared to $ 2.8 million during fiscal 2011. the increase in depreciation and amortization is primarily due to the amortization of intangible assets acquired in the acquisitions of extrinsic in november 2011 and api in december 2012. interest expense , net : interest expense , net was $ 2.2 million during fiscal 2012 compared to $ 2.9 million during fiscal 2011 , a decrease of $ 0.7 million , primarily due to a decrease in debt outstanding as a result of the debt restructuring , which included renegotiated interest rates , in fiscal 2011. income taxes : we had an income tax benefit of $ 0.07 million in fiscal 2011 , compared to income tax expense of $ 0.03 million in fiscal 2012. prior to our reorganization into a delaware corporation , which occurred on november 3 , 2013 , we were treated as a partnership for federal income tax purposes except for two subsidiaries , which were and are taxed as c corporations . consequently , federal and state income taxes were not payable , or provided for , except for those subsidiaries that are taxed as c corporations . accordingly , the financial statements reflect the impact of income taxes for only the taxable subsidiaries . members are taxed individually on their share of our pre-reorganization earnings not earned in the c corporations . we converted to a c corporation on november 3 , 2013 . 21 liquidity and capital resources our primary sources of liquidity are cash generated from operations and borrowings under our senior credit facility . our primary uses of cash are payroll , subcontractor costs , operating expenses , capital expenditures and debt service . story_separator_special_tag following the merger of ltn acquisition , llc with and into ltn staffing , llc and the conversion of ltn staffing , llc into a delaware corporation ( bg staffing , inc. ) , these warrants were replaced with warrants to purchase up to 119,476 and 59,729 shares of common stock of bg staffing , inc. , respectively , at an exercise price of $ 0.01 per share . on december 19 , 2013 , the subordinated debt holders exercised warrants to purchase 179,205 shares for a total of $ 200. in fiscal 2012 , in conjunction with the acquisition of api , we renegotiated our senior credit facility , increasing our term loan from $ 4.6 million to $ 7.1 million and our revolving line of credit from $ 5.5 million to $ 12.0 million . additionally , ltn acquisition , llc completed a private offering and issued 6 million class a units at $ 0.75 per unit , or $ 4.5 million . ltn acquisition , llc contributed the net proceeds of $ 4.1 million to ltn staffing , llc to fund , in part , the cash portion of the purchase price paid in connection with the our acquisition of api . in fiscal 2011 , we negotiated a debt restructuring with certain existing related party term debt holders . this restructuring has been recorded as a non cash contribution from ltn acquisition , llc in ltn staffing , llc 's financial statements . as part of the restructuring , we retired $ 4 million of debt obligations in exchange for equity units of ltn acquisition , llc at a conversion rate of $ 0.58 per unit , which was the offering price of equity units sold in a private placement that was done at the same time as the debt restructuring . related accrued interest totaling $ 1.1 million was also exchanged for equity units of ltn acquisition , llc at a conversion rate of $ 0.58 per unit . debt holders also forgave $ 2.6 million of accrued interest , net of deferred financing costs , which was recorded as a gain on extinguishment of debt during 2011. senior credit facility on january 29 , 2014 , we entered into an amended and restated loan and security agreement ( the “ loan agreement ” ) with fifth third bank . the loan agreement amended and restated that certain loan and security agreement , dated as of may 24 , 2010 , as amended ( the “ prior loan agreement ” ) , which had until january 29 , 2014 governed our senior credit facility . the loan agreement governs our senior credit facility ( which now matures on january 29 , 2018 ) , which permits the company to borrow funds from time to time in an aggregate amount equal to the lesser of the borrowing base and the revolving loan commitment of $ 20.0 million . the borrowing base is adjusted on a monthly basis and is based on our accounts receivables . the loan agreement further provides for a term loan of approximately $ 11.3 million ( “ term loan a ” ) and a term loan of $ 8.0 million ( “ term loan b ” ) , each of which matures on january 29 , 2018. our obligations under the loan agreement are secured by a continuing and unconditional first priority security interest in all of our tangible and intangible property . our senior credit facility and term loan a bear interest at the libor rate plus the applicable margin ( as those terms are defined in the loan agreement ) . accrued and unpaid interest on borrowings under our senior credit facility and term loan a are due and payable monthly in arrears and , with respect to term loan a , principal payments are required monthly and upon the occurrence of certain events . term loan b bears interest at a fixed rate of 11.0 % per annum . accrued and unpaid interest on borrowings under the term loan b are due and payable monthly in arrears , and principal payments are required upon the occurrence of certain events . borrowings under our senior credit facility and term loan a were partially used to prepay the senior subordinated indebtedness of the company ( as described below under “ –subordinated loans ” ) . 24 at closing , we paid commitment fees of $ 100,000 ( with respect to the senior credit facility and term loan a ) and $ 160,000 ( with respect to term loan b ) . we must pay an unused commitment fee of 0.25 % of the difference between the revolving loan commitment ( i.e. , $ 20.0 million ) and the average daily balance of the senior credit facility for each month , payable in arrears , and a compounding deferred fee ( as defined in the loan agreement ) on the earlier of the date term loan b matures or is paid in full . the loan agreement contains negative covenants that , among other things , restricts our ability to , with certain exceptions , ( i ) incur indebtedness , ( ii ) grant liens , ( iii ) make investments , ( iv ) dispose of assets , ( v ) enter into mergers , consolidations or similar transactions , ( vi ) issue securities , ( vii ) pay dividends or make distributions , ( viii ) enter into transactions with affiliates or ( ix ) change the nature of their business .
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results of operations . the following discussion and analysis of our financial condition and results of operations , our expectations regarding the future performance of our business and the other non-historical statements in the discussion and analysis are forward-looking statements . these forward-looking statements are subject to risks , uncertainties and other factors including those described in “ item 1a . risk factors ” of this annual report . our actual results may differ materially from those contained in any forward-looking statements . you should read the following discussion together with our audited financial statements and related notes thereto and other financial information included in this report . our financial information may not be indicative of our future performance . basis of presentation we operate under a 52/53 week fiscal year . our last three completed fiscal years ended on december 25 , 2011 ( “ fiscal 2011 ” ) , december 30 , 2012 ( “ fiscal 2012 ” ) and december 29 , 2013 ( “ fiscal 2013 ” ) . fiscal 2011 consist of 52 weeks , fiscal 2012 consists of 53 weeks and fiscal 2013 consists of 52 weeks . the differing length of certain fiscal years may affect the comparability of certain data . for example , in fiscal 2012 , the additional week increased revenues by $ 1.3 million and costs by approximately $ 1.2 million with an immaterial effect on the operating income and net loss . 15 overview we are a provider of temporary staffing services and have completed a series of acquisitions , which includes bg personnel lp in may 2010 , jna staffing , inc. in december 2010 , extrinsic , llc in november 2011 , american partners , inc. ( “ api ” ) in december 2012 and instaff in may 2013. we operate within three industry segments : light industrial , multifamily and it staffing .
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the amount of net sales and story_separator_special_tag overview during the second quarter of 2015 , the company realigned its reportable segments to reflect how the company 's results will be reported by management . the company has reorganized its business into three segments : global ceramic , flooring north america ( `` flooring na '' ) and flooring rest of the world ( `` flooring row '' ) . in order to leverage its relationships and distribution capabilities , the company organized its carpet , wood , laminate , luxury vinyl tile ( `` lvt '' ) and vinyl operations by geography into the flooring na segment and flooring row segment . the company did not make any changes to the global ceramic segment . previously reported segment results have been reclassified to conform to the current period presentation . this new segment structure is consistent with the strategic objective that management now applies to manage the growth and profitability of the company 's business . the global ceramic segment includes all worldwide tile and natural stone operations . the flooring na segment includes north american operations in all product categories except tile and natural stone . the new segment combines the former carpet segment with the north american operations of the former laminate and wood segment and the north american operations of the company 's newly acquired lvt and vinyl flooring businesses . the flooring row segment includes operations outside of north america in all product categories except tile and natural stone . the new segment combines the european and rest of the world operations of the former laminate and wood segment and the european and rest of the world operations of the company 's newly acquired lvt and vinyl flooring businesses . the global ceramic segment designs , manufactures , sources and markets a broad line of ceramic tile , porcelain tile , natural stone and other products , which it distributes primarily in north america , europe and russia through its network of regional distribution centers and company-operated service centers using company-operated trucks , common carriers or rail transportation . the segment 's product lines are sold through company-operated service centers , independent distributors , home center retailers , tile and flooring retailers and contractors . the flooring na segment designs , manufactures , sources and markets its floor covering product lines , including carpets , rugs , carpet pad , hardwood , laminate and vinyl products , including lvt , which it distributes through its network of regional distribution centers and satellite warehouses using company-operated trucks , common carrier or rail transportation . the segment 's product lines are sold through various selling channels , including independent floor covering retailers , distributors , home centers , mass merchandisers , department stores , shop at home , buying groups , commercial contractors and commercial end users . the flooring row segment designs , manufactures , sources , licenses and markets laminate , hardwood flooring , roofing elements , insulation boards , medium-density fiberboard ( `` mdf '' ) , chipboards , other wood products and vinyl products , including lvt , which it distributes primarily in europe and russia through various selling channels , which include retailers , independent distributors and home centers . net earnings attributable to the company were $ 615.3 million , or diluted eps of $ 8.31 for 2015 compared to net earnings attributable to the company of $ 532.0 million , or diluted eps of $ 7.25 for 2014 . the increase in eps was primarily attributable to increased sales volumes , savings from capital investments and cost reduction initiatives , lower input costs , lower taxes due to the geographic dispersion of earnings , and lower interest expense , partially offset by a charge of approximately $ 122.5 million related to the settlement and defense of the polyurethane foam litigation , the net impact of unfavorable foreign exchange rates , costs associated with investments in new product development , sales personnel and marketing , and the unfavorable net impact of price and product mix . a majority of the company 's sales and long-lived assets are located in the united states and europe . the company expects continued strong performance in the united states market as residential housing starts and remodeling continue to rebound . in europe , the company 's operations improved on a local basis despite a challenging macro-economic environment . the company also has operations in mexico and russia where the company is growing market share , especially in its ceramic tile product lines . while the company is performing well in the local markets where it operates , the company expects that a strong u.s. dollar will continue to impact the translation of its foreign operating results . for the year ended december 31 , 2015 , the company generated $ 911.9 million of cash from operating activities . as of december 31 , 2015 , the company had cash and cash equivalents of $ 81.7 million , of which $ 20.5 million was in the united states and $ 61.2 million was in foreign countries . acquisitions 21 index to financial statements on may 12 , 2015 , the company purchased approximately 90 % of all outstanding shares of advent kai luxembourg holdings s.a r.l. , a luxembourg societe a respsonsabilite limitee , and its subsidiaries ( collectively , the `` kai group '' ) , an eastern european ceramic tile floor manufacturer for $ 194.6 million . the kai group has a low cost position in the bulgarian and romanian markets . the combination with the company will present opportunities to enhance the group 's product offering , upgrade its technology and expand its exports to other countries . the kai group 's results of operations and a preliminary purchase price allocation are included in the consolidated financial statements since the date of the acquisition . story_separator_special_tag income tax expense 25 index to financial statements for 2015 , the company recorded income tax expense of $ 131.9 million on earnings from continuing operations before income taxes of $ 748.9 million for an effective tax rate of 17.6 % , as compared to an income tax expense of $ 131.6 million on earnings from continuing operations before income taxes of $ 663.9 million , resulting in an effective tax rate of 19.8 % for 2014 . the decrease in effective tax rates was primarily attributable to the expiration of the statute of limitations on european-related tax exposures , resulting in the reversal of uncertain tax positions of approximately $ 11 million , and the geographic dispersion of the company 's profits and losses for the year , including the $ 122 million charge related to the settlement and defense of the polyurethane foam litigation in the u.s. , partially offset by the non-recurrence of the favorable court case in italy of approximately $ 8 million occurring in 2014. see note 13-income taxes . year ended december 31 , 2014 , as compared with year ended december 31 , 2013 net sales net sales for 2014 were $ 7,803.4 million , reflecting an increase of $ 454.7 million , or 6.2 % , from the $ 7,348.8 million reported for 2013. the increase was primarily attributable to higher sales volume of approximately $ 498 million , or 7 % , and the favorable net impact of price and product mix of approximately $ 13 million , partially offset by the net impact of unfavorable foreign exchange rates of approximately $ 56 million . of the $ 498 million increase in volume , approximately $ 328 million was attributable to the marazzi and spano acquisitions . global ceramic segment —net sales increased $ 338.2 million , or 12.6 % , to $ 3,015.3 million for 2014 , compared to $ 2,677.1 million for 2013. the increase was primarily attributable to higher volume of approximately $ 358 million and the favorable net impact of price and product mix of approximately $ 38 million , partially offset by the net impact of unfavorable foreign exchange rates of approximately $ 58 million . of the $ 358 million increase in volume , approximately $ 272 million was attributable to the marazzi acquisition . flooring na segment —net sales increased $ 17.9 million to $ 3,441.0 million for 2014 , compared to $ 3,423.1 million for 2013. the increase was primarily attributable to higher volume of approximately $ 43 million , partially offset by the unfavorable net impact of price and product mix of approximately $ 25 million . the volume increases were primarily attributable to increases in residential new construction and commercial sales . flooring row segment —net sales increased $ 104.7 million , or 8.4 % , to $ 1,354.0 million for 2014 , compared to $ 1,249.3 million for 2013. the increase was primarily attributable to higher volume of approximately $ 102 million and the net impact of favorable foreign exchange rates of approximately $ 2 million . of the $ 102 million increase in volume , approximately $ 55 million was attributable to the spano acquisition while the remaining volume increases were attributable to higher sales in europe . quarterly net sales and the percentage changes in net sales by quarter for 2014 versus 2013 were as follows ( dollars in millions ) : replace_table_token_5_th gross profit gross profit for 2014 was $ 2,154.2 million ( 27.6 % of net sales ) , an increase of $ 233.4 million or 12.2 % , compared to gross profit of $ 1,920.8 million ( 26.1 % of net sales ) for 2013. as a percentage of net sales , gross profit increased 150 basis points . the increase in gross profit dollars was primarily attributable to higher sales volume of approximately $ 151 million that was predominately attributable to the marazzi and spano acquisitions , savings from capital investments and cost reduction initiatives of approximately $ 86 million , the fair value inventory step-up adjustment in the prior year related to the marazzi acquisition of approximately $ 31 million , the favorable net impact of price and product mix of approximately $ 26 million , lower restructuring , acquisition and integration-related costs of approximately $ 18 million , partially offset by costs associated with investments in 26 index to financial statements expansion of production capacity of approximately $ 13 million , the net impact of unfavorable foreign exchange rates of approximately $ 15 million and higher input costs of approximately $ 49 million . selling , general and administrative expenses selling , general and administrative expenses for 2014 were $ 1,381.4 million ( 17.7 % of net sales ) , an increase of $ 7.5 million compared to $ 1,373.9 million ( 18.7 % of net sales ) for 2013. as a percentage of net sales , selling , general and administrative expenses decreased 100 basis points , primarily due to increased sales volumes . the increase in selling , general and administrative expenses in dollars was primarily attributable to approximately $ 71 million of costs associated with higher sales volumes due to higher legacy sales , acquisitions and new product introductions , and increased employee costs of approximately $ 12 million , partially offset by lower restructuring , acquisition and integration-related costs of approximately $ 32 million , improved efficiencies . of approximately $ 32 million and the positive impact of foreign exchange rates of approximately $ 10 million .
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results of operations following are the results of operations for the last three years : replace_table_token_3_th 23 index to financial statements year ended december 31 , 2015 , as compared with year ended december 31 , 2014 net sales net sales for 2015 were $ 8,071.6 million , reflecting an increase of $ 268.1 million , or 3.4 % , from the $ 7,803.4 million reported for 2014 . the increase was primarily attributable to higher sales volume of approximately $ 785 million , or 10 % , partially offset by the net impact of unfavorable foreign exchange rates of approximately $ 490 million , or 6 % , and the unfavorable net impact of price and product mix of approximately $ 28 million . of the $ 785 million increase in volume , approximately $ 396 million was attributable to acquisitions . global ceramic segment —net sales decrease d $ 2.4 million , or 0.1 % , to $ 3,012.9 million for 2015 , compared to $ 3,015.3 million for 2014 . the decrease was primarily attributable to the net impact of unfavorable foreign exchange rates of approximately $ 252 million , or 8 % , partially offset by higher sales volume of approximately $ 150 million , or 5 % , and the favorable net impact of price and product mix of approximately $ 99 million , or 3 % . of the $ 150 million increase in volume , approximately $ 65 million was attributable to the kai group acquisition . flooring na segment —net sales increase d $ 161.1 million , or 4.7 % , to $ 3,602.1 million for 2015 , compared to $ 3,441.0 million for 2014 . the increase was primarily attributable to higher sales volume of approximately $ 275 million , or 8 % , partially offset by the unfavorable net impact of price and product mix of approximately $ 114 million , or 3 % .
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the assets acquired under the capital lease are included in land , buildings and improvements and story_separator_special_tag management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) should be read in conjunction with the consolidated financial statements and notes included in item 8 of this annual report on form 10-k. the md & a contains certain forward looking statements within the meaning of the united states private securities litigation reform act of 1995 , section 27a of the securities act of 1933 , as amended , and section 21e of the securities exchange act of 1934 , as amended . in addition to historical financial information , the following discussion and analysis contains forward looking statements that involve risks , uncertainties and assumptions . these forward looking statements include , but are not limited to , anticipated financial performance ; expected liquidity and capitalization ; drivers of revenue growth ; management 's plans and objectives for future operations , expenditures and product development , and investments in research and development ; business prospects ; potential of future product releases ; anticipated sales performance ; industry trends ; market conditions ; changes in accounting principles ; changes in actual or assumed tax liabilities ; expectations regarding tax exposures ; anticipated reinvestment of future earnings ; anticipated expenditures in regard to the company 's benefit plans ; future acquisitions and dispositions and anticipated benefits from acquisitions ; anticipated impact of the nds impairment charge ; anticipated use of currency hedges ; ability to repay our indebtedness ; our intentions regarding the use of cash ; and other statements that are not historical facts . these forward looking statements are neither promises nor guarantees , but involve risks and uncertainties that may cause actual results to differ materially from those contained in the forward looking statements . our actual results could differ materially from those anticipated in these forward looking statements as a result of various factors , including those set forth in item 1a of this annual report on form 10-k under the heading “ risk factors. ” the words “ anticipates , ” “ believes , ” “ expects , ” “ intends , ” “ future , ” “ could , ” “ estimates , ” “ plans , ” “ would , ” “ should , ” “ potential , ” “ continues , ” and similar words or expressions ( as well as other words or expressions referencing future events , conditions or circumstances ) identify forward looking statements . readers should not place undue reliance on any such forward looking statements , which speak only as of the date they are made . management and the company disclaim any obligation to publicly update or revise any such statement to reflect any change in its expectations or in events , conditions , or circumstances on which any such statements may be based , or that may affect the likelihood that actual results will differ from those contained in the forward looking statements . business overview gsi group inc. and its subsidiaries ( collectively referred to as the “ company ” , “ we ” , “ us ” , “ our ” ) design , develop , manufacture and sell precision photonic and motion control components and subsystems to original equipment manufacturers ( oem 's ) in the medical equipment and advanced industrial technology markets . our highly engineered enabling technologies include laser sources , laser scanning and beam delivery products , optical data collection and machine vision technologies , medical visualization and informatics solutions and precision motion control products . we specialize in collaborating with oem customers to adapt our component and subsystem technologies to deliver highly differentiated performance in their applications . our strategy is to drive sustainable , profitable growth through short-term and long-term initiatives , including : · improving our business mix to increase medical sales as a percentage of total revenue by : - introducing new products aimed at attractive medical applications such as minimally invasive and robotic surgery , ophthalmology , patient monitoring , drug delivery , diagnostic testing and life science research ; - cross selling our entire product offering to the leading medical equipment manufacturers and ; - pursuing complementary medical technology acquisitions ; · increasing our penetration of high growth advanced industrial technology applications such as laser materials processing , robotics , automation , metrology , and via hole drilling by working closely with oem customers to launch application specific products that closely match the requirements of each application ; · broadening our portfolio of precision motion control products and capabilities through increased new product development investment in motion control product lines , expanded sales and marketing to reach target customers and , acquisitions of additional motion control product technologies used by existing customers ; · broadening our product and service offerings through the acquisition of innovative and complementary technologies and solutions in medical and advanced industrial technology applications ; · upgrading our existing operations to expand profit margins and improve customer satisfaction by implementing lean manufacturing principles and strategic sourcing across our major production sites ; and · attracting , retaining , and developing talented and motivated employees . 24 significant events and updates acquisition of jadak on march 14 , 2014 , we completed the acquisition of jadak llc , jadak technologies inc. and advance data capture corporation ( together , “ jadak ” ) , a north syracuse , new york-based provider of optical data collection and machine vision technologies to oem medical device manufacturers , for $ 93.7 million in cash , net of working capital adjustments . the addition of the jadak technology platforms expands our portfolio of highly-differentiated enabling technologies . jadak provides data collection and machine vision solutions to its customers , which primarily consist of oem medical device manufacturers . jadak 's products are based on technologies that include barcode components and scanners , machine vision cameras , rfid technology , magnetic stripe readers , portable platforms and associated software . story_separator_special_tag story_separator_special_tag style= '' margin-bottom:0pt ; margin-top:18pt ; margin-left:1.13 % ; text-indent:0 % ; font-style : italic ; font-size:10pt ; font-family : times new roman ; font-weight : normal ; text-transform : none ; font-variant : normal ; '' > selling , general and administrative expenses selling , general and administrative ( “ sg & a ” ) expenses include costs for sales and marketing , sales administration , finance , human resources , legal , information systems and executive management . 2014 compared with 2013 sg & a expenses were $ 84.4 million , or 23.1 % of sales , in 2014 , versus $ 76.3 million , or 24.1 % of sales , in 2013. sg & a expenses increased in terms of total dollars primarily due to the acquisition of jadak . 29 2013 compared with 2012 sg & a expenses were $ 76.3 million , or 24.1 % of sales , in 2013 , versus $ 59.7 million , or 24.5 % of sales , in 2012. sg & a expenses increased in terms of total dollars due to the acquisition of nds and , to a lesser extent , from the increase in employee compensation versus the prior year . amortization of purchased intangible assets amortization of purchased intangible assets is charged to our laser products , medical technologies and precision motion segments . amortization of core technologies is included in cost of goods sold in the consolidated statement of operations . amortization of customer relationships , trademarks , backlog and other intangibles are included in operating expenses in the consolidated statement of operations . 2014 compared with 2013 amortization of purchased intangible assets , excluding the amortization for developed technologies that is included in cost of sales , was $ 10.3 million , or 2.8 % of sales , in 2014 , versus $ 7.3 million , or 2.3 % of sales , in 2013. the increase , in terms of total dollars and as a percentage of sales , was related to the amortization of acquired intangible assets from the jadak acquisition . 2013 compared with 2012 amortization of purchased intangible assets , excluding the amortization of core technologies , was $ 7.3 million , or 2.3 % of sales , in 2013 , versus $ 2.7 million , or 1.1 % of sales , in 2012. the increase , in terms of total dollars and as a percentage of sales , was related to the amortization of acquired intangible assets as part of the nds acquisition . restructuring and acquisition related costs restructuring and acquisition related charges primarily relate to our prior year restructuring programs as well as the acquisition related costs incurred for the acquisition of jadak in march 2014 and nds in january 2013 . 2014 compared with 2013 the company recorded restructuring and acquisition related costs of $ 1.9 million in 2014 , versus $ 5.4 million in 2013. we recognized acquisition related costs of $ 1.5 million in 2014 , which included expenses of $ 0.6 million recognized under earn-out agreements in connection with the jadak acquisition . we recorded restructuring costs of $ 0.4 million primarily related to depreciation on our orlando , florida facility . the decrease in restructuring and acquisition related costs is primarily due to the decrease in costs related to prior year restructuring programs . acquisition related costs were $ 1.6 million during 2013 . 2013 compared with 2012 the company recorded restructuring and acquisition related costs of $ 5.4 million in 2013 , versus $ 4.4 million in 2012. the increase in restructuring and acquisition related costs primarily related to higher acquisition related charges , which related to the acquisition of nds in january 2013 and jadak in march 2014. acquisition related charges totaled $ 1.6 million and $ 0.8 million during 2013 and 2012 , respectively . in january 2013 , the company consolidated our laser scanners business into our bedford , massachusetts production facility . in addition , the company also recorded severance charges associated with our 2011 and 2013 restructuring plans . impairment of goodwill and intangible assets the company recorded a non-cash impairment charge of $ 41.4 million in the consolidated financial statements for the year ended december 31 , 2014 as a result of lower expectations for sales and operating profit from our nds business . 30 operating income ( loss ) by segment the following table sets forth operating income by segment for 2014 , 2013 and 2012 ( in thousands ) : replace_table_token_11_th laser products 2014 compared with 2013 laser products operating income from continuing operations for 2014 increased by $ 7.9 million , or 31.5 % , from 2013 primarily due to an increase in gross profit of $ 5.4 million and a $ 2.0 million decrease in restructuring and acquisition related costs compared to the prior year . amortization of intangible assets for the laser products segment was $ 4.1 million in both 2014 and 2013 . 2013 compared with 2012 laser products operating income for 2013 increased by $ 0.7 million , or 2.7 % , from 2012 primarily due to higher profitability from our laser scanners products , offset by a decrease in operating income from our co 2 lasers products . restructuring charges were $ 1.9 million in 2013 , compared to $ 0.9 million in 2012. the increase in restructuring costs primarily relates to the relocation of the laser scanners product line in 2013. amortization of intangible assets for the laser products segment was $ 4.1 million in both 2013 and 2012. medical technologies 2014 compared with 2013 medical technologies operating income from continuing operations decreased by $ 46.6 million from 2013 to an operating loss of $ 43.1 million in 2014 primarily due to the nds goodwill and intangible assets impairment charge of $ 41.4 million , an increase in amortization of intangibles and amortization of our inventory fair value step-ups of $ 3.7 million and a decline in visualization solutions revenue , partially offset by an increase in operating income from continuing operations as a result of the jadak acquisition .
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results of operations the following table sets forth our results of operations as a percentage of sales for the years indicated : replace_table_token_7_th 26 sales the following table sets forth external sales by reportable segment for 2014 , 2013 and 2012 ( dollars in thousands ) : replace_table_token_8_th laser products 2014 compared with 2013 laser products segment sales in 2014 increased by $ 11.1 million , or 6.7 % , versus the prior year , due to growth across all product lines . the sales growth was primarily due to an increase in sales of our co 2 lasers and fiber lasers products , driven by new product launches , new customer wins , and market growth . in addition , sales of our beam delivery products grew due to increased demand in material processing in advanced industrial markets . 2013 compared with 2012 laser products segment sales in 2013 increased by $ 8.0 million , or 5.0 % , versus the prior year . sales growth was primarily attributable to growth in sales of our beam delivery products , driven by strong demand and greater market penetration of our laser scanning solutions products . in addition , co 2 lasers products experienced an increase in demand from customers in both marking and coding applications for the food , beverage and pharmaceutical industries . medical technologies 2014 compared with 2013 medical technologies segment sales in 2014 increased by $ 31.9 million , or 35.3 % , versus the prior year . a $ 45.4 million increase in sales attributable to the jadak acquisition was partially offset by a decline in sales in our visualization solutions products as a result of dual sourcing at an oem customer that began in 2013 , softness in medical equipment spending impacting our customer 's demand for our products , and delays in new product introductions .
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the performance materials segment includes filtration media solutions primarily for air , fluid power , and industrial applications ( “ filtration ” ) , thermal insulation solutions for building products , appliances , and energy and industrial markets ( “ thermal insulation ” ) and air and liquid life science applications ( “ life sciences filtration ” ) . the technical nonwovens segment primarily produces needle punch nonwoven solutions for myriad industries and applications . products are manufactured and sold globally under the leading brands of lydall industrial filtration , southern felt , gutsche , and texel . the industrial filtration products include nonwoven rolled-good felt media and filter bags used primarily in industrial air and liquid filtration applications . nonwoven filter media is the most effective solution to satisfy increasing emission control regulations in a wide range of industries , including power , cement , steel , asphalt , incineration , mining , food , and pharmaceutical . the advanced materials products include nonwoven rolled-good media used in commercial applications and predominantly serves the geosynthetic , automotive , industrial , medical , and safety apparel markets . the automotive media is provided to tier i/ii suppliers and as well as the company 's thermal/acoustical fibers segment . the thermal/acoustical metals ( `` t/a metals '' ) segment offers a full range of innovative engineered products tailored for the transportation sector to thermally shield sensitive components from high heat , improve exhaust gas treatment and lower harmful emissions as well as assist in the reduction of powertrain and road noise . lydall products are found in the underbody ( tunnel , fuel tank , rear muffler , spare tire ) and underhood ( outer dash , powertrain , catalytic converter , turbo charger and manifolds ) of cars , trucks , suvs , heavy duty trucks and recreational vehicles . the thermal/acoustical fibers ( `` t/a fibers '' ) segment offers innovative engineered products to assist primarily in noise vibration and harshness ( nvh ) abatement within the transportation sector . lydall products are found in the interior ( dash insulators , cabin flooring ) , underbody ( wheel well , aerodynamic belly pan , fuel tank , exhaust ) and under hood ( engine compartment ) of cars , trucks , suvs , heavy duty trucks and recreational vehicles . financial highlights below are financial highlights comparing lydall 's 2016 results to its 2015 story_separator_special_tag million , or 2.0 % , in 2015 compared to 2014 , as the segment was created upon the acquisition of the filtration businesses of andrews industries , limited on february 20 , 2014. the t/a fibers segment reported sales growth of $ 10.2 million , or 7.9 % , in 2015 compared to 2014. cost of sales replace_table_token_7_th cost of sales in 2016 increased $ 26.3 million , or 6.5 % , compared to 2015. the increase was due to increased sales volumes across all of the company 's segments , which included the texel acquisition since july 7 , 2016 in the technical nonwovens segment , and a $ 2.0 million purchase accounting adjustment to cost of sales related to inventory step-up . also contributing to the increase in cost of sales for 2016 compared to 2015 was higher labor and overhead costs in the t/a metals segment due to operating inefficiencies . these increases to cost of sales were partially offset by improved mix of products as well as lower raw material sourcing costs primarily in the technical nonwovens , t/a fibers and performance materials segments and lower overhead costs in the performance materials segment . foreign currency translation reduced cost of sales by $ 4.2 million , or 1.0 % , in 2016 compared to 2015. cost of sales in 2015 decreased $ 18.8 million , or 4.5 % , compared to 2014. the decrease was primarily due to foreign currency translation of $ 21.9 million , or 5.2 % , in the company 's t/a metals , performance materials and technical nonwovens segments and lower cost of sales of $ 12.5 million from the divested life sciences vital fluids business which was sold on january 30 , 2015. these decreases to cost of sales were partially offset by increases in cost of sales of $ 18.0 million in the technical nonwovens segment , as the segment was created upon the acquisition of the filtration businesses of andrews industries , limited on february 20 , 2014. also , cost of sales increased by $ 1.8 million in the t/a fibers segment due to higher sales volumes . the increases to cost of sales in the technical nonwovens and t/a fibers segments were partially offset by lower raw material sourcing costs and improved product mix . 21 gross profit replace_table_token_8_th the increase in gross margin by 100 basis points in 2016 compared to 2015 was primarily attributable to the performance materials segment as a result of favorable mix of product sales and improved absorption of fixed costs on higher sales volumes , increasing consolidated gross margin by approximately 60 basis points . additionally , the t/a fibers segment favorably impacted consolidated gross margin by approximately 50 basis points , primarily as a result of lower raw material costs , improved material productivity and favorable product mix , partially offset by lower pricing . the technical nonwovens segment favorably impacted consolidated gross margin by approximately 30 basis points , which included the negative impact of a $ 2.0 million , or 30 basis point , purchase accounting adjustment relating to inventory step-up in 2016 , offset by lower raw material costs and favorable product mix . story_separator_special_tag the decrease in interest expense in 2015 compared to 2014 was due to lower average outstanding borrowings under the company 's amended credit facility and lower borrowing rates compared to 2014. borrowings under the company 's amended credit facility are associated with the acquisition of industrial filtration on february 20 , 2014. other income and expense replace_table_token_12_th the increase in other income , net in 2016 compared to 2015 was primarily related to higher foreign currency transaction gains associated with the revaluation of cash , trade payables and receivables and intercompany loans denominated in currencies other than the functional currency of the company 's subsidiaries , primarily driven by the devaluation of the british pound sterling . the decrease in other income , net in 2015 compared to 2014 primarily relates to a decrease in foreign currency transaction gains due to the settlement of certain intercompany loans denominated in currencies other than the local functional currency , offset by an increase in foreign currency transaction gains associated with intercompany balances and trade payables and receivables denominated in currencies other than the local functional currency . income taxes replace_table_token_13_th the company 's effective tax rate for 2016 of 32.4 % was positively impacted by a favorable mix of taxable income generated from countries with lower tax rates compared to that of the united states , resulting in a tax benefit of $ 1.3 million . the company also recorded a tax benefit of $ 1.5 million attributable to the domestic production activities deduction and a tax benefit of $ 1.1 million related to stock based compensation . these favorable adjustments were partially offset by tax expense of $ 1.2 million related to a nondeductible german cartel settlement and a net increase 23 in valuation allowance against certain deferred tax assets of $ 0.7 million , primarily related to tax valuation allowances of $ 0.5 million recorded against certain net deferred tax assets in the netherlands and china , as future realization of the assets is not reasonably assured . in 2015 , the effective tax rate of 34.9 % was positively impacted by a favorable mix of taxable income generated from countries with lower tax rates compared to that of the united states , resulting in a tax benefit of $ 1.0 million . the company also recorded a tax benefit of $ 1.2 million attributable to the domestic production activities deduction and a tax benefit of $ 1.1 million related to research and development credits . these favorable adjustments were partially offset by tax expense of $ 0.9 million related to a net increase in valuation allowance against certain deferred tax assets and by a $ 0.6 million reduction to state deferred tax assets as a result of state tax law changes that led the company to deem the asset unrealizable in future periods . the net increase in valuation allowance against certain deferred tax assets of $ 0.9 million in 2015 was primarily related to tax valuation allowances of $ 0.8 million recorded against certain net deferred tax assets in the netherlands and china , as future realization of the assets is not reasonably assured . in 2014 , the effective tax rate of 35.1 % was positively impacted by a favorable mix of taxable income generated from countries with lower tax rates compared to that of the united states resulting in a tax benefit of $ 1.2 million and a tax benefit of $ 0.9 million attributable to the domestic production activities deduction . these favorable adjustments were partially offset by tax expense of $ 0.8 million related to nondeductible transaction costs from the industrial filtration acquisition , and a net increase in tax valuation allowances of $ 0.2 million . the company and its subsidiaries file a consolidated federal income tax return , as well as returns required by various state and foreign jurisdictions . in the normal course of business , the company is subject to examination by taxing authorities , including such major jurisdictions as the united states , china , france , germany , hong kong , the netherlands , canada and the united kingdom . within the next fiscal year , the company expects to conclude certain income tax matters through the year ended december 31 , 2013 and it is reasonably expected that unrecognized benefits of $ 0.5 million may be recognized . the total amount of net unrecognized tax benefits that would affect the effective tax rate if recognized was $ 3.2 million as of december 31 , 2016. however , $ 1.3 million of the unrecognized tax benefits , if recognized , would be offset in pre-tax income by the reversal of indemnification assets due to the company . the company is no longer subject to u.s. federal examinations for years before 2013 , state and local examinations for years before 2012 , and non-u.s. income tax examinations for years before 2003 . 24 segment results replace_table_token_14_th replace_table_token_15_th ( 1 ) the technical nonwovens segment reports results of texel for the period following the date of acquisition of july 7 , 2016 through deember 31 , 2016 . ( 2 ) included in the technical nonwovens segment and eliminations and other is $ 18.2 million , $ 13.8 million and $ 1.0 million in intercompany sales to the t/a fibers segment for the years ended december 31 , 2016 , 2015 and 2014 , respectively .
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results : consolidated net sales were $ 566.9 million in 2016 , compared to $ 524.5 million in 2015 , an increase of $ 42.3 million , or 8.1 % , with the increase nearly all attributable to the acquisition of texel on july 7 , 2016. the change in consolidated net sales is summarized in the following table . replace_table_token_4_th gross margin increased 100 basis points to 24.4 % in 2016 compared to 23.4 % in 2015 primarily due to improved mix of products , lower raw material costs and improved absorption of fixed costs , partially offset by the negative impact of 30 basis points from a purchase accounting adjustment related to inventory step-up associated with 18 the texel business included in the technical nonwovens segment . the gross margin improvement was principally led by the performance materials , t/a fibers and technical nonwovens segments , partially offset by lower gross margin in the t/a metals segment due to operating inefficiencies . operating income was $ 54.8 million , or 9.7 % of net sales in 2016 , compared to $ 52.5 million , or 10.0 % of net sales in 2015 ; the increase in operating income of $ 2.3 million is summarized in the following table : replace_table_token_5_th the sales/operational component of the change in consolidated operating income was primarily attributed to the t/a fibers and performance materials segments , which increased $ 4.4 million and $ 4.2 million , respectively , in 2016 compared to 2015 due to increased net sales and improved gross margins , partially offset by increased corporate office expenses . net income was $ 37.2 million , or $ 2.16 per diluted share , compared to $ 46.3 million , or $ 2.71 per diluted share in 2015 .
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actual results or performance could differ materially from those encompassed within such forward-looking statements as a result of various factors , including those described below . net income and net income per share amounts referenced below are attributable to allegheny technologies incorporated and subsidiaries . the following discussion on the company 's results of operations , financial condition and liquidity for fiscal year 2019 as compared to 2018 is presented . information on the company 's results of operations , financial condition and liquidity for fiscal year 2018 as compared to 2017 is included in our annual report on form 10-k in item 7 . “ management 's discussion and analysis of financial condition and results of operations ” filed on february 28 , 2019 and is incorporated herein by reference . ati overview ati is a global manufacturer of technically advanced specialty materials and complex components . our largest markets are aerospace & defense , representing approximately 50 % of total sales , led by products for jet engines . additionally , we have a strong presence in the oil & gas and electrical energy markets . in aggregate , these markets represent about 70 % of our revenue . ati is a market leader in manufacturing differentiated products that require our materials science capabilities and unique process technologies , including our new product development competence . we operate in two business segments : high performance materials & components ( hpmc ) , and flat rolled products ( frp ) . over 75 % of 2019 hpmc business segment sales were to the aerospace & defense markets , and nearly half of hpmc 's total sales are products for commercial jet engines . increasing demand for commercial aerospace products has been the main source of sales and segment operating profit growth for hpmc over the last few years , and is expected to continue to drive hpmc and overall ati results for the next several years . other major hpmc end markets include medical and electrical energy . hpmc produces a wide range of high performance materials , parts and components , and advanced metallic powder alloys made from titanium and titanium-based alloys , nickel-based alloys and superalloys , and a variety of other specialty materials . capabilities range from cast/wrought and powder alloy development to final production of highly engineered finished components , including those used for next-generation jet engine forgings and 3d-printed aerospace products . the frp segment serves a diverse group of end markets , with sales to the oil & gas market and aerospace & defense markets collectively representing over 40 % of 2019 sales . other important end markets for frp include automotive , food processing equipment and appliances , consumer electronics , and construction & mining . frp produces nickel-based alloys , specialty alloys , and titanium and titanium-based alloys , and stainless steel products in a variety of forms including plate , sheet , engineered strip , and precision rolled strip products . overview of 2019 financial performance sales in 2019 increased 2 % , to $ 4.12 billion , despite a 2 % negative impact due to the sale of two non-core businesses during the second and third quarters , and gross profit increased 1 % , to $ 638 million , compared to 2018. income before taxes in 2019 included $ 90 million of gains on sales of non-core assets , $ 22 million in debt extinguishment charges , and $ 16 million in restructuring and impairment charges . results in 2019 also reflect a $ 29 million net tax benefit primarily related to the reversal of most of our deferred tax valuation allowances . net income in 2019 was $ 258 million , or $ 1.85 per share , a 15 % increase in per-share results over 2018. in 2019 , we generated strong cash flow from operating activities as well as from non-core asset sales , enabling continued progress on our strategic initiatives while maintaining strong liquidity . revenues in our largest end markets , aerospace & defense , increased $ 165 million , or 8 % , over 2018 , and represented 52 % of our 2019 sales , despite a 3 % negative impact from business divestitures . international sales , including both u.s. exports and foreign sales from our foreign manufacturing operations , were $ 1.67 billion in 2019 and represented 40 % of total sales . 19 a summary of our results is as follows . replace_table_token_6_th our major strategic accomplishments during 2019 include the following : we continued to be an industry leader in on-time delivery of high quality materials and components as indicated by our ability to secure extensions on various important long-term agreements ( ltas ) in the hpmc segment in 2019. we extended supply agreements with ge aviation that are expected to generate $ 2.5 billion in revenues and which begin in january 2021 and are multi-year agreements . we extended our long-term agreement through 2029 with rolls-royce to supply rotating disc quality specialty materials for their trent engine family . this agreement covers the production of a wide-range of critical products used to make rolls-royce 's next-generation jet engines as well as spare parts for in-service engines . we also announced the expansion and 6.5 year extension of our lta with bwx technologies to supply materials for the manufacture of naval nuclear components . the frp segment achieved its third straight year of profitability despite the negative impacts from section 232 tariffs , elevated retirement benefit expense , and soft demand for our standard stainless products and related cost inefficiencies . we remain focused on continuous improvement and profitable growth in this segment . we extended and expanded our agreement with nlmk usa for one year , through december 2020 , to provide carbon steel hot-rolling conversion services at our world-class hrfp . this agreement includes significant guaranteed volumes and fixed fee-per-ton revenues . story_separator_special_tag new airframe designs contain a larger percentage of titanium alloys , and the jet engines that power them use newer nickel-based alloys and titanium-based alloys , in both cases for improved performance and more economical operating costs , compared to legacy airframe and engine designs . boeing and airbus have multi-year backlogs of orders for both legacy models and next-generation aircraft , and there are over 27,000 jet engines with firm orders ( aero engine news , february 2020 ) . due to manufacturing cycle times , demand for our specialty materials leads the deliveries of new aircrafts by approximately 6 to 12 months . our 2019 hpmc results reflect this demand growth , as the next-generation of aircraft and engines use significantly more of the products we make . use of these newer materials , particularly for jet engine applications , is expected to continue to increase for several years , with strong growth expected in powder metal alloys , including increased usage of isothermal forging and additive manufacturing production processes . additionally , new entrants to the commercial jet aircraft market for single aisle and regional jets are expected to increase demand for products made with titanium- and nickel-based alloys over the next several years . in addition , as our specialty materials are used in rotating components of jet engines , demand for our products for spare parts is impacted by aircraft flight 24 activity and engine refurbishment requirements of u.s. and foreign aviation regulatory authorities . as the number of aircraft in service increases , the need for our materials associated with engine refurbishment is expected to increase . our hpmc segment produces a wide range of high performance materials , including titanium and titanium-based alloys , nickel- and cobalt-based alloys and superalloys , zirconium and related alloys including hafnium and niobium , advanced powder alloys and other specialty materials , in long product forms such as ingot , billet , bar , rod , wire , shapes and rectangles , and seamless tubes , plus precision forgings , components , and machined parts . in 2019 , we also announced the expansion and 6.5 year extension of our lta with bwx technologies to supply materials for the manufacture of naval nuclear components . stronger demand for titanium and nickel-based products , sales of which were up 12 % and 4 % , respectively , in 2019 were partially offset by declines in sales of forged products . comparative information for hpmc 's major product categories , including divested businesses prior to sale , based on their percentages of the segment 's overall revenue is as follows : replace_table_token_13_th hpmc segment operating profit for 2019 increased 2 % compared to 2018 , to $ 343.1 million , or 14.3 % of sales . as the year progressed , results reflected a better balance of raw material prices and index-based selling prices , however , the first half of 2019 reflected adverse impacts from a rapid drop in raw material prices , particularly in cobalt , which compressed profit margins due to the length of the manufacturing cycle compared to index-based selling price changes , offsetting benefits from higher productivity . results for 2019 also reflect temporary near-term headwinds related to one of our jet engine customer 's cash management efforts . net results of divested businesses were not material to prior period hpmc segment operating profit . we anticipate significant industry demand growth for advanced powder materials required to satisfy expanding aerospace & defense market production requirements , and for emerging additive manufacturing of parts and components . to proactively meet this growing demand for complex powder alloy products , ati designed and built an all-new nickel and super alloy powder production facility in north carolina , which started production in 2018. we also expanded titanium alloys powder production capabilities at the same north carolina site , which was completed in early 2019. we acquired assets in 2018 to accelerate the development of our capabilities in metal alloy-based additive manufacturing to provide comprehensive customer solutions ranging from the design of parts for additive manufacturing to the production of ready-to-install components . ongoing strategic capital projects in hpmc to support future growth include the iso-thermal press and heat-treating capacity expansion at our iso-thermal forging center of excellence in cudahy , wi , which is expected to be placed into service and begin customer qualification steps in mid-2020 . in the medical market , in 2018 we entered into a joint technology development agreement with bruker energy & supercon technologies , to advance state-of-the-art niobium-based superconductors , including those used in mri magnets for the medical industry , and preclinical mri magnets used in the life-science tools industry . competition continues to be very strong across most key end markets , particularly within the aerospace & defense , oil & gas , and medical market supply chains . we believe that our hpmc segment is well-positioned for profitable growth , especially in the next-generation jet engine platforms through ltas that provide significant growth and share gains for ati on next-generation airplanes and the jet engines that power them . despite near-term uncertainty posed by the 737 max grounding and associated changes in order patterns in the supply chain for this airframe and related engine program , we believe the long-term fundamentals driving demand growth in commercial aerospace remain intact across the range of next-generation aircraft and engines . 25 flat rolled products replace_table_token_14_th sales for the frp segment in 2019 increased 1 % compared to 2018 , to $ 1.72 billion . sales to the aerospace & defense markets increased almost 30 % versus the prior year , supported by significantly higher production of titanium armor plate , additional titanium volumes for commercial airframes , and increased nickel and cobalt-bearing alloy sheet products for jet engines . sales to the electrical energy market were 25 % higher , driven by demand for marine scrubber products for exhaust systems on ships .
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results of operations sales were $ 4.12 billion in 2019 , compared to $ 4.05 billion in 2018 , a 2 % increase , despite a 2 % negative impact from business divestitures . income before tax was $ 241.6 million in 2019 , compared to $ 247.7 million in 2018. net income attributable to ati in 2019 was $ 257.6 million , or $ 1.85 per share , compared to $ 222.4 million , or $ 1.61 per share , in 2018. results in 2019 include a $ 28.5 million income tax benefit , while 2018 results reflect $ 11.0 million of income tax expense . through december 31 , 2019 , we continued to maintain valuation allowances for u.s. federal and state deferred taxes , and results in all periods include impacts from income taxes that differ from the applicable standard tax rate , primarily related to these income tax valuation allowances . at december 31 , 2019 , we determined that a substantial portion of these income tax valuation allowances were no longer required , and a $ 45.1 million discrete tax benefit was recognized . in 2019 , we completed several strategic actions to improve future financial performance , liquidity and our financial condition . these items noted below are excluded from business segment results unless otherwise noted . during the second quarter of 2019 , we completed the sale of two non-core forging facilities in our hpmc segment for $ 37 million . sales from these two forging facilities in 2018 were $ 86 million . we received net cash proceeds of $ 33.0 million on the sale of this business and recognized an $ 8.1 million pre-tax loss in 2019 , including $ 10.4 million of allocated goodwill . during the third quarter of 2019 , we completed the sale of our cast products titanium investment castings business in our hpmc segment for $ 127 million .
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there were no transfers into or out of level 3 in those years and there we no losses included in earnings for those years attributable to the change in unrealized losses on assets still held at the end of each applicable year . replace_table_token_78_th replace_table_token_79_th replace_table_token_80_th authoritative guidance over disclosures about the fair value of financial instruments requires additional disclosure for financial instruments not measured at fair value . certain financial instruments , including insurance contracts , are excluded from these fair value disclosure requirements . the carrying values of cash and cash equivalents ( level 1 ) and accrued investment income ( level 2 ) approximated their fair values . as of december 31 , 2016 , the majority of the $ 5.0 million balance of level 3 securities are equity securities that can only be redeemed or sold at their par value and only to the security issuer , with the story_separator_special_tag forward looking and other statements as discussed under “ forward looking statements and risk factors ” in item 1a of part 1 of this report , actual results may differ materially from the results contemplated by forward looking statements . we are not undertaking any obligation to update any forward looking statements or other statements we may make in the following discussion or elsewhere in this document even though these statements may be affected by events or circumstances occurring after the forward looking statements or other statements were made . therefore no reader of this document should rely on these statements being current as of any time other than the time at which this document was filed with the securities and exchange commission . see the `` glossary of terms and acronyms '' for definitions and descriptions of terms used throughout this annual report . introduction through our subsidiary , mgic , we are a leading provider of pmi in the united states , as measured by $ 182.0 billion of primary iif on a consolidated basis at december 31 , 2016 . as used below , “ we ” and “ our ” refer to mgic investment corporation 's consolidated operations or to mgic investment corporation , as a separate entity , as the context requires . references to `` we '' and `` our '' in the context of debt obligations refer to mgic investment corporation . 43 | mgic investment corporation 2016 form 10-k overview this overview of the md & a highlights selected information and may not contain all of the information that is important to readers of this annual report . hence , this overview is qualified by the information that appears elsewhere in this annual report , including the other portions of the md & a . replace_table_token_11_th ( 1 ) see `` explanation and reconciliation of our use of non-gaap financial measures '' . story_separator_special_tag black , sans-serif ; font-size:8pt ; color : # 003b5c ; font-weight : bold ; '' > mgic investment corporation 2016 form 10-k | 44 replace_table_token_12_th assets ) , the credit performance of our rif ( which would increase or decrease its minimum required assets ) , and any changes made to the pmiers financial requirements ( which could increase or decrease available assets and or minimum required assets ) . during 2016 , mgic distributed $ 64 million of its excess available assets as dividends to our holding company . these dividends were the first dividends from mgic since 2008. in the first half of 2016 , the pmi industry broadly adopted new premium rates , we believe , primarily in response to operating under the financial requirements of the pmiers , which first became effective on december 31 , 2015. we revised both our bpmi and lpmi premium rates effective in april , which are competitively positioned within the industry , and are structured to generate comparable risk-adjusted returns across the spectrum of loans we insure . premium rates within the marketplace , which includes pmi and government programs offered by the fha and va , have an impact on the pmi industry 's total market share , as well as our share within the pmi industry from period to period . in 2016 , pmi as an industry captured a greater share of mortgage originations having insurance , but our estimated market share within the pmi industry declined to 17.8 % from 19.9 % in 2015. outlook for 2017 our outlook for 2017 should be viewed against the backdrop of the u.s. economy , competition , mortgage origination levels , and regulatory and legislative developments . each of these interrelated factors will affect our performance . our 2017 niw is expected to be comparable to our 2016 niw . our niw is affected by total mortgage originations , the percentage of total mortgage originations utilizing private mortgage insurance ( the `` pmi penetration rate '' ) and our market share within the pmi industry . as of late january 2017 , total mortgage originations are forecasted to decline in 2017 from 2016 levels due to declines in refinancing originations more than offsetting a small increase in purchase originations . we expect the pmi penetration rate to increase because historically pmi has captured a share of purchase originations that is estimated to be 3-4 times greater than that of refinancing originations . this increase in the pmi penetration rate should serve to mitigate the decline in total mortgage originations . although we can not predict our 2017 market share , recent industry consolidation may have a positive influence if lenders re-allocate the combined share of the consolidating companies among the remaining companies in the industry . although our expectation is for our 2017 niw to be comparable to that of 2016 , this will be highly dependent on the actual mortgage origination market and competition . if pricing competition intensifies and customers can obtain lower prices elsewhere , our niw may be lower than we expect . story_separator_special_tag the gses may reduce the amount of credit they allow under the pmiers for the risk ceded under our quota share reinsurance transaction . the gses ' ongoing approval of that transaction is subject to several conditions and the transaction will be reviewed under the pmiers at least annually by the gses . for more information about the transaction , see our risk factor titled “ the mix of business we write affects our minimum required assets under the pmiers , our premium yields and the likelihood of losses occurring. ” our future operating results may be negatively impacted by the matters discussed in our risk factors . such matters could decrease our revenues , increase our losses or require the use of liquid assets , thereby creating a shortfall in available assets . should capital be needed by mgic in the future , capital contributions from our holding company may not be available due to competing demands on holding company resources , including for repayment of debt . on an overall basis , the amount of available assets mgic must hold in order to continue to insure gse loans increased under the pmiers over what state regulation currently requires . state regulations the insurance laws of 16 jurisdictions , including wisconsin , our domiciliary state , require a mortgage insurer to maintain a minimum amount of statutory capital relative to its rif ( or a similar measure ) in order for the mortgage insurer to continue to write new business . we refer to these requirements as the “ state capital requirements. ” while they vary among jurisdictions , the most common state capital requirements allow for a maximum risk-to-capital ratio of 25 to 1. a risk-to-capital ratio will increase if ( i ) the percentage decrease in capital exceeds the percentage decrease in insured risk , or ( ii ) the percentage increase in capital is less than the percentage increase in insured risk . wisconsin does not regulate capital by using a risk-to-capital measure but instead requires an mpp . at december 31 , 2016 , mgic 's risk-to-capital ratio was 10.7 to 1 , below the maximum allowed by the jurisdictions with state capital requirements , and its policyholder position was $ 1.6 billion above the required mpp of $ 1.1 billion . in calculating our risk-to-capital ratio and mpp , we are allowed full credit for the risk ceded under our reinsurance transaction with a group of unaffiliated reinsurers . it is possible that under the revised state capital requirements discussed below , mgic will not be allowed full credit for the risk ceded to the reinsurers . if mgic is not allowed an agreed level of credit under either the state capital requirements or the pmiers , mgic may terminate the reinsurance transaction , without penalty . at this time , we expect mgic mgic investment corporation 2016 form 10-k | 46 replace_table_token_13_th to continue to comply with the current state capital requirements ; however , you should read our risk factors for information about matters that could negatively affect such compliance . at december 31 , 2016 , the risk-to-capital ratio of our combined insurance operations ( which includes a reinsurance affiliate ) was 12.0 to 1. reinsurance transactions with our affiliate permit mgic to write insurance with a higher coverage percentage than it could on its own under certain state-specific requirements . the naic previously announced that it plans to revise the minimum capital and surplus requirements for mortgage insurers that are provided for in its mortgage guaranty insurance model act . in may 2016 , a working group of state regulators released an exposure draft of a risk-based capital framework to establish capital requirements for mortgage insurers , although no date has been established by which the naic must propose revisions to the capital requirements . we continue to evaluate the impact of the framework contained in the exposure draft , including the potential impact of certain items that have not yet been completely addressed by the framework which include : the treatment of ceded risk , minimum capital floors , and action level triggers . currently we believe that the pmiers contain the more restrictive capital requirements in most circumstances . gse reform the fhfa has been the conservator of the gses since 2008 and has the authority to control and direct their operations . the increased role that the federal government has assumed in the residential housing finance system through the gse conservatorship may increase the likelihood that the business practices of the gses change in ways that have a material adverse effect on us and that the charters of the gses are changed by new federal legislation . in the past , members of congress have introduced several bills intended to change the business practices of the gses and the fha ; however , no legislation has been enacted . the new presidential administration has indicated that the conservatorship of the gses should end ; however , it is unclear whether and when that would occur and how that would impact us . as a result of the matters referred to above , it is uncertain what role the gses , fha and private capital , including pmi , will play in the residential housing finance system in the future or the impact of any such changes on our business . in addition , the timing of the impact of any resulting changes on our business is uncertain . most meaningful changes would require congressional action to implement and it is difficult to estimate when congressional action would be final and how long any associated phase-in period may last . for additional information about the business practices of the gses , see our risk factor titled “ changes in the business practices of the gses , federal legislation that changes their charters or a restructuring of the gses could reduce our revenues or increase our losses ” in item 1a .
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summary of 2016 results net operating income for 2016 was $ 395.6 million ( 2015 : $ 306.1 million ) and net operating income per diluted share was $ 0.99 ( 2015 : $ 0.75 ) . the 29 % increase in net operating income was driven primarily by lower losses incurred , net . we recorded full-year 2016 net income of $ 342.5 million , and diluted income per share of $ 0.86 . net income decreased by $ 829.5 million compared with net income of $ 1.2 billion in 2015 , primarily due to the $ 847.8 million of tax benefits realized during 2015 from changes in our deferred tax asset valuation allowance , including its reversal in the third quarter of 2015 ; and the $ 90.5 million loss on debt extinguishment resulting from our debt transactions completed during 2016. the decline in net income was partially offset primarily by a decrease in losses incurred , net . losses incurred , net were $ 240.2 million , down 30 % as new delinquent notice activity declined and we experienced higher favorable reserve development on prior year delinquencies and on our ibnr when compared to the prior year . the loss on debt extinguishment recorded during 2016 resulted from debt transactions in which we , or mgic , repurchased portions of our outstanding long-term debt at amounts that in aggregate were in excess of our carrying values . in addition , we wrote-off unamortized debt issuance costs on the repurchased portions of some of our long-term debt . see note 7 - `` debt '' to our consolidated financial statements for further discussion of the accounting for these transactions . we will continue to assess opportunities to improve our debt profile and / or reduce potential dilution from our remaining outstanding convertible debt , which could result in additional debt extinguishment losses in the future .
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the company 's receivables from greece , italy , portugal and spain were not material at december 31 , 2016. the f-10 vertex pharmaceuticals incorporated notes to consolidated financial statements ( continued ) company believes that its allowance for doubtful accounts was adequate at december 31 , 2016 . please refer to note t , “ segment information , ” for further information . cash and cash equivalents the company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents . marketable securities the company 's marketable securities consist of investments in government-sponsored enterprise securities , corporate debt securities , corporate equity securities and commercial paper that are classified as available-for-sale . the company classifies marketable securities available to fund story_separator_special_tag overview we are in the business of discovering , developing , manufacturing and commercializing medicines for serious diseases . we use precision medicine approaches with the goal of creating transformative medicines for patients in specialty markets . our business is focused on developing and commercializing therapies for the treatment of cystic fibrosis , or cf , and advancing our research and development programs in other indications , while maintaining our financial strength . our two marketed products are orkambi ( lumacaftor in combination with ivacaftor ) and kalydeco ( ivacaftor ) . our total net product revenues were $ 1.7 billion in 2016 , an increase of 68 % over net product revenues of $ 1.0 billion in 2015 , primarily due to increased orkambi net product revenues , which commenced in the third quarter of 2015 , and an increase in kalydeco net product revenues . we expect our net income ( loss ) and total net product revenues in 2017 will be largely dependent on the level of orkambi net product revenues . cystic fibrosis orkambi and kalydeco are approved to treat approximately 40 % of the 75,000 cf patients in north america , europe , australia and canada . orkambi ( lumacaftor in combination with ivacaftor ) is approved as a treatment for approximately 25,000 patients who have two copies ( homozygous ) of the f508del mutation in their cystic fibrosis transmembrane conductance regulator , or cftr , gene . kalydeco ( ivacaftor ) is approved for the treatment of approximately 4,000 cf patients who have the g551d mutation or other specified mutations in their cftr gene . our goal is to develop treatment regimens that will provide benefits to as many patients with cf as possible and will enhance the benefits that currently are being provided to patients taking our medicines . cf development programs we have multiple development programs in the field of cf , including : tezacaftor ( vx-661 ) is a corrector compound that we are evaluating in a phase 3 development program in combination with ivacaftor in multiple cf patient populations who have at least one copy of the f508del mutation in their cftr gene . we expect data from this phase 3 development program in the first half of 2017. if supported by data from the phase 3 development program , we plan to submit a new drug application , or nda , to the united states food and drug administration , or fda for tezacaftor in combination with ivacaftor in the second half of 2017. vx-152 , vx-440 , vx-659 and vx-445 are next-generation cftr corrector compounds that we are evaluating as part of combination treatment regimens . we have initiated phase 2 clinical trials of vx-152 and vx-440 and expect data from these clinical trials in the second half of 2017. we have initiated phase 1 clinical trials of vx-659 and vx-445 . vx-371 , an investigational epithelial sodium channel , or enac , inhibitor , is being evaluated in a phase 2 development program and which we exclusively licensed from parion sciences , inc. , or parion , in 2015. research and development we are engaged in a number of other research and mid- and early-stage development programs , including in the areas of pain and neurology . we have also entered into third-party collaborations pursuant to which we are engaged in the discovery and development of nucleic acid-based therapies for a variety of diseases , including cf . we plan to continue investing in our research programs and fostering scientific innovation in order to identify and develop transformative medicines . our current research programs include programs targeting cystic fibrosis , adrenoleukodystrophy , alpha-1 antritrypsin deficiency , sickle cell disease and polycystic kidney disease . we believe that pursuing research in diverse areas allows us to balance the risks inherent in drug development and may provide drug candidates that will form our pipeline in future years . 52 collaboration arrangements we have entered into collaborations with biotechnology and pharmaceutical companies in order to acquire rights or to license drug candidates or technologies that enhance our pipeline and or our research capabilities . over the last several years , we entered into collaboration agreements with : crispr therapeutics ag , or crispr , pursuant to which we are collaborating on the discovery and development of potential new treatments aimed at the underlying genetic causes of human diseases using crispr-cas9 gene editing technology ; parion sciences , inc. , or parion , pursuant to which we are developing epithelial sodium channel , or enac , inhibitors for the treatment of pulmonary diseases ; moderna therapeutics , inc. , or moderna , pursuant to which we are seeking to identify and develop mrna therapeutics for the treatment of cf ; and bioaxone biosciences , inc. , or bioaxone , pursuant to which we are evaluating vx-210 as a potential treatment for patients who have spinal cord injuries . generally , when we in-license a technology or drug candidate , we make upfront payments to the collaborator , assume the costs of the program and agree to make contingent payments , which could consist of milestone , royalty and option payments . story_separator_special_tag among other laws , regulations and standards , we are subject to various u.s. federal and state laws , and comparable foreign laws pertaining to health care fraud and abuse , including anti-kickback and false claims statutes , and laws prohibiting the promotion of drugs for unapproved or off-label uses . anti-kickback laws make it illegal for a prescription drug manufacturer to solicit , offer , receive or pay any remuneration to induce the referral of business , including the purchase or prescription of a particular drug . false claims laws prohibit anyone from presenting for payment to third-party payors , including medicare and medicaid , claims for reimbursed drugs or services that are false or fraudulent , claims for items or services not provided as claimed , or claims for medically unnecessary items or services . we expect to continue to devote substantial resources to maintain , administer and expand these compliance programs globally . reimbursement sales of our products depend , to a large degree , on the extent to which our products are covered by third-party payors , such as government health programs , commercial insurance and managed health care organizations . we dedicate substantial management and other resources in order to obtain and maintain appropriate levels of reimbursement for our products from third-party payors , including governmental organizations in the united states and ex-u.s. markets . in the united states , we continue to engage in discussions with numerous commercial insurers and managed health care organizations , along with government health programs that are typically managed by authorities in the individual states . in europe and other ex-u.s. markets , we are working to obtain government reimbursement for orkambi on a country-by-country basis , because in many foreign countries patients are unable to access prescription pharmaceutical products that are not reimbursed by their governments . in the fourth quarter of 2016 , we reached a pricing and reimbursement agreement for orkambi with the german federal association of the statutory health insurances . consistent with our experience with kalydeco when it was first approved , we expect reimbursement discussions in ex-u.s. markets may take a significant period of time . recent transaction in january 2017 , we entered into a strategic collaboration and license agreement with merck kgaa , darmstadt , germany , or merck kgaa . pursuant to the agreement , we granted merck kgaa an exclusive worldwide license to research , develop and commercialize four oncology research and development programs , including our ataxia telangiectasia and rad3-related protein inhibitor , or atr program , including vx-970 and vx-803 , and our dna-dependent protein kinase inhibitor , or dna-pk program , including vx-984 . under the agreement , we expect to receive an up-front payment of $ 230.0 million , subject to hart-scott rodino clearance , and tiered royalties on potential sales of licensed products . 54 story_separator_special_tag increased number of patients eligible to receive kalydeco through label expansions . incivek net product revenues were $ 0.6 million , $ 18.0 million and $ 24.1 million in 2016 , 2015 and 2014 , respectively . we have withdrawn incivek from the market and may continue to have small adjustments to incivek revenues over the next several quarters as we adjust our incivek reserves for rebates , chargebacks and discounts . royalty revenues our royalty revenues were $ 16.6 million , $ 24.0 million and $ 40.9 million in 2016 , 2015 and 2014 , respectively . since the beginning of 2014 , our royalty revenues have consisted of ( i ) revenues related to a cash payment we received in 2008 56 when we sold our rights to certain hiv royalties and ( ii ) revenues related to certain third-party royalties payable by our collaborators on sales of hiv drugs and telaprevir that also result in corresponding royalty expenses . collaborative revenues our collaborative revenues were $ 1.9 million , $ 8.1 million and $ 51.7 million in 2016 , 2015 and 2014 , respectively . in 2014 , the majority of our collaborative revenues related to $ 35.0 million in payments we received from janssen inc. related to our outlicense of vx-787 . our collaborative revenues have historically fluctuated significantly from one period to another and may continue to fluctuate in the future . we expect our collaborative revenues to increase significantly in 2017 as a result of the $ 230.0 million upfront payment we expect to receive pursuant to the collaboration agreement with merck kgaa that we entered into in january 2017. operating costs and expenses replace_table_token_7_th cost of product revenues our cost of product revenues includes the cost of producing inventories that corresponded to product revenues for the reporting period , plus the third-party royalties payable on our net sales of our products . pursuant to our agreement with cystic fibrosis foundation therapeutics incorporated , or cfft , our tiered third-party royalties on sales of kalydeco and orkambi , calculated as a percentage of net sales , range from the single digits to the sub-teens . our cost of product revenues have been increasing due primarily to increased net product revenues . in each of 2016 and 2015 , our cost of product revenues included a $ 13.9 million commercial milestone that was earned by cfft related to sales of orkambi . there are no further commercial milestones payable to cfft . in future periods , our cost of product revenues will not be affected by commercial milestones on orkambi , with our cost of product revenues generally tracking our net product revenues . royalty expenses royalty expenses include third-party royalties payable upon net sales of telaprevir by our collaborators in their territories and expenses related to a subroyalty payable to a third party on net sales of an hiv protease inhibitor sold by glaxosmithkline . royalty expenses do not include royalties we pay to cfft on sales of kalydeco and orkambi , which instead are included in cost of product revenues .
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results of operations replace_table_token_4_th net loss attributable to vertex comparison of net loss attributable to vertex 2016 vs. 2015 net loss attributable to vertex was $ 112.1 million in 2016 as compared to a net loss attributable to vertex of $ 556.3 million in 2015 . our revenues increased significantly in 2016 as compared to 2015 primarily due to a $ 628.9 million increase in orkambi net product revenues , which we began selling in mid-2015 , and a $ 71.8 million increase in kalydeco net product revenues , partially offset by decreases in our royalty revenues and collaborative revenues . our operating costs and expenses increased in 2016 as compared to 2015 primarily due to increases in cost of product revenues , research and development expenses , sales , general and administrative expenses . the change in our other items , net was primarily due to a $ 54.9 million increase in the fair value of contingent payments related to our consolidated vies , which results in an increase in net loss attributable to vertex . comparison of net loss attributable to vertex 2015 vs. 2014 net loss attributable to vertex was $ 556.3 million in 2015 as compared to a net loss attributable to vertex of $ 738.6 million in 2014 . our revenues increased significantly in 2015 as compared to 2014 primarily due to orkambi net product revenues , which commenced in the third quarter of 2015 , and a $ 167.9 million increase in kalydeco net product revenues , partially offset by a $ 43.6 million decrease in our collaborative revenues . our operating costs and expenses increased in 2015 as compared to 2014 primarily due to increases in research and development expenses , sales , general and administrative expenses and cost of product revenues , partially offset by decreased restructuring expenses and royalty expenses .
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57 hurco companies , inc. notes to consolidated financial statements – continued borrowings under the 2018 credit agreement bear interest at floating rates based on , at our option , either ( i ) a libor-based rate , or other alternative currency-based rate approved by the lender , plus 0.75 % per annum , or ( ii ) a base rate ( which is the highest of ( story_separator_special_tag and results of operations executive overview hurco companies , inc. is an international , industrial technology company operating in a single segment . we design , manufacture and sell computerized ( i.e. , cnc ) machine tools , consisting primarily of vertical machining centers ( mills ) and turning centers ( lathes ) , to companies in the metal cutting industry through a worldwide sales , service and distribution network . although the majority of our computer control systems and software products are proprietary , they predominantly use industry standard personal computer components . our computer control systems and software products are primarily sold as integral components of our computerized machine tool products . we also provide machine tool components , automation integration equipment and solutions for job shops , software options , control upgrades , accessories and replacement parts for our products , as well as customer service and training and applications support . the following overview is intended to provide a brief explanation of the principal factors that have contributed to our recent financial performance . this overview is intended to be read in conjunction with the more detailed information included in our financial statements that appear elsewhere in this report . the market for machine tools is international in scope . we have both significant foreign sales and significant foreign manufacturing operations . during fiscal 2019 , approximately 51 % of our revenues were attributable to customers in europe , where we typically sell more of our higher-performance , higher-priced vmx series machines . additionally , approximately 12 % of our revenues were attributable to customers in the asia pacific region , where we encounter greater price pressures . we have three brands of cnc machine tools in our product portfolio : hurco is the technology innovation brand for customers who want to increase productivity and profitability by selecting a brand with the latest software and motion technology . milltronics is the value-based brand for shops that want easy-to-use machines at competitive prices . the takumi brand is for customers that need very high speed , high efficiency performance , such as that required in the production , die/mold , aerospace and medical industries . takumi machines are equipped with industry standard controls instead of the proprietary controls found on hurco and milltronics machines . procobots is our wholly-owned subsidiary that provides automation solutions that can be integrated with any machine tool . in addition , through our wholly-owned subsidiary lcm , we produce high value machine tool components and accessories . we principally sell our products through more than 190 independent agents and distributors throughout the americas , europe and asia . although some distributors carry competitive products , we are the primary line for the majority of our distributors globally . we also have our own direct sales and service organizations in china , france , germany , india , italy , poland , singapore , taiwan , the united kingdom and certain parts of the united states , which are among the world 's principal machine tool consuming markets . the vast majority of our machine tools are manufactured to our specifications primarily by our wholly-owned subsidiary in taiwan , hml . machine castings to support hml 's production are manufactured at our wholly-owned subsidiary in ningbo , china , nhml . components to support our srt line of five-axis machining centers , such as the direct drive spindle , swivel head and rotary table , are manufactured by our wholly-owned subsidiary in italy , lcm . our sales to foreign customers are denominated , and payments by those customers are made , in the prevailing currencies in the countries in which those customers are located ( primarily the euro , pound sterling and chinese yuan ) . our product costs are incurred and paid primarily in the new taiwan dollar and the u.s. dollar . changes in currency exchange rates may have a material effect on our operating results and consolidated financial statements as reported under u.s. generally accepted accounting principles . for example , when the u.s. dollar weakens in value relative to a foreign currency , sales made , and expenses incurred , in that currency when translated to u.s. dollars for reporting in our financial statements , are higher than would be the case when the u.s. dollar is stronger . in the comparison of our period-to-period results , we discuss the effect of currency translation on those results , which reflect translation to u.s. dollars at exchange rates prevailing during the period covered by those financial statements . 26 our high levels of foreign manufacturing and sales also expose us to cash flow risks due to fluctuating currency exchange rates . we seek to mitigate those risks through the use of derivative instruments – principally foreign currency forward exchange contracts . story_separator_special_tag times new roman , times , serif ; margin : 0pt 0 ; text-align : justify '' > backlog at october 31 , 2019 decreased to $ 32.7 million from $ 55.0 million at october 31 , 2018 , primarily due to a reduction in customer demand during fiscal 2019. we do not believe backlog is a useful measure of past performance or indicative of future performance . backlog orders as of october 31 , 2019 are expected to be fulfilled in fiscal 2020. gross profit . story_separator_special_tag sales of computerized machine tools and computer control systems and software for fiscal 2018 increased by 25 % and 23 % , respectively , and each included a favorable currency impact of 4 % , compared to fiscal 2017. the year-over-year increase in sales of computerized machine tools and computer control systems and software reflected increased machine sales across all three regions and product lines . sales of service parts and service fees for fiscal 2018 increased by 13 % and 10 % , respectively , compared to fiscal 2017 , due primarily to an increase in aftermarket sales and aftermarket service of hurco products in north america , france and the united kingdom . orders and backlog . orders for fiscal 2018 were a record $ 305.8 million , an increase of $ 45.2 million , or 17 % , compared to fiscal 2017 , and included a favorable currency impact of $ 13.8 million , or 5 % , when translating foreign orders to u.s. dollars . 30 the following table sets forth new orders booked by geographic region for the fiscal years ended october 31 , 2018 and 2017 ( dollars in thousands ) : replace_table_token_9_th orders in the americas for fiscal 2018 increased by 11 % , compared to fiscal 2017. the increase was largely attributable to improved customer demand for hurco and takumi vertical milling and lathe machines . european orders for fiscal 2018 increased by 24 % , compared to fiscal 2017 , and included a favorable currency impact of 9 % , when translating foreign orders to u.s. dollars . the year-over-year increase in european orders was largely driven by increased customer demand for hurco and takumi vertical milling and lathe machines in germany and france , as well as increased demand for electro-mechanical components and accessories manufactured by lcm . asian pacific orders for fiscal 2018 increased by 9 % , compared to fiscal 2017 , and included a favorable currency impact of 3 % , when translating foreign orders to u.s. dollars . the year-over-year increase in asian pacific orders was largely due to increased customer demand for hurco vertical milling machines in india , china and southeast asia . backlog at october 31 , 2018 increased to $ 55.0 million , compared to $ 52.0 million at october 31 , 2017 , primarily due to an increase in customer orders during fiscal 2018. we do not believe backlog is a useful measure of past performance or indicative of future performance . gross profit . gross profit for fiscal 2018 was $ 91.8 million , or 31 % of sales , compared to $ 70.6 million , or 29 % of sales , for fiscal 2017. the year-over-year increase in gross profit as a percentage of sales reflected increased machine sales across all three regions and product lines and the favorable impact of foreign currency translation compared to fiscal 2017. operating expenses . selling , general and administrative expenses for fiscal 2018 were $ 58.0 million , or 19 % of sales , compared to $ 49.7 million , or 20 % of sales , in fiscal 2017 , and included an unfavorable currency impact of $ 1.3 million , when translating foreign expenses to u.s. dollars for financial reporting purposes . the year-over-year increase in selling , general and administrative expenses was driven by increased expenses for tradeshows , global sales and marketing , employee incentive compensation and the unfavorable impact of foreign currency translation compared to fiscal 2017. operating income . operating income for fiscal 2018 was $ 33.8 million , or 11 % of sales , compared to $ 20.9 million , or 9 % of sales , in fiscal 2017. the year-over-year increase in operating income was primarily attributable to increased machine sales across all three regions and product lines and the favorable impact of foreign currency translation compared to fiscal 2017. other income ( expense ) . other income ( expense ) for fiscal 2018 increased by $ 1.1 million from fiscal 2017 , due mainly to increased foreign currency losses experienced in 2018. provision for income taxes . our effective tax rate for fiscal 2018 was 34 % , compared to 27 % for fiscal 2017. the year-over-year increase in the effective tax rate for fiscal 2018 was primarily attributable to one-time charges of $ 2.8 million related to the u.s. tax cuts and jobs act that was enacted in december 2017. the impact of these one-time charges increased the effective tax rate by approximately 39 % for the first quarter of fiscal 2018. excluding the impact of these charges , earnings per diluted share would have been $ 0.41 higher than the earnings per diluted share we reported for fiscal 2018 . 31 net income . net income for fiscal 2018 was $ 21.5 million , or $ 3.15 per diluted share , an increase of $ 6.4 million , or 42 % , from fiscal 2017 net income of $ 15.1 million , or $ 2.25 per diluted share . liquidity and capital resources at october 31 , 2019 , we had cash and cash equivalents of $ 56.9 million , compared to $ 77.2 million at october 31 , 2018. the decrease in cash and cash equivalents was primarily a result of a decrease in accounts receivable , partially offset by an increase in inventories year-over-year . approximately 44 % of our $ 56.9 million of cash and cash equivalents is held in the u.s. the balance is attributable to our foreign operations and is held in the local currencies of our various foreign entities , subject to fluctuations in currency exchange rates . we do not believe that the indefinite reinvestment of these funds offshore impairs our ability to meet our domestic working capital needs . working capital ( including cash and cash equivalents ) was $ 207.2 million at october 31 , 2019 , compared to $ 194.6 million at october 31 , 2018. the increase in working capital was mostly driven by an increase in inventories and a reduction in accounts payable .
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results of operations the following table presents , for the fiscal years indicated , selected items from the consolidated statements of income expressed as a percentage of our worldwide sales and service fees and the year-to-year percentage changes in the dollar amounts of those items . replace_table_token_3_th fiscal 2019 compared to fiscal 2018 sales and service fees . sales and service fees for fiscal 2019 were $ 263.4 million , a decrease of $ 37.3 million , or 12 % , compared to fiscal 2018 , and included an unfavorable currency impact of $ 8.5 million , or 3 % , when translating foreign sales to u.s. dollars for financial reporting purposes . net sales and service fees by geographic region the following table sets forth net sales and service fees by geographic region for the fiscal years ended october 31 , 2019 and 2018 ( dollars in thousands ) : replace_table_token_4_th sales in the americas for fiscal 2019 increased by 9 % , compared to fiscal 2018 , primarily attributable to sales of vertical milling machines from a u.s. machine tool distributor in california acquired by hurco in the fourth quarter of fiscal 2018. european sales for fiscal 2019 decreased by 20 % , compared to fiscal 2018 , and included an unfavorable currency impact of 4 % , when translating foreign sales to u.s. dollars for financial reporting purposes . the decrease in european sales for fiscal 2019 was primarily attributable to a reduced volume of shipments of hurco machines in germany and the united kingdom , as well as a decrease in sales of electro-mechanical components and accessories manufactured by our wholly-owned subsidiary in italy , lcm . asian pacific sales for fiscal 2019 decreased by 30 % , compared to fiscal 2018 , and included an unfavorable currency impact of 2 % , when translating foreign sales to u.s. dollars for financial reporting purposes .
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our md & a should be read in conjunction with the other sections of this annual report on form 10-k , including part i , item 1a : “ risk factors ” ; part ii , item 6 : “ selected financial data ” ; and part ii , item 8 : “ financial statements and supplementary data. ” the various sections of this md & a contain a number of forward-looking statements , all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing . the tables in the md & a sections below are derived from exact numbers and may have immaterial rounding differences . overview and strategy axon enterprise , inc. 's ( the “ company ” or “ axon ” or “ we ” or “ our ” ) core mission is to protect life through innovative technologies that make communities safer . we are the market leader in the development , manufacture and sale of conducted electrical weapons ( “ cews ” ) designed for use by law enforcement , corrections , military forces , private security personnel and by private individuals for personal defense . we are also the market leader in developing , manufacturing and selling connected wearable on-officer cameras as well as developing and selling cloud-based digital evidence management software . we have established a robust network that connects devices , apps and people primarily in the law enforcement vertical . we aim to have every public safety officer in the world carry a taser , deploy an axon camera and be connected to the axon network . the three foundations for our growth strategy are : devices - our taser cews are one of the few weapons that can incapacitate a person while drastically limiting the risk for death and or serious injury . over the past two decades , the taser cew has become one of the most frequently used weapons in the north american law enforcement market , with use-of-force injuries and deaths dropping dramatically as a result . outside of weapons , we produce devices that primarily fall within three categories : on-officer cameras that capture critical digital evidence aimed at protecting truth , a range of related accessory hardware devices and an in-car camera variant called axon fleet . we believe our cews and axon cameras should be standard-issue equipment for all patrol officers domestically and internationally . we have created and are continuing to create service plans and product bundles to ensure agencies have the latest devices and technology at predictable annual costs . apps - axon 's evidence.com platform is designed to help agencies securely store , manage and share all digital evidence . our software platform features continuous improvement with regular software updates that enable our customers to always have access to the latest technology . recent new features include secure sharing , audit trails , integration of other data sources , and transcription and redaction services . these feature sets are designed to provide our customers with valuable tools to police more efficiently and effectively while enabling greater transparency with the communities they serve . more and more police agencies trust axon to host their video evidence data , which is captured via our devices , apps and software , and stored in our secure cloud and accessed via the axon network . people - our taser weapons and axon software and sensors platforms have allowed us to build relationships with more than 20,000 public safety agencies worldwide . axon is bringing modern information technology capabilities to every law enforcement officer . some of our customers report that police officers are spending over 60 % of their time on paperwork-related tasks , rather than on value-added public safety work . we see a large opportunity to leverage our connected platform to enable a broad suite of mobile , wearable , and data management capabilities . axon is also improving workflows throughout the public safety chain , from the incident on the scene to the court room . with our software , police officers can share evidence 27 with prosecutors during discovery while maintaining a secure and encrypted chain of custody . axon 's cohesive ecosystem is delivering increased value to all public safety stakeholders , including state and municipal police agencies , police chiefs and other leadership , patrol officers , state patrols and officers , agency detectives , public prosecutors , district attorneys , and others in the public safety and judicial communities , as well as the public communities they serve . story_separator_special_tag million or 8.4 % . net sales for the software and sensors segment were $ 30.2 million and $ 30.8 million for the three months ended december 31 , 2017 and september 30 , 2017 , respectively , a decrease of $ 0.6 million or 2.0 % . international sales were $ 16.0 million in for the three months ended december 31 , 2017 compared to $ 17.1 million for the three months ended september 30 , 2017 , a decrease of $ 1.1 million . the increase in net sales in the taser weapons segment on a sequential basis was partially attributable to the expiration of annual budget appropriations resulting in higher purchases for the quarter ended december 31 , 2017 as compared to the quarter 31 ended september 30 , 2017. increased sales of taser weapons handles was partially offset by lower sequential cartridge sales , which was primarily attributable to timing . in the software and sensors segment , the company experienced a decrease in net sales of $ 0.6 million . axon hardware and device sales were lower due to timing of deployments , which were partially offset by increased service revenues which were attributable to more cumulative axon devices in the field with extended warranty coverage and more cumulative active users on the company 's evidence.com platform . story_separator_special_tag the decreased hardware margins were primarily attributable to higher discounting . in certain customer contracts , primarily within the software and sensors segment , the level of discounting resulted in a portion of the contractual consideration allocated to the delivered hardware to be recognized as revenue ratably over the evidence.com subscription term . however , the full cost of the product is recognized when the hardware is delivered to the customer resulting in lower gross margins initially . the decrease in service margins was primarily attributable to non-recurring expenses related to the company 's data migration to a new cloud-storage provider . gross margin increased $ 41.9 million to $ 170.5 million for 2016 compared to $ 128.6 million for 2015. as a percentage of net sales , gross margin decreased to 63.6 % for 2016 from 65.0 % for 2015. the decrease in gross margin as a percentage of sales was due primarily to a change in product mix , as lower margin axon hardware product sales became a greater percentage of the consolidated total . as a percentage of net sales , gross margin for the taser weapons segment was relatively consistent at 69.4 % and 69.9 % for 2016 and 2015 , respectively , while the same measure for these years for the software and sensors segment were 45.5 % and 42.5 % , respectively . the improvement in software and sensors segment gross margin was primarily attributable to higher service margins due to increased users on the evidence.com platform . sales , general and administrative expenses sales , general and administrative ( “ sg & a ” ) expenses were comprised of the following for 2017 and 2016 ( dollars in thousands ) : replace_table_token_17_th sales , general and administrative expenses were $ 138.7 million and $ 108.1 million for the years ended december 31 , 2017 and 2016 , respectively , an increase of $ 30.6 million , or 28.3 % . as a percentage of total net sales , sg & a expenses were 40.3 % for the years ended december 31 , 2017 and 2016 . 34 sg & a by type and by segment were as follows for the years ended december 31 , 2017 and 2016 ( dollars in thousands ) : replace_table_token_18_th within the taser weapons segment , sg & a increased $ 14.6 million , or 22.9 % , to $ 78.2 million from $ 63.6 million in 2016 . this increase was primarily attributable to the company 's continued efforts to build the necessary infrastructure to facilitate future growth which was evidenced by higher salaries , benefits , bonus and stock-based compensation of $ 10.3 million for the year ended december 31 , 2017 as compared to 2016. increased professional , consulting and lobbying fees of $ 1.9 million were primarily related to accounting and finance consulting costs attributable to the company 's adoption of the new revenue recognition rules , international tax restructuring , and efforts towards remediation of internal control matters . the remaining other operating expenses were primarily attributable to the overall growth of operations during 2017. within the software and sensors segment , sg & a increased $ 16.0 million , or 36.1 % , to $ 60.5 million in 2017 in comparison to the prior year . salaries , benefits , bonus and stock-based compensation in the software and sensors segment increased $ 8.5 million as the company continued to hire additional engineering , product management personnel , sales and marketing personnel and general support staff to further expand upon existing product offerings as well as the development of new products such as records management systems and computer aided dispatch systems . the increase in professional , consulting and lobbying expenses of $ 3.1 million was related to higher professional and consulting costs related to the implementation of a new revenue accounting software platform . additionally , the company incurred higher marketing consulting fees related to hosted events and conferences for customers as well as internal sales meetings . the increase in sales and marketing expense of $ 2.2 million relates to higher commissions on increased bookings , increased customer samples attributable to the company delivering on-officer cameras , signal sidearm , among other technologies , to prospective customers for evaluation purposes , as well as increased spending on sponsorships for major city police chief associations and major county sheriffs ' associations . the remaining other operating expenses are primarily attributable to the overall growth of operations during 2017 . 35 sales , general and administrative expenses were comprised of the following for 2016 and 2015 ( dollars in thousands ) : replace_table_token_19_th sales , general and administrative expenses were $ 108.1 million and $ 69.7 million for the years ended december 31 , 2016 and 2015 , respectively , an increase of $ 38.4 million , or 55.1 % . as a percentage of total net sales , sg & a expenses increased to 40.3 % for 2016 compared to 35.2 % for 2015 . sg & a by type and by segment were as follows for the years ended december 31 , 2016 and 2015 ( dollars in thousands ) : replace_table_token_20_th within the taser weapons segment , sg & a increased $ 16.0 million , or 33.5 % , to $ 63.6 million from $ 47.6 million in 2015. salaries , benefits , bonus and stock-based compensation in the taser weapons increased approximately $ 7.9 million in 2016 compared to 2015. this increase was primarily attributable to the company 's efforts to build the corporate infrastructure to facilitate future growth in departments such as supply chain , legal , finance and information technology . the increase in travel and meals was primarily attributable to the growth in the direct sales teams both domestically and internationally .
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results of operations the following table presents data from our statements of operations as well as the percentage relationship to total net sales of items included in our statements of operations ( dollars in thousands ) : replace_table_token_7_th net sales to the u.s. and other countries are summarized as follows ( dollars in thousands ) : replace_table_token_8_th the company 's operations are comprised of two reportable segments : the sale of cews , accessories and other related products and services ( the “ taser weapons ” segment ) ; and the software and sensors business , focused on devices , wearables , applications , cloud and mobile products ( the `` software and sensors '' segment ) . within the software and sensors segment , the company includes only revenues and costs attributable to that segment which include : costs of sales for both products and services , direct labor , selling expenses for the sales team , product manage r & d for products included , or to be included , within the software and sensors segment . all other costs are included in the taser weapons segment . the codm does not review assets by segment as part of the financial information provided ; therefore , no asset information is provided in the following tables . 28 net sales - for the years ended december 31 , 2017 and 2016 net sales by product line were as follows for the years ended december 31 , 2017 and 2016 ( dollars in thousands ) : replace_table_token_9_th * not meaningful net unit sales for taser weapons and software and sensors segment were as follows : replace_table_token_10_th * not meaningful net sales were $ 343.8 million and $ 268.2 million for the years ended december 31 , 2017 and 2016 , respectively , an increase of $ 75.6 million or 28.2 % .
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our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors , including those set forth under “ risk factors , ” set forth in part i , item 1a of this annual report . see “ special note regarding forward-looking statements ” above . overview we are a leader in analytic process automation , or apa . the alteryx apa software platform unifies analytics , data science and business process automation in one self-service platform to accelerate digital transformation , deliver high-impact business outcomes , accelerate the democratization of data and rapidly upskill modern workforces . data workers , regardless of technical acumen , are empowered to be curious and solve problems . with the alteryx apa software platform , users can automate the full range of analytics , data science and processes , embed intelligent decision-making and actions , and empower their organization to enable top and bottom line impact , efficiency gains , and rapid upskilling . our platform has been adopted by organizations across a wide variety of industries and sizes . we derive a large portion of our revenue from subscriptions for use of our platform . our software can be licensed for use on a desktop or server , or it can be deployed in the cloud . subscription periods for our platform generally range from one to three years and the subscription fees are typically billed annually in advance . we also generate revenue from professional services , including training and consulting services . highlights from fiscal year 2020 generated total gaap revenue of $ 495.3 million during fiscal year 2020 , a 19 % increase from fiscal year 2019. ended the fiscal year 2020 with cash , cash equivalents , and short-term and long-term investments of $ 1.0 billion , compared with $ 974.9 million as of december 31 , 2019. generated $ 74.8 million in cash flow from operations during fiscal year 2020 , compared to $ 34.2 million generated during the prior year . ended the fourth quarter of 2020 with annual recurring revenue of $ 492.6 million , a 32 % increase from the fourth quarter of 2019. announced a new analytics software category , analytic process automation ( apa ) , which unifies analytics , data science and business process automation . by bringing data , processes and people together , the alteryx apa platform helps enable high impact outcomes and rapid upskilling of people across the organization in one end-to-end platform . introduced alteryx analytics hub and alteryx intelligence suite , the latest innovations that extend the functionality of the alteryx apa platform . announced strategic alliances with pricewaterhousecoopers llp , hcl america solutions inc. , snowflake inc. , adobe inc. , uipath , inc. , and abbyy solutions ltd. to accelerate adoption of apa and to potentially accelerate business outcomes for joint customers . 56 covid-19 impact in march 2020 , the world health organization declared the outbreak of covid-19 a pandemic , which continues to spread throughout the u.s. and the world and has resulted in authorities implementing numerous measures to contain the virus , including travel bans and restrictions , quarantines , shelter-in-place orders , and business limitations and shutdowns . while we are unable to accurately predict the full impact that the covid-19 pandemic will have on our operating results , financial condition , liquidity and cash flows due to numerous uncertainties , including the duration and severity of the pandemic or any resurgences of the pandemic locally or globally , our compliance with these measures has impacted our day-to-day operations and could continue to disrupt our business and operations , as well as that of certain of our customers whose industries are more severely impacted by these measures , for an indefinite period of time . during fiscal year 2020 , we experienced adverse changes in customer buying behavior that began in march as a result of the impact of the covid-19 pandemic , including decreased customer engagement , delayed sales cycles , deterioration in near-term demand , and an increased volume of sales occurring in the final weeks of each quarter . specifically , economic challenges that enterprise customers in certain verticals have experienced , as well as weakness in our commercial segment that targets small- and medium-sized businesses , have adversely impacted the length of the sales cycle and the expansion and new business sales with these customers , which has further resulted in a continued reduction in our dollar-based net expansion rate . see key business metrics and story_separator_special_tag headcount has increased over this same time period from 817 employees to 1,469 employees . we intend to continue to add headcount to our global sales and marketing teams to acquire new customers and to increase sales to existing customers . we intend to continue to add headcount to our research and development team to extend the functionality and range of our platform by bringing new and improved products and services to our customers . we believe that these investments will contribute to our long-term growth , although they may adversely affect our operating results in the near term . market adoption of our platform . a key focus of our sales and marketing efforts is to continue creating market awareness about the benefits of our platform . although the covid-19 pandemic has restricted our ability to hold in-person user conferences , which had grown to three annual events worldwide and over 6,400 attendees in 2019 , we have utilized and may continue to utilize various forms of digital and virtual events to continue to create market awareness . while we can not predict customer adoption rates and demand , the future growth rate and size of the self-service data analytics market , or the introduction of competitive products and services , our business and operating results will be significantly affected by the degree to and speed with which organizations adopt self-service data analytics solutions and our platform . acquisitions . story_separator_special_tag subscription fees are based primarily on the number of users of our platform . our subscription agreements generally have terms ranging from one to three years and are billed annually in advance . subscriptions are generally non-cancelable during the subscription term and subscription fees are non-refundable . we recognize a portion of subscription revenue upfront on the date which the platform is first made available to the customer , or the beginning of the subscription term , if later , and the remaining portion of revenue ratably over the subscription term . our subscription agreements generally provide for unspecified future updates , upgrades , enhancements , technical product support , and access to hosted services and support . we also generate revenue from selling subscriptions to third-party syndicated data , which we recognize ratably over the subscription period , as well as revenue from professional services fees earned for consulting engagements related to training customers and channel partners , and consulting services . revenue from professional services relating to training results from contracts to provide educational services to customers and channel partners regarding the use of our technologies and is recognized as the services are provided . revenue from professional services represented 5 % or less of revenue for each of the years ended december 31 , 2020 , 2019 , and 2018. in addition , due to our “ land and expand ” business model , a large portion of our revenue in any given period is attributable to our existing customers compared to new customers . for a description of our revenue recognition policies , see the section titled “ critical accounting estimates ” within this management 's discussion and analysis of financial condition and result of operations . cost of revenue cost of revenue consists primarily of employee-related costs , including salaries and bonuses , stock-based compensation expense , and employee benefit costs associated with our customer support and professional services organizations . it also includes expenses related to hosting and operating our cloud infrastructure in a third-party data center , licenses of third-party syndicated data , amortization and impairment of intangible assets , and related overhead expenses . the majority of our cost of revenue does not fluctuate directly with increases in revenue . we allocate shared overhead costs such as information technology infrastructure , rent , and occupancy charges in each expense category based on headcount in that category . as such , certain general overhead expenses are reflected in cost of revenue . 60 we intend to continue to invest additional resources in our cloud infrastructure . we expect that the cost of third-party data center hosting fees will increase over time as we continue to expand our cloud-based offering . gross profit and gross margin gross profit is revenue less cost of revenue . gross margin is gross profit expressed as a percentage of revenue . our gross margin has fluctuated and may fluctuate from period to period based on a number of factors , including the timing and mix of products and services we sell , the channel through which we sell our products and services , and , to a lesser degree , the utilization of customer support and professional services resources , as well as third-party hosting and syndicated data fees in any given period . our gross margin may fluctuate from period to period depending on the interplay of the factors discussed above . operating expenses our operating expenses are classified as research and development , sales and marketing , and general and administrative . for each of these categories , the largest component is employee-related costs , which include salaries , bonuses , sales commissions , stock-based compensation expense , and employee benefit costs . we allocate shared overhead costs such as information technology infrastructure , rent , and occupancy charges to each expense category based on headcount in that category . research and development . research and development expense consists primarily of employee-related costs for our research and development employees , depreciation of equipment used in research and development , third-party contractors , and related allocated overhead costs . we expect research and development expenses to continue to increase in absolute dollars for the foreseeable future as we continue to increase the functionality and otherwise enhance our platform and develop new products and services . however , we expect research and development expense to decrease as a percentage of revenue over the long term , although research and development expense may fluctuate as a percentage of revenue from period to period due to the seasonality of revenue and the timing and extent of these expenses . sales and marketing . sales and marketing expense consists primarily of employee-related costs for our sales and marketing employees , marketing programs , and related allocated overhead costs . our sales and marketing employees include quota-carrying headcount , sales operations , marketing , and management . marketing programs consist of advertising , promotional events , such as our u.s. , european , and asia-pacific user conferences , corporate communications , brand building , and product marketing activities , such as online lead generation . we plan to continue to invest in sales and marketing by expanding our global promotional activities , building brand awareness , attracting new customers , and sponsoring additional marketing events . the timing of these events , such as our annual sales kickoff and our annual u.s. , european , and asia-pacific user conferences , will affect our sales and marketing expense in the period in which each occurs . we expect sales and marketing expense to continue to increase in absolute dollars for the foreseeable future as we expand our online and offline marketing efforts to increase demand for our platform and awareness of our brand and as we continue to expand our direct sales team and indirect sales channels both in the united states and internationally , and to continue to be our largest operating expense category .
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results of operations for further discussion . despite these changes , we experienced an increase in revenue for the twelve months ended december 31 , 2020 as compared to the twelve months ended december 31 , 2019. however , as a result of the impact of the covid-19 pandemic on our operating results for the twelve months ended december 31 , 2020 , we performed at levels lower than planned prior to the covid-19 pandemic . to support the health and well-being of our employees , customers , partners and communities , the majority of our offices worldwide remain temporarily closed and nearly all of our employees continue to work remotely . our offices will not re-open until local authorities permit us to do so and our own criteria and conditions to ensure employee health and safety are satisfied , including social distancing and enhanced cleaning protocols . while we have developed plans for our employees to begin safely returning to their respective offices , we can not predict when or how we will begin to lift the work from home requirements for geographic areas that continue to be significantly impacted by the pandemic or certain other actions taken as part of our business continuity plans , including travel restrictions . while the adjustments to our operations may result in inefficiencies , delays and additional costs in our product development , sales , marketing , and customer support efforts , as of the date of this filing , we do not believe our work from home protocol has materially adversely impacted our internal controls , financial reporting systems or our operations . in october 2019 , we entered into a new operating lease agreement for space located in irvine , california that will eventually replace our existing corporate headquarters .
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the aggregate debt discount of $ 185 million recorded upon issuance story_separator_special_tag unless the context otherwise requires , the terms “ whiting ” , “ we ” , “ us ” , “ our ” or “ ours ” when used in this item refer to whiting petroleum corporation , together with its consolidated subsidiaries , whiting oil and gas corporation ( “ whiting oil and gas ” ) , whiting us holding company , whiting canadian holding company ulc , whiting resources corporation and whiting programs , inc. when the context requires , we refer to these entities separately . this document contains forward-looking statements , which give our current expectations or forecasts of future events . please refer to “ forward-looking statements ” at the end of this item for an explanation of these types of statements . overview we are an independent oil and gas company engaged in development , production , acquisition and exploration activities primarily in the rocky mountains region of the united states . our current operations and capital programs are focused on organic drilling opportunities and on the development of previously acquired properties , specifically on projects that we believe provide the greatest potential for repeatable success and production growth , while selectively pursuing acquisitions that complement our existing core properties , such as the acquisition discussed below under “ acquisition and divestiture highlights , ” and exploring other basins where we can apply our existing knowledge and expertise to build production and add proved reserves . as a result of lower crude oil prices during 2016 and 2017 , we significantly reduced our level of capital spending and focused our drilling activity on projects that provide the highest rate of return , while closely aligning our capital spending with cash flows generated from operations . during 2018 , we continued to focus on high-return projects in our asset portfolio that added production and reserves while generating free cash flows from operations . in 2019 , we expect to continue to closely align our capital spending with cash flows generated from operations while focusing on developing our large resource play in the williston basin of north dakota and montana . we continually evaluate our property portfolio and sell properties when we believe that the sales price realized will provide an above average rate of return or when the property no longer matches the profile of properties we desire to own , such as the asset sales discussed below under “ acquisition and divestiture highlights ” and in the “ acquisitions and divestitures ” footnote in the notes to the consolidated financial statements . our revenue , profitability and future growth rate depend on many factors which are beyond our control , such as oil and gas prices , economic , political and regulatory developments , competition from other sources of energy , and the other items discussed under the caption “ risk factors ” in item 1a of this annual report on form 10‑k . oil and gas prices historically have been volatile and may fluctuate widely in the future . the following table highlights the quarterly average nymex price trends for crude oil and natural gas prices since the first quarter of 2017 : replace_table_token_12_th lower oil , ngl and natural gas prices may not only decrease our revenues on a per unit basis , but may also reduce the amount of oil and natural gas that we can produce economically and therefore potentially lower our oil and gas reserve quantities . substantial and extended declines in oil , ngl and natural gas prices have resulted , and may result , in impairments of our proved oil and gas properties or undeveloped acreage ( such as the impairments discussed below under “ results of operations ” ) and may materially and adversely affect our future business , financial condition , cash flows , results of operations , liquidity or ability to finance planned capital expenditures . in addition , lower commodity prices may reduce the amount of our borrowing base under our credit agreement , which is determined at the discretion of our lenders and is based on the collateral value of our proved reserves that have been mortgaged to the lenders . upon a redetermination , if borrowings in excess of the revised borrowing capacity were outstanding , we could be forced to immediately repay a portion of the debt outstanding under our credit agreement . alternatively , higher oil prices may result in significant mark-to-market losses being incurred on our commodity-based derivatives . for a discussion of material changes to our proved reserves from december 31 , 2017 to december 31 , 2018 and our ability to convert puds to proved developed reserves , refer to “ reserves ” in item 2 of this annual report on form 10‑k . additionally , for a discussion relating to the minimum remaining terms of our leases , refer to “ acreage ” in item 2 of this annual report on form 10‑k . 48 2018 highlights and future considerations operational highlights northern rocky mountains – williston basin our properties in the williston basin of north dakota and montana target the bakken and three forks formations . net production from the williston basin averaged 111.5 mboe/d for the fourth quarter of 2018 , representing a 4 % increase from 106.9 mboe/d in the third quarter of 2018. production from this area in the fourth quarter was negatively impacted by extended downtime at a third-party gas processing facility and gas curtailments resulting from takeaway capacity issues . the gas plant was returned to service late in the fourth quarter , and the curtailments have been lifted during the first part of 2019. across our acreage in the williston basin , we have implemented customized , right-sized completion designs which utilize the optimum volume of proppant , fluids , and frac stages to increase well performance while reducing cost . story_separator_special_tag exploration costs decreased $ 14 million between periods primarily due to the 2017 write-off of $ 12 million of pre-drilling expenditures for well locations in our redtail field , as well as a decrease in geology-related general and administrative expenses , partially offset by increased deficiency fees paid under our produced water disposal agreement at our redtail field . general and administrative expenses . we report general and administrative ( “ g & a ” ) expenses net of third-party reimbursements and internal allocations . the components of our g & a expenses were as follows ( in thousands ) : replace_table_token_16_th 52 g & a expense before reimbursements and allocations decreased $ 9 million during 2018 as compared to 2017 primarily due to lower bad debt expense related to the collection of certain receivables that had been previously deemed uncollectible . this decrease was offset by a decrease in reimbursements and allocations resulting from a lower number of field workers on whiting-operated properties in 2018 compared to 2017. our g & a expenses on a boe basis also decreased between periods . g & a expense per boe amounted to $ 2.64 in 2018 , which represents a decrease of $ 0.24 per boe ( or 8 % ) from 2017. this decrease was mainly due to higher overall production volumes between periods . derivative ( gain ) loss , net . our commodity derivative contracts and embedded derivatives are marked to market each quarter with fair value gains and losses recognized immediately in earnings as derivative ( gain ) loss , net . cash flow , however , is only impacted to the extent that settlements under these contracts result in making or receiving a payment to or from the counterparty . derivative ( gain ) loss , net amounted to a loss of $ 17 million for 2018 , which consisted of a $ 19 million loss on our costless collar and swap commodity derivative contracts resulting from the upward shift in the futures curve of forecasted commodity prices ( “ forward price curve ” ) for crude oil from january 1 , 2018 ( or the 2018 date on which new contracts were entered into ) to december 31 , 2018 , partially offset by a $ 2 million fair value gain on our long-term crude oil sales and delivery contract . derivative ( gain ) loss , net for 2017 amounted to a loss of $ 123 million , which consisted of a $ 54 million fair value loss on our long-term crude oil sales and delivery contract , a $ 50 million loss on our costless collar commodity derivative contracts resulting from the more significant upward shift in the same forward price curve from january 1 , 2017 ( or the 2017 date on which prior year contracts were entered into ) to december 31 , 2017 , and a $ 19 million fair value loss on embedded derivatives . refer to item 7a , “ quantitative and qualitative disclosures about market risk ” , for a list of our outstanding commodity derivative contracts as of february 20 , 2019. loss on sale of properties . during 2017 , we sold our interests in the fort berthold indian reservation area of north dakota ( the “ fbir assets ” ) for net cash proceeds of $ 501 million , which resulted in a pre-tax loss on sale of $ 402 million . refer to the “ acquisitions and divestitures ” footnote in the consolidated financial statements for more information on this transaction . there were no other property divestitures resulting in a significant gain or loss on sale during 2018 or 2017. interest expense . the components of our interest expense were as follows ( in thousands ) : replace_table_token_17_th the increase in interest expense of $ 6 million between periods was mainly attributable to higher interest incurred on our notes in 2018 compared to 2017. the $ 19 million increase in note interest was primarily due to $ 66 million of interest incurred on the 2026 senior notes issued in december 2017 , partially offset by a $ 45 million reduction in interest related to the redemption of the 2019 notes in january 2018. refer to the “ long-term debt ” footnote in the notes to consolidated financial statements for more information on these debt transactions . the increase in note interest was partially offset by a $ 12 million decrease in interest incurred on the credit agreement between periods due to a lower average outstanding balance . our weighted average borrowings outstanding during 2018 were $ 117 million compared to $ 420 million during 2017. our weighted average debt outstanding during 2018 was $ 3.0 billion versus $ 3.3 billion for 2017. our weighted average effective cash interest rate was 5.5 % during 2018 compared to 4.8 % during 2017. loss on extinguishment of debt . during 2018 , we redeemed all of the remaining $ 961 million aggregate principal amount of 2019 senior notes and recognized a $ 31 million loss on extinguishment of debt . during 2017 , we redeemed all of the remaining $ 275 million aggregate principal amount of 2018 senior subordinated notes and recognized a $ 2 million loss on extinguishment of debt . refer to the “ long-term debt ” footnote in the notes to consolidated financial statements for more information on these debt transactions . 53 income tax expense ( benefit ) .
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financing highlights on january 26 , 2018 , we paid $ 1.0 billion to redeem all of the then outstanding $ 961 million aggregate principal amount of our 2019 senior notes , which payment consisted of the 102.976 % redemption price plus all accrued and unpaid interest on the notes . we financed the redemption with proceeds from the issuance of our 2026 senior notes and borrowings under our credit agreement . refer to the “ long-term debt ” footnote in the notes to the consolidated financial statements for more information on this financing transaction . 2019 exploration and development budget our 2019 exploration and development ( “ e & d ” ) budget is a range of $ 800 million to $ 840 million , which we expect to fund substantially with net cash provided by our operating activities and cash on hand . the forecasted midpoint of the 2019 e & d budget of $ 820 million represents a slight decrease from the $ 832 million incurred on e & d expenditures during 2018. this reduced spending is primarily attributable to our redtail field where we incurred $ 83 million in drilling and development costs during 2018 , but where we have not allocated any of our 2019 e & d budget due to well performance results in this area compared to the williston basin . offsetting this decreased spending at our redtail field is an increase of $ 62 million of planned drilling and development costs in the northern rocky mountains . to the extent net cash provided by operating activities is higher or lower than currently anticipated , we would generate more or less free cash flow than we currently anticipate , adjust our e & d budget , enter into agreements with industry partners , divest certain oil and gas property interests , adjust borrowings outstanding under our credit facility or access the capital markets as necessary .
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the following is a reconciliation of the shares used in the computation of net income per share for the years ended december 31 , 2011 , 2010 , and 2009 ( in thousands , except per share data ) : replace_table_token_21_th options to purchase 2,000 shares , 1,312,639 shares , and 5,199,401 shares of common stock were outstanding at december 31 , 2011 , 2010 , and 2009 , respectively , but were not included in the computation of diluted earnings per share because the options ' exercise prices were greater than the average market price of the story_separator_special_tag all statements , trend analyses , and other information contained in the following discussion relative to markets for our products and trends in revenue , gross margins , and anticipated expense levels , as well as other statements including words such as anticipate , believe , plan , estimate , expect , and intend and other similar expressions constitute forward-looking statements . these forward-looking statements are subject to business and economic risks and uncertainties , including those discussed under the caption risk factors in item 1a of this form 10-k , and our actual results of operations may differ materially from those contained in the forward-looking statements . business overview we are a leading developer and implementer of supply chain software solutions that help organizations optimize their supply chain operations from planning through execution . our platform-based supply chain software solution portfolios manhattan scope ® and manhattan scale tm are designed to deliver both business agility and total cost of ownership advantages to customers . manhattan scope ( supply chain optimization , planning through execution ) leverages our supply chain process platform ( scpp ) to unify the full breadth of the supply chain , while manhattan scale ( supply chain architected for logistics execution ) leverages microsoft 's .net ® platform to unify logistics functions . early in the company 's history , our offerings were heavily focused on warehouse management solutions . as the company grew in size and scope , our offerings expanded across the entire supply chain , while still maintaining a significant presence in , and a relatively strong concentration of revenues from warehouse management solutions , which is a component of our distribution management solution suite . over time , as our non-warehouse management solutions have proliferated and increased in capability , the company 's revenue concentration in its warehouse management solutions has correspondingly decreased . our business model is singularly focused on the development and implementation of complex supply chain software solutions that are designed to optimize supply chain effectiveness and efficiency for our customers . we have three principal sources of revenue : licenses of our supply chain software ; professional services , including solutions planning and implementation , related consulting , customer training , and customer support services and software enhancements ( collectively , services ) ; and hardware sales and other revenue . in 2011 , we generated $ 329.3 million in total revenue , with a revenue mix of : license revenue 17 % ; services revenue 74 % ; and hardware and other revenue 9 % . we manage our business based on three geographic regions : north america and latin america ( americas ) , europe , middle east , and africa ( emea ) , and asia pacific ( apac ) . geographic revenue is based on the location of the sale . our international revenue was approximately $ 90.7 million , $ 80.7 million , and $ 58.0 million for the years ended december 31 , 2011 , 2010 , and 2009 , respectively , which represents approximately 28 % , 27 % , and 24 % of our total revenue for the years ended december 31 , 2011 , 2010 , and 2009 , respectively . international revenue includes all revenue derived from sales to customers outside the united states . at december 31 , 2011 , we employed approximately 2,135 employees worldwide , of which 1,040 employees are based in the americas , 145 employees in emea , and 950 employees in apac ( including india ) . we have offices in australia , china , france , india , japan , the netherlands , singapore , and the united kingdom , as well as representatives in mexico and reseller partnerships in latin america , eastern europe , the middle east , south africa , and asia . global economic trends and industry factors global macro economic trends , technology spending , and supply chain management market growth are important barometers for our business . in 2011 , approximately 72 % of our total revenue was generated in the united states , 12 % in emea and the balance in apac , canada , and latin america . in addition , industry analysts estimate that approximately two-thirds of every supply chain software solutions dollar invested is spent in the united states ; consequently , the health of the u.s. economy has a meaningful impact on our financial results . 25 we sell technology-based solutions with total pricing , including software and services , in many cases exceeding $ 1.0 million . our software often is a part of our customers ' and prospects ' much larger capital commitment by our customer associated with facilities expansion and business improvement . we believe that , given the lingering uncertainty in the global macro environment , the current sales cycles for large license deals of $ 1.0 million or greater in our target markets have been extended . the current business climate within the united states and geographic regions in which we operate continues to affect customers ' and prospects ' decisions regarding timing of strategic capital expenditures . delays with respect to such decisions can have a material adverse impact on our business , and may further intensify competition in our already highly competitive markets . story_separator_special_tag the americas , emea , and apac recognized $ 198.0 million , $ 30.8 million , and $ 15.2 million , respectively , in services revenue for the year ended december 31 , 2011. professional services accounted for approximately 65 % of total services revenue and approximately 50 % of total revenue in 2011. when comparing our operating margins to other technology companies , our consolidated operating margin profile can be lower due to our large services revenue mix as a percentage of total revenue . while we believe our services margins are very strong , they do lower our overall operating margin as services margins are lower than license revenue margins . at december 31 , 2011 , our professional services organization totaled approximately 1,190 employees , accounting for 55 % of our total employees worldwide . our professional services organization provides our customers with expertise and assistance in planning and implementing our solutions . to ensure a successful product implementation , consultants assist customers with the initial installation of a system , the conversion and transfer of the customer 's historical data onto our system , and ongoing training , education , and system upgrades . we believe our professional services enable customers to implement our software rapidly , ensure the customer 's success with our solution , strengthen our customer relationships , and add to our industry-specific knowledge base for use in future implementations and product innovations . although our consulting services are optional , the majority of our customers use at least some portion of these services for the implementation and ongoing support of our software solutions . consulting services are typically rendered under time and materials contracts with services typically billed on an hourly basis . professional services are sometimes rendered under fixed-fee contracts with payments due on specific dates or milestones . typically , our consulting services lag license revenue by several quarters , as implementation services are performed after the purchase of the software . services revenue growth is contingent upon license revenue growth , which is influenced by the strength of general economic and business conditions and the competitive position of our software products . in addition , our consulting services business has competitive exposure to offshore providers and other consulting companies . all of these factors create the risk of pricing pressure , fewer customer orders , reduced gross margins , and loss of market share . for customer support services and software enhancements ( csse ) , we offer a comprehensive program that provides our customers with software upgrades when and if available that offer additional or improved functionality and technological advances incorporating emerging supply chain and industry initiatives . we offer 24 hour customer support every day of the year plus software upgrades for an annual fee paid in advance . our csse revenues totaled $ 87.3 million in 2011 , representing approximately 35 % of services revenue and approximately 25 % of total revenue , respectively . the growth of csse revenues is influenced by : ( 1 ) new license revenue growth ; ( 2 ) annual renewal of support contracts ; ( 3 ) increase in customers through acquisitions ; and ( 4 ) fluctuations in currency rates . substantially all of our customers renew their annual support contracts . over the last three years , our annual revenue renewal rate of customers subscribing to comprehensive support and enhancements has been greater than 90 % . csse revenue is generally paid in advance and recognized ratably over the term of the agreement , typically 12 months . csse renewal revenue is not recognized unless payment is received from the customer . hardware and other revenue : our hardware and other revenue totaled $ 31.0 million in 2011 representing 9 % of total revenue with gross margins of 19.9 % . during 2011 , americas , emea , and apac were responsible for $ 29.3 million , $ 1.1 million , and $ 0.5 million , respectively , in hardware and other revenue . in conjunction with the licensing of our software , and as a convenience for our customers , we resell a variety of hardware products developed and manufactured by third parties . these products include computer hardware , radio frequency terminal networks , rfid chip readers , bar code printers and scanners , and other peripherals . we resell all third-party hardware products pursuant to agreements with manufacturers or through distributor-authorized reseller agreements pursuant to which we are entitled to purchase hardware products at discount prices and to receive technical support in connection with product installations and any subsequent product malfunctions . we generally purchase hardware from our vendors only after receiving an order from a customer . as a result , we do not maintain hardware inventory . 27 other revenue represents amounts associated with professional services travel expense reimbursements from customers for out-of-pocket expenses . the total amount of expense reimbursement recorded to hardware and other revenue was $ 10.4 million , $ 9.0 , million and $ 7.5 million for 2011 , 2010 , and 2009 , respectively . product development we intend to continue to invest significantly in research and development ( r & d ) , which historically has averaged about 15 cents of every revenue dollar , excluding hardware and other revenue , to provide market leading solutions that help global manufacturers , wholesalers , distributors , retailers and logistics providers successfully manage accelerating and fluctuating demands as well as the increasing complexity and volatility of their local and global supply chains . our research and development expenses for the years ended december 31 , 2011 , 2010 , and 2009 were $ 42.4 million , $ 40.5 million , and $ 36.7 million , respectively . at december 31 , 2011 , our r & d organization totaled approximately 635 employees , located in the u.s. and india , representing approximately 30 % of our total employees worldwide . we will continue to focus our r & d resources on the development and enhancement of supply chain software solutions .
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full year 2011 financial summary diluted earnings per share for the twelve months ended december 31 , 2011 were a record $ 2.09 , compared to $ 1.25 for the twelve months ended december 31 , 2010. results for the twelve months ended december 31 , 2011 include a positive impact of $ 0.12 per share for the recovery of an auction rate security investment , which had been impaired in a prior period , and a $ 2.0 million tax benefit , or $ 0.09 per share , resulting from the reduction of a valuation allowance associated with a change in india tax law . the change eliminates the tax holiday for india companies under the stpi ( software technology park of india ) tax plan . the prior year results include $ 0.04 per share of recoveries of previously expensed sales tax associated with expiring sales tax audit statutes ; consolidated total revenue for the twelve months ended december 31 , 2011 was $ 329.3 million , compared to $ 297.1 million for the twelve months ended december 31 , 2010. license revenue was $ 54.2 million for the twelve months ended december 31 , 2011 , compared to $ 54.5 million in the twelve months ended december 31 , 2010 ; operating income was $ 61.4 million for the twelve months ended december 31 , 2011 , which includes a $ 2.5 million recovery of an auction rate security investment referred to above , compared to $ 41.9 million for the twelve months ended december 31 , 2010 ; 31 operating margins for 2011 were 18.6 % , up 450 basis points compared to operating margins of 14.1 % in 2010 ; cash flow from operations totaled $ 55.8 million for the full year 2011 compared to $ 50.0 million in 2010 ; cash and investments on hand at december 31 , 2011 was $ 99.1 million compared to $ 126.9 million at december 31 , 2010 ; for the twelve months ended december
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( 10 ) common stock stockholders agreement the company and its shareholders had entered into a stockholders agreement dated september 28 , 2012 , which provided for , among others , certain covenants and conditions . in connection with the company 's july story_separator_special_tag you should read the following discussion together with item 6 , selected consolidated financial data and the financial statements and related notes included elsewhere in this annual report on form 10-k. the statements in this discussion regarding expectations of our future performance , liquidity and capital resources and other non-historical statements are forward-looking statements . these forward-looking statements are subject to numerous risks and uncertainties , including , but not limited to , the risks and uncertainties described in item 1a , risk factors and cautionary note regarding forward-looking statements. our actual results may differ materially from those contained in or implied by any forward-looking statements . we operate on a fiscal calendar widely used by the retail industry that results in a given fiscal year consisting of a 52- or 53-week period ending on the saturday nearer january 31 of the following year . references to 2017 refer to the fiscal year ended february 3 , 2018 , references to 2016 refer to the fiscal year ended january 28 , 2017 and references to 2015 refer to the fiscal year ended january 30 , 2016 . 2017 consisted of a 53-week period and each of 2016 and 2015 consisted of a 52-week period . references to 2018 refer to the fiscal year ending february 2 , 2019 , which consists of a 52-week period . overview ollie 's is a highly differentiated and fast-growing , extreme value retailer of brand name merchandise at drastically reduced prices . known for our assortment of good stuff cheap® , we offer customers a broad selection of brand name products , including food , housewares , books and stationery , bed and bath , floor coverings , electronics , and toys . our differentiated go-to market strategy is characterized by a unique , fun and engaging treasure hunt shopping experience , compelling customer value proposition and witty , humorous in-store signage and advertising campaigns . these attributes have driven our rapid growth and strong and consistent store performance as evidenced by our store base expansion from 154 stores to 268 stores , net sales growth from $ 540.7 million to $ 1.077 billion and average net sales per store ranging from $ 3.7 million to $ 4.2 million from 2013 to 2017. furthermore , our comparable store sales increased from $ 839.7 million in 2016 to $ 867.4 million in 2017 , or 3.3 % . our growth strategy since the founding of ollie 's in 1982 , we have grown organically by backfilling existing markets and leveraging our brand awareness , marketing and infrastructure to expand into new markets in contiguous states . in 2003 , mark butler , our co-founder , assumed his current role as chairman , president and chief executive officer . under mr. butler 's leadership , we expanded from 28 stores located in three states at the end of 2003 to 268 stores located in 20 states as of february 3 , 2018. our stores are supported by two distribution centers , one in york , pa and one in commerce , ga , which we believe can support between 350 to 400 stores . we have invested in our associates , infrastructure , distribution network and information systems to allow us to continue to rapidly grow our store footprint , including : growing our merchant buying team to increase our access to brand name/closeout merchandise ; adding members to our senior management team ; expanding the capacity of our distribution centers to our current 1.6 million square feet ; and investing in information technology , accounting , and warehouse management systems . our business model has produced consistent and predictable store growth over the past several years , during both strong and weaker economic cycles . we plan to continue to enhance our competitive positioning and drive growth in sales and profitability by executing on the following strategies : growing our store base ; increasing our offerings of great bargains ; and leveraging and expanding ollie 's army . we have a proven portable , flexible , and highly profitable store model that has produced consistent financial results and returns . our new store model targets a store size between 25,000 to 35,000 square feet and an average initial cash investment of $ 1.0 million , which includes store fixtures and equipment , store-level and distribution center inventory ( net of payables ) and pre-opening expenses . we target new stores sales of $ 3.9 million . 27 while we are focused on driving comparable store sales and managing our expenses , our revenue and profitability growth will primarily come from opening new stores . the core elements of our business model are procuring great deals , offering extreme values to our customers and creating consistent , predictable store growth and margins . in addition , our new stores generally open strong , immediately contributing to the growth in net sales and profitability of our business . from 2013 to 2017 , net sales grew at a cagr of 18.8 % . we plan to achieve continued net sales growth , including increases in our comparable stores sales , by adding stores to our store base and by continuing to provide quality merchandise at a value for our customers as we scale and gain more access to purchase directly from major manufacturers . we also plan to leverage and expand our ollie 's army database marketing strategies . in addition , we plan to continue to manage our selling , general and administrative expenses ( sg & a ) by furthering process improvements and by maintaining our standard policy of reviewing our operating costs . story_separator_special_tag in addition , our gross margin is impacted by product mix , as some products generally provide higher gross margins , by our merchandise mix and availability and by our merchandise cost , which can vary . our gross profit is variable in nature and generally follows changes in net sales . we regularly analyze the components of gross profit as well as gross margin . specifically , our product margin and merchandise mix is reviewed by our merchant team and senior management , ensuring strict adherence to internal margin goals . our disciplined buying approach has produced consistent gross margins and we believe helps to mitigate adverse impacts on gross profit and results of operation . the components of our cost of sales may not be comparable to the components of cost of sales or similar measures of our competitors and other retailers . as a result , our gross profit and gross margin may not be comparable to similar data made available by our competitors and other retailers . selling , general and administrative expenses sg & a are comprised of payroll and benefits for store , field support and support center associates . sg & a also include marketing and advertising , occupancy , utilities , supplies , credit card processing fees , insurance and professional services . the components of our sg & a remain relatively consistent per store and for each new store opening . consolidated sg & a generally increase as we grow our store base and as our net sales increase . a significant portion of our expenses is primarily fixed in nature , and we expect to continue to maintain strict discipline while carefully monitoring sg & a as a percentage of net sales . the components of our sg & a may not be comparable to the components of similar measures of other retailers . we expect that our sg & a will continue to increase in future periods with future growth . depreciation and amortization expenses property and equipment are stated at original cost less accumulated depreciation and amortization . depreciation and amortization are calculated over the estimated useful lives of the related assets , or in the case of leasehold improvements , the lesser of the useful lives or the remaining term of the lease . expenditures for additions , renewals , 29 and betterments are capitalized ; expenditures for maintenance and repairs are charged to expense as incurred . depreciation is computed on the straight-line method for financial reporting purposes . depreciation as it relates to our distribution centers is included within cost of sales on the consolidated statements of income . pre-opening expenses pre-opening expenses consist of expenses of opening new stores and distribution centers . for new stores , pre-opening expenses include grand opening advertising costs , payroll expenses , travel expenses , employee training costs , rent expenses and store setup costs , as well as store closing costs . pre-opening expenses for new stores are expensed as they are incurred , which is typically within 30 to 45 days of opening a new store . for distribution centers , pre-opening expenses primarily include inventory transportation costs , employee travel expenses and occupancy costs . operating income operating income is gross profit less sg & a , depreciation and amortization and pre-opening expenses . operating income excludes interest expense , net , and income tax expense . we use operating income as an indicator of the productivity of our business and our ability to manage expenses . ebitda and adjusted ebitda ebitda and adjusted ebitda are key metrics used by management and our board to assess our financial performance . ebitda and adjusted ebitda are also frequently used by analysts , investors and other interested parties to evaluate companies in our industry . we use adjusted ebitda to supplement gaap measures of performance to evaluate the effectiveness of our business strategies , to make budgeting decisions , to evaluate our performance in connection with compensation decisions and to compare our performance against that of other peer companies using similar measures . management believes it is useful to investors and analysts to evaluate these non-gaap measures on the same basis as management uses to evaluate the company 's operating results . we believe that excluding items from operating income , net income and net income per diluted share that may not be indicative of , or are unrelated to , our core operating results , and that may vary in frequency or magnitude , enhances the comparability of our results and provides a better baseline for analyzing trends in our business . we define ebitda as net income before net interest expense , loss on extinguishment of debt , depreciation and amortization expenses and income taxes . adjusted ebitda represents ebitda as further adjusted for non-cash stock-based compensation expense , non-cash purchase accounting items , transaction related expenses and debt financing expenses , which we do not consider representative of our ongoing operating performance . ebitda and adjusted ebitda are non-gaap measures and may not be comparable to similar measures reported by other companies . ebitda and adjusted ebitda have limitations as analytical tools , and you should not consider them in isolation or as a substitute for analysis of our results as reported under gaap . in the future we may incur expenses or charges such as those added back to calculate adjusted ebitda . our presentation of adjusted ebitda should not be construed as an inference that our future results will be unaffected by these items . for further discussion of ebitda and adjusted ebitda and for reconciliations of ebitda and adjusted ebitda to net income , the most directly comparable gaap measure , see results of operations. factors affecting the comparability of our results of operations our results over the past three years have been affected by the following events , which must be understood in order to assess the comparability of our period-to-period financial performance and condition .
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results of operations the following tables summarize key components of our results of operations for the periods indicated , both in dollars and as a percentage of our net sales . we derived the consolidated statements of income for 2017 , 2016 and 2015 from our consolidated financial statements and related notes . our historical results are not necessarily indicative of the results that may be expected in the future . replace_table_token_8_th ( 1 ) components may not add to totals due to rounding . ( 2 ) average net sales per store represents the weighted average of total net sales divided by the number of stores open , in each case at the end of each week in each fiscal period . 32 the following table provides a reconciliation of our net income to adjusted ebitda for the periods presented : replace_table_token_9_th ( 1 ) includes depreciation and amortization relating to our distribution centers , which is included within cost of sales on our consolidated statements of income . ( 2 ) includes purchase accounting impact from unfavorable lease liabilities related to the ccmp acquisition . ( 3 ) represents professional services and one-time compensation expenses related to the 2015 ipo and the 2016 secondary offering transactions . ( 4 ) represents fees and expenses related to amendments to our old credit facilities in 2015 . 2017 compared to 2016 net sales net sales increased to $ 1.077 billion for 2017 from $ 890.3 million for 2016 , an increase of $ 186.7 million , or 21.0 % . the increase was the result of a comparable store sales increase of $ 27.7 million , or 3.3 % , and a non-comparable store sales increase of $ 159.0 million .
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-53- notes to consolidated financial statements ( continued ) note 10. business segments ( continued ) segment activity for fiscal years 2011 , 2010 and 2009 is as follows : replace_table_token_18_th -54- notes to consolidated financial statements ( continued ) note 10. business segments ( continued ) replace_table_token_19_th note 11. stock buyback on april 28 , 2003 , the company 's board of directors approved a stock buyback program . as of march 27 , 2011 , the board of directors has authorized the purchase of up to 3,593,350 shares of outstanding common stock under the buyback program . shares may be purchased from time to time in the open market , by block purchase , or through negotiated transactions , or possibly other transactions managed by broker-dealers . no time limit has been set for completion or expiration story_separator_special_tag this management 's discussion and analysis of results of operations and financial condition ( md & a ) should be read in conjunction with the other sections of this annual report on form 10-k , including part i , “ item 1 : business , ” part ii , “ item 6 : selected financial data , ” and part ii , “ item 8 : financial statements and supplementary data. ” the various sections of this md & a contain a number of forward-looking statements , all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing , including part i , “ item 1a : risk factors. ” our actual results may differ materially from those described in any such forward-looking statement . business overview and environment tessco technologies incorporated ( tessco , we , or the company ) architects and delivers innovative product and value chain solutions to support wireless systems . although we sell products to customers in over 100 countries , approximately 97 % of our sales are to customers in the united states . we have operations and office facilities in hunt valley , maryland , reno , nevada and san antonio , texas . we offer a wide range of products that are classified into three business segments : network infrastructure ; mobile devices and accessories ; and installation , test and maintenance . network infrastructure products , which are sold to our commercial customers , are used to build , repair and upgrade wireless telecommunications , computing and internet networks . sales of traditional network infrastructure products , such as base station radios , cable , transmission lines and antennas are in part dependent on capital spending in the wireless communications industry . however , we have also been growing our offering of wireless broadband , network equipment , security and surveillance products , which are not as dependent on the overall capital spending of the industry . mobile devices and accessory products include cellular phone and data device accessories , as well as two-way radios and related accessories . mobile devices and accessory products are widely sold to commercial customers and consumers . commercial customers include retail stores , value-added resellers and dealers . consumers are primarily reached through our affinity partnerships , where we offer services including customized order fulfillment , outsourced call centers , and building and maintaining private label internet sites . approximately 47 % of all of our mobile devices and accessory products sales for fiscal year 2011 were generated from the sales of accessory products to at & t mobility . installation , test and maintenance products , which are sold to our commercial customers , are used to install , tune , maintain and repair wireless communications equipment . this segment is made up of sophisticated analysis equipment and various frequency- , voltage- and power-measuring devices , replacement parts and components as well as an assortment of tools , hardware and supplies required by service technicians . we view our customer base in four major categories : · commercial public carriers and network operators . public carriers and network operators include systems operators that are generally responsible for building and maintaining the infrastructure system and providing airtime service to individual subscribers . · commercial resellers . resellers include dealers and resellers that sell , install and or service cellular telephone , wireless networking , broadband and two-way radio communications equipment . these resellers include local and national value-added resellers and retailers , as well as sales and installation centers operated by cellular and paging carriers . · commercial self-maintained users ( smus ) and governments . smus and government customers include commercial entities such as major utilities and transportation companies , federal agencies and state and local governments . · consumers . consumers are customers buying through any of our affinity-partner relationships or directly from our consumer website , yourwirelesssource.com tm . - 25 - the wireless communications distribution industry is competitive and fragmented , and is comprised of several national distributors . in addition , many manufacturers sell direct . barriers to entry for distributors are relatively low , particularly in the mobile devices and accessory market , and the risk of new competitors entering the market is high . consolidation of larger wireless carriers has and will most likely continue to impact our current and potential customer base . in addition , the agreements or arrangements with our customers or vendors looking to us for product and supply chain solutions are typically of limited duration and are terminable by either party upon several months or otherwise short notice . our ability to maintain these relationships is subject to competitive pressures and challenges . we believe , however , that our strength in service , the breadth and depth of our product offering , our information technology system , our large customer base and our purchasing relationships with approximately 380 manufacturers provide us with a significant competitive advantage over new entrants to the market . story_separator_special_tag net interest expense increased from $ 318,300 in fiscal year 2010 to $ 420,600 in fiscal year 2011 , primarily due to increased average borrowings on our revolving credit facility . as noted below , beginning october 1 , 2005 , we entered into a receive variable/pay fixed interest rate swap on our existing term loan , thus fixing the interest rate on this loan at 6.38 % . interest expense on our other debt instruments had only minor variances from year-to-year in total . income taxes , net income and diluted earnings per share . the effective tax rates in fiscal year 2011 and 2010 were 35.6 % and 38.0 % , respectively . the decrease in the effective tax rate for fiscal year 2011 was primarily attributable to a one-time reduction in our uncertain tax position reserve as a result of a lapse in the applicable statute of limitations . absent this one-time adjustment , the tax rate for fiscal year 2011 would be approximately the same as fiscal year 2010. as a result of the factors discussed above , net income and diluted earnings per share for fiscal year 2011 increased 9.6 % and 6.7 % , respectively , compared with fiscal year 2010. fiscal year 2010 compared to fiscal year 2009 revenues . revenues for fiscal year 2010 increased 8.1 % as compared to fiscal year 2009 , primarily due to a 7.6 % increase in commercial revenues , and to a much lesser extent , a 27.7 % increase in consumer revenues . the increase in commercial revenues was driven primarily by an increase in our mobile devices and accessories , and network infrastructure commercial lines of business , partially offset by a decrease in our installation , test and maintenance commercial line of business . our mobile devices and accessories revenues , including both commercial and consumer sales , increased 23.4 % for fiscal year 2010 compared to fiscal year 2009. we experienced a significant increase in commercial and consumer sales of mobile devices and accessory products . commercial revenues for mobile devices and accessories , which are sold primarily to resellers , but are also sold to smus , governments and public carriers and network operators , increased 23.2 % over the prior year , due in part to higher sales to at & t mobility , our largest customer , as well as other smaller resellers and public carriers and network operators . the 4.1 % increase in our network infrastructure sales from fiscal year 2009 to fiscal year 2010 is primarily attributable to an increase in sales of broadband products , and to a much lesser extent , sales of radio frequency ( rf ) propagation and site support products . our growth in sales of network infrastructure product was in sales to public carriers and network operations as well as smus and governments , as we have continued to focus on diversification beyond the traditional infrastructure carrier customer . revenues from our installation , test and maintenance line of business decreased 29.6 % in fiscal year 2010 as compared to the prior fiscal year , primarily due to a decline in sales of repair parts related to our repair components relationship with nokia , as well as decreased sales of test and bench equipment and safety products . as discussed above and in prior reports , nokia had terminated our arrangement effective september 30 , 2010. accordingly , revenues and gross profits from this relationship have ceased . during fiscal year 2010 , revenues from the nokia relationship represented approximately 3 % of total consolidated revenues . gross profit . gross profit increased 1.2 % in fiscal year 2010 compared to fiscal year 2009 , driven by an increase in our network infrastructure and mobile devices and accessories commercial business segments , partially offset by a decline in our installation , test and maintenance commercial line of business . total commercial gross profit increased 0.7 % , while consumer gross profits increased 17.5 % . gross profit margin decreased to 23.6 % in fiscal year 2010 , from 25.2 % in fiscal year 2009. except as noted below , our gross margins by product within each segment have generally been sustained and variations are mostly related to sales mix within the segment product offerings . gross profit margin decreased to 26.5 % in fiscal year 2010 in our network infrastructure segment , from 27.4 % in fiscal year 2009. this decrease in gross profit margin is the result of the change in product mix described above , as broadband products typically have a lower gross margin than radio frequency and site support products , which had a smaller increase in sales as compared to sales of broadband products . in our installation , test and maintenance segment , gross profit margin decreased to 23.0 % in fiscal year 2010 , from 23.4 % in fiscal year 2009 , partially due to the change in the structure of our nokia arrangement as discussed above . gross profit margin in our mobile devices and accessories segment decreased to 21.9 % in fiscal year 2010 , from 24.2 % in fiscal year 2009. this decrease is primarily attributable to the commercial gross profit margin for our mobile devices and accessories segment , which decreased from 23.7 % for fiscal year 2009 to 21.4 % for fiscal year 2010 , principally due to product and customer mix in sales . the gross profit margin for our consumer sales decreased from 34.6 % to 31.9 % in fiscal year 2010. we account for inventory at the lower of cost or market , and as a result , write-offs/write-downs occur due to damage , deterioration , obsolescence , changes in prices and other causes . -30- during fiscal year 2006 , we began sourcing a significant portion of our private branded product line directly from factories in china . all of such purchases are denominated in u.s. dollars . we have been increasing the amount of products and services sold under tessco 's private labels .
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results of operations the following tables summarize the results of our operations for fiscal years 2011 , 2010 and 2009 : replace_table_token_5_th -26- replace_table_token_6_th ( 1 ) all earnings per share numbers prior to march 27 , 2011 have been retroactively restated for all periods presented to reflect the may 26 , 2010 stock dividend in order to effect a 3-for-2 stock split . ( 2 ) effective march 30 , 2009 , we retrospectively adopted the fasb standard addressing accounting for participating securities under the two-class method . see notes 2 and 14 to the consolidated financial statements for a discussion of the impact of the change in accounting standards . -27- fiscal year 2011 compared to fiscal year 2010 revenues . revenues for fiscal year 2011 increased 15.9 % as compared to fiscal year 2010 , primarily due to a 16.6 % increase in commercial revenues , partially offset by a 6.1 % decrease in consumer revenues . the increase in commercial revenues was driven primarily by an increase in our network infrastructure and mobile devices and accessories commercial lines of business , partially offset by a decrease in our installation , test and maintenance commercial line of business . the 26.3 % increase in our network infrastructure sales from fiscal year 2010 to fiscal year 2011 is primarily attributable to an increase in sales of radio frequency ( rf ) propagation and site support products , and to a lesser extent , sales of broadband products . our growth in sales of network infrastructure product was across all of our market categories , as we have continued to focus on diversification beyond the traditional infrastructure carrier customer . our mobile devices and accessories revenues , including both commercial and consumer sales , increased 14.6 % for fiscal year 2011 compared to fiscal year 2010. we experienced a significant increase in commercial sales of mobile devices and accessory products .
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56 nvent electric plc notes to consolidated and combined financial statements we reduce the transaction price for certain story_separator_special_tag this management 's discussion and analysis of financial condition and results of operations refers to and should be read in conjunction with the audited consolidated and combined financial statements and the corresponding notes included in item 8. forward-looking statements this report contains statements that we believe to be `` forward-looking statements '' within the meaning of the private securities litigation reform act of 1995. all statements , other than statements of historical fact are forward-looking statements . without limitation , any statements preceded or followed by or that include the words `` targets , '' `` plans , '' `` believes , '' `` expects , '' `` intends , '' `` will , '' `` likely , '' `` may , '' `` anticipates , '' `` estimates , '' `` projects , '' `` should , '' `` would , '' `` positioned , '' `` strategy , '' `` future , '' `` forecast '' or words , phrases or terms of similar substance or the negative thereof , are forward-looking statements . these forward-looking statements are not guarantees of future performance and are subject to risks , uncertainties , assumptions and other factors , some of which are beyond our control , which could cause actual results to differ materially from those expressed or implied by such forward-looking statements . these factors include ; adverse effects on our business operations or financial results as a result of the consummation of the separation ( as defined below ) ; the ability of our business to operate independently following the separation ; overall global economic and business conditions impacting our business ; the ability to achieve the benefits of our restructuring plans ; the ability to successfully identify , finance , complete and integrate acquisitions ; competition and pricing pressures in the markets we serve , including the impacts of tariffs ; the strength of housing and related markets ; volatility in currency exchange rates and commodity prices ; inability to generate savings from excellence in operations initiatives consisting of lean enterprise , supply management and cash flow practices ; increased risks associated with operating foreign businesses ; the ability to deliver backlog and win future project work ; failure of markets to accept new product introductions and enhancements ; the impact of changes in laws and regulations , including those that limit u.s. tax benefits ; the outcome of litigation and governmental proceedings ; and the ability to achieve our long-term strategic operating goals . additional information concerning these and other factors is contained in our filings with the u.s. securities and exchange commission ( the `` sec '' ) , including this annual report on form 10-k. all forward-looking statements speak only as of the date of this report . nvent electric plc assumes no obligation , and disclaims any obligation , to update the information contained in this report . overview nvent is a leading global provider of electrical connection and protection solutions . we believe our inventive electrical solutions enable safer systems and ensure a more secure world . we design , manufacture , market , install , and service high performance products and solutions that connect and protect some of the world 's most sensitive equipment , buildings , and critical processes . we offer a comprehensive range of enclosures , electrical connections and fastening , and thermal management solutions across industry-leading brands that are recognized globally for quality , reliability , and innovation . we classify our operations into business segments based primarily on types of products offered and markets served . we operate across three segments : enclosures , thermal management , and electrical & fastening solutions , which contributed 46 % , 28 % and 26 % of total revenues during 2018 , respectively . we classify our operations into business segments based primarily on types of products offered and markets served : enclosures - the enclosures segment provides inventive solutions that protect , connect and manage heat in critical electronics , communication , control , and power equipment . from metallic and non-metallic enclosures to cabinets , subracks and backplanes , it offers the physical infrastructure to host , connect and protect server and network equipment , as well as indoor and outdoor protection for broadband voice , data and video surveillance applications in industrial , infrastructure , commercial , and energy verticals . thermal management - the thermal management segment provides electric thermal solutions that connect and protect critical buildings , infrastructure , industrial processes and people . its thermal management systems include heat tracing , floor heating , fire-rated and specialty wiring , sensing and snow melting and de-icing solutions for use in industrial , energy , commercial & residential and infrastructure verticals . its highly reliable and easy to install solutions lower total cost of ownership to building owners , facility managers , operators and end users . electrical & fastening solutions - the electrical & fastening solutions segment provides fastening solutions that connect and protect electrical and mechanical systems and civil structures . its engineered electrical and fastening products are used across a wide range of verticals , including commercial , industrial , infrastructure and energy . 25 on april 30 , 2018 , pentair plc ( `` pentair '' or `` parent '' ) completed the separation of its water business and its electrical business into two independent , publicly-traded companies ( the `` separation '' ) . story_separator_special_tag the 2.6 percentage point decrease in segment income for enclosures as a percentage of net sales in 2017 from 2016 was primarily the result of : inflationary increases related to labor costs and certain raw materials ; higher cost of sales due to manufacturing footprint rationalization and a new u.s. distribution center . lower sales volume in the infrastructure business , which resulted in decreased leverage on operating expenses . these decrease s were partially offset by : increased sales volume in the industrial business , which resulted in increased leverage on operating expenses . thermal management the net sales and segment income for thermal management were as follows : replace_table_token_10_th 30 net sales the components of the change in thermal management net sales were as follows : replace_table_token_11_th the 0.2 percent increase in thermal management sales in 2018 from 2017 was primarily the result of : organic sales growth of approximately 4.0 % from our commercial & residential business , which includes selective increases in selling prices ; and favorable foreign currency effects . these increase s were partially offset by : lower project sales volume in the energy business driving lower organic sales of approximately 4.0 % . the 10.1 percent decrease in thermal management sales in 2017 from 2016 was primarily the result of : lower project sales volume as a result of the impact of three large canadian oil sands projects in 2016 that did not recur in 2017. this decrease was partially offset by : increased sales volume of approximately 1.5 % from the industrial business , primarily as a result of increased volumes in western europe and certain developing regions ; and favorable foreign currency effects . segment income the components of the change in thermal management segment income from the prior period were as follows : replace_table_token_12_th the 1.0 percentage point increase in segment income for thermal management as a percentage of net sales in 2018 from 2017 was primarily the result of : favorable mix as a result of the decline in lower margin long-cycle energy sales and growth in higher margin product sales ; organic sales growth in our commercial & residential business , which resulted in increased leverage on operating expenses ; and higher contribution margin as a result of savings generated from our lean and supply management practices . these increase s were partially offset by : inflationary increases related to certain raw materials , labor and freight costs ; and organic sales decline in our energy business , which resulted in decreased leverage on operating expenses . 31 the 5.9 percentage point increase in segment income for thermal management as a percentage of sales in 2017 from 2016 was primarily the result of : favorable mix as a result of the decline in lower margin long-cycle energy sales and growth in higher margin product sales ; increased sales volume in the industrial business , which resulted in increased leverage on operating expenses ; and higher contribution margin as a result of savings generated from our lean and supply management practices . these increase s were partially offset by : inflationary increases related to labor costs and certain raw materials . electrical & fastening solutions the net sales and segment income for electrical & fastening solutions were as follows : replace_table_token_13_th net sales the components of the change in electrical & fastening solutions net sales were as follows : replace_table_token_14_th the 5.5 percent increase in electrical & fastening solutions sales in 2018 from 2017 was primarily the result of : organic sales growth of approximately 3.0 % from our commercial & residential business and approximately 1.5 % from our industrial business , which includes selective increases in selling prices ; and favorable foreign currency effects . the 5.5 percent increase in electrical & fastening solutions sales in 2017 from 2016 was primarily the result of : increased sales related to a business acquisition that occurred in the first quarter of 2017 ; selective increases in selling prices to mitigate inflationary cost increases ; increased sales volume of approximately 1.0 % in the energy and industrial businesses , primarily as a result of increased volumes in the u.s. ; and favorable foreign currency effects . 32 segment income the components of the change in electrical & fastening solutions segment income from the prior period were as follows : replace_table_token_15_th the 0.7 percentage point decrease in segment income for electrical & fastening solutions as a percentage of net sales in 2018 from 2017 was primarily the result of : inflationary increases related to certain raw materials , labor and freight costs ; and impact of unfavorable product mix . these decrease s were partially offset by : organic sales growth from our commercial & residential and industrial businesses , which resulted in increased leverage on operating expenses ; selective increases in selling prices to offset inflationary cost increases ; and higher contribution margin as a result of savings generated from our lean and supply management practices . the 2.3 percentage point decrease in segment income for electrical & fastening solutions as a percentage of sales in 2017 from 2016 was primarily the result of : inflationary increases related to labor costs and certain raw materials . this decrease was partially offset by : higher contribution margin as a result of savings generated from our lean and supply management practices ; and increased sales volume in the energy and industrial businesses , which resulted in increased leverage on operating expenses . liquidity and capital resources the primary source of liquidity for our business is cash flows provided by operations . for periods prior to the separation , transfers of cash to and from the former parent 's cash management system have been reflected in the net parent investment in the historical consolidated and combined balance sheets , consolidated and combined statements of cash flows and consolidated and combined statements of changes in equity . in connection with the separation , our capital structure and sources of liquidity changed significantly from our historical capital structure .
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consolidated and combined results of operations the consolidated and combined results of operations were as follows : replace_table_token_5_th n.m. not meaningful net sales the components of the consolidated net sales change were as follows : replace_table_token_6_th the 5.5 percent increase in net sales in 2018 from 2017 was primarily the result of : organic sales growth of approximately 2.5 % from our industrial business and 2.0 % from our commercial & residential business , which includes selective increases in selling prices ; and favorable foreign currency effects . these increase s were partially offset by : slowdown in capital spending impacting the energy business , driving lower organic sales of approximately 1.0 % . 27 the 0.9 percent decrease in net sales in 2017 from 2016 was primarily the result of : sales decline from our energy business of approximately 5.0 % as a result of the impact of three large canadian oil sands projects in our thermal management segment in 2016 that did not recur in 2017 ; and sales decline in our infrastructure business of approximately 1.0 % driven by performance in both enclosures and electrical & fastening solutions . these decrease s were partially offset by : increased sales volume from our industrial business of approximately 3.0 % , primarily as a result of increased volumes in the u.s. ; increased sales related to a business acquisition that occurred in the first quarter of 2017 ; and favorable foreign currency effects . gross profit the 0.5 percentage point decrease in gross profit as a percentage of sales in 2018 from 2017 was primarily the result of : inflationary increases related to certain raw materials , labor and freight costs .
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the following table details the fair value measurements within the fair value hierarchy of the company 's financial assets and liabilities story_separator_special_tag this management 's discussion and analysis of financial condition and results of operations , or md & a , should be read in conjunction with our consolidated financial statements and notes thereto that appear elsewhere in this annual report on form 10-k. see “ risk factors ” elsewhere in this annual report on form 10-k for a discussion of certain risks associated with our business . the following discussion contains forward-looking statements . the forward-looking statements do not include the potential impact of any mergers , acquisitions , divestitures or other events that may be announced after the date hereof . overview we provide cloud services for delivering , optimizing and securing content and business applications over the internet . the key factors that influence our financial success are our ability to build on recurring revenue commitments for our performance and security offerings , increase media traffic on our network , develop new products and carefully manage our capital spending and other expenses . revenue for most of our solutions , our customers commit to contracts having terms of a year or longer , which allows us to have a consistent and predictable base level of revenue . in addition to a base level of revenue , we are also dependent on media customers where usage of our services is more variable . as a result , our revenue is impacted by the amount of media and software download traffic we serve on our network , the rate of adoption of social media and video platform capabilities , the timing and variability of customer-specific one-time events and the impact of seasonal variations on our business . the ability to expand our product portfolio and to maintain the prices we charge for our services are also key factors impacting our revenue growth . we have observed the following trends related to our revenue in recent years : increased sales of our security solutions have made a significant contribution to revenue growth , and we expect to continue our focus on security solutions in the future . we have experienced increases in the amount of traffic delivered for customers that use our solutions for video , gaming , social media and software downloads , contributing to an increase in our revenue . however , from the second half of 2015 onward , our traffic growth rates have moderated , primarily due to the “ do-it-yourself ” efforts by some of our customers that are among the large internet platform companies : amazon , apple , facebook , google , microsoft and netflix . we refer to these companies as our internet platform customers . some of these customers have elected to develop and rely on their internal infrastructure to deliver more of their media content themselves rather than use our services . as a result , we are likely to continue experiencing lower revenue from these customers . we have not , however , been experiencing a significant shift to internal infrastructure usage across the remainder of our media services customer base . we have increased committed recurring revenue from our solutions by increasing sales of incremental services to our existing customers and adding new customers . these increases helped to limit the impact of reductions in usage of our services and contract terminations by certain customers , as well as the effect of price decreases negotiated as part of contract renewals . the unit prices paid by some of our customers have declined , reflecting the impact of competition . our revenue would have been higher absent these price declines . we have experienced variations in certain types of revenue from quarter to quarter . in particular , we experience higher revenue in the fourth quarter of the year for some of our solutions as a result of holiday season activity . we also experience lower revenue in the summer months , particularly in europe , from both e-commerce and media customers because overall internet use declines during that time . in addition , we experience quarterly variations in revenue attributable to , among other things , the nature and timing of software and gaming releases by our customers using our software download solutions ; whether there are large live sporting or other events that increase the amount of media traffic on our network ; and the frequency and timing of purchases of custom services . 25 expenses our level of profitability is also impacted by our expenses , including direct costs to support our revenue such as bandwidth and co-location costs . we have observed the following trends related to our profitability in recent years : network bandwidth costs represent a significant portion of our cost of revenue . historically , we have been able to mitigate increases in these costs by reducing our network bandwidth costs per unit and investing in internal-use software development to improve the performance and efficiency of our network . our total bandwidth costs may increase in the future as a result of expected higher traffic levels and serving more traffic from higher cost regions . we will need to continue to effectively manage our bandwidth costs to maintain current levels of profitability . co-location costs are also a significant portion of our cost of revenue . by improving our internal-use software and managing our hardware deployments to enable us to use servers more efficiently , we have been able to manage the growth of co-location costs . we expect to continue to scale our network in the future and will need to continue to effectively manage our co-location costs to maintain current levels of profitability . due to the fixed nature of some of our co-location and bandwidth costs over a minimum time period , it may not be possible to quickly reduce those costs . if our revenue growth rate declines , our profitability could decrease . story_separator_special_tag 30 sales and marketing expenses sales and marketing expenses consisted of the following for the periods presented ( in thousands ) : replace_table_token_10_th the decrease in sales and marketing expenses for 2016 as compared to 2015 was primarily due to a decrease in performance-based commissions earned and reduced spending on marketing programs and related costs as we moderated discretionary spending to align with our revenue growth rates . the increase in sales and marketing expenses for 2015 as compared to 2014 was primarily due to higher payroll and related costs , as we invested in our sales and marketing organization , as well as additional marketing programs and related costs in support of our go-to-market strategy and ongoing geographic expansion . we believe that sales and marketing expenses will increase during 2017 as compared to 2016 , due to increased payroll and related costs as a result of headcount growth during 2016. we expect headcount growth consistent with historical levels in our sales and marketing organizations in 2017. general and administrative expenses general and administrative expenses consisted of the following for the periods presented ( in thousands ) : replace_table_token_11_th the increase in total general and administrative expenses for 2016 as compared to 2015 was primarily due to increases in : legal and other professional fees due to ongoing litigation ; expansion of company infrastructure throughout 2015 and 2016 to support investments in engineering , go-to market capacity and enterprise expansion initiatives , particularly expansion of our facility footprint , which increased facilities-related costs and depreciation and amortization ; and stock-based compensation as a result of increased headcount and the impact that changing estimates have on our performance-based stock-based compensation from period to period . 31 the increase in total general and administrative expenses for 2015 as compared to 2014 was primarily due to increases in : expansion of company infrastructure throughout 2015 to support investments in engineering , go-to market capacity and enterprise expansion initiatives , particularly expansion of our general and administrative headcount and our facility footprint , which increased payroll and related costs , facilities-related costs and depreciation and amortization ; and increases in the number of software-as-a-service , or saas , solutions that we use , as compared to 2014 , which contributed to the increase in professional fees and other expenses , along with increases in legal and other professional consulting fees . during 2017 , we expect general and administrative expenses to increase as compared to 2016 , due to anticipated increased payroll and related costs and facilities-related costs . the increase in those expenses is expected to be attributable to increased hiring , investments in information technology and the expansion of our facility footprint to support headcount growth , which occurred throughout 2016 and is expected to continue in 2017. amortization of acquired intangible assets replace_table_token_12_th the decrease in amortization of acquired intangible assets in 2016 , as compared to 2015 , was attributable to the finalization of amortization of intangible assets acquired in previous years ; partially offset by acquired intangible asset amortization acquired in 2015 and 2016. the decrease in amortization of acquired intangible assets in 2015 , as compared to 2014 , was driven by the finalization of amortization of intangible assets acquired in earlier years , in addition to the deceleration in recognition of customer backlog-related intangible assets acquired from prolexic , which had a short useful life . based on acquired intangible assets at december 31 , 2016 , future amortization is expected to be approximately $ 29.2 million , $ 26.4 million , $ 25.0 million , $ 21.1 million and $ 16.6 million for the years ending december 31 , 2017 , 2018 , 2019 , 2020 and 2021 , respectively . restructuring charges replace_table_token_13_th the restructuring charges in 2016 were primarily the result of changes to our organizational structure to reorganize our products and development groups and global sales , services and marketing teams into divisions centered on our solutions . the restructuring charges relate to severance expenses for impacted employees and charges for internal-use software not yet placed into service that will not be completed and launched due to changing priorities as part of the reorganization . the restructuring charges in 2015 and 2014 consisted of severance expenses for redundant employees associated with acquisitions completed during those years . we do not expect to continue to incur significant restructuring charges as a result of any of these actions . 32 non-operating income ( expense ) replace_table_token_14_th for the periods presented , interest income primarily consists of interest earned on invested cash balances and marketable securities , and interest expense consists of the amortization of the debt discount and debt issuance costs related to our convertible senior notes issued in february 2014. other income ( expense ) , net for the years ended december 31 , 2016 , 2015 and 2014 primarily represents net foreign exchange gains and losses mainly due to foreign currency exchange rate fluctuations on intercompany and other non-functional currency transactions . the fluctuation in other income ( expense ) , net for 2016 as compared to 2015 also includes the impact of gains recognized on the disposition of certain cost method investments . other income ( expense ) , net may fluctuate in the future based on changes in foreign currency exchange rates or other events . provision for income taxes replace_table_token_15_th for the year ended december 31 , 2016 , the effective income tax rate was lower than the federal statutory tax rate due to the composition of income from foreign jurisdictions that is taxed at lower rates compared to the statutory tax rates in the u.s. , the domestic production activities deduction and the u.s. federal , state and foreign research and development credits , partially offset by the effects of accounting for stock-based compensation in accordance with the authoritative guidance for share-based payments and state income taxes .
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results of operations the following sets forth , as a percentage of revenue , consolidated statements of income data for the years indicated : replace_table_token_3_th revenue revenue during the periods presented is as follows ( in thousands ) : replace_table_token_4_th the increase in our revenue from 2015 to 2016 was primarily the result of continued strong growth from our cloud security solutions , which grew 43 % . our web performance solutions also contributed to our revenue growth in 2016. our overall revenue growth rate was lower than it has been in the past , primarily due to the `` do-it-yourself '' efforts of our internet platform customers , some of which have developed internal infrastructure to deliver more of their media content themselves rather than rely on our media services . revenue from these six customers ( amazon , apple , facebook , google , microsoft and netflix ) in the aggregate was $ 250.4 million and $ 379.3 million for the years ended december 31 , 2016 and 2015 , respectively . the increase in our revenue from 2014 to 2015 was driven by higher demand for our services across all of our solutions and geographies , with particularly strong growth from our cloud security solutions . revenue from our internet platform customers was $ 379.3 million and $ 358.9 million for the years ended december 31 , 2015 and 2014 , respectively . 27 the following table quantifies the contribution to revenue from our solution categories for the years ended december 31 , 2016 , 2015 and 2014 ( in thousands ) : replace_table_token_5_th the increases in performance and security solutions revenue for 2016 as compared to 2015 , and 2015 as compared to 2014 , were due to increased demand across all major product lines , with especially strong growth in our cloud security solutions .
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additionally , in the event that a change of control of the company occurs ( as described in the employment agreement ) , mr. nynens ' outstanding equity awards become immediately story_separator_special_tag the following management 's discussion and analysis of the company 's financial condition and results of operations should be read in conjunction with the company 's consolidated financial statements and the notes thereto . this discussion and analysis contains , in addition to historical information , forward-looking statements that involve risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain risks and uncertainties , including those set forth under the heading risk factors and elsewhere in this report . overview the company is organized into two reportable operating segments . the lifeboat distribution segment distributes technical software to corporate resellers , value added resellers ( vars ) , consultants and systems integrators worldwide . the techxtend segment is a value-added reseller of software , hardware and services for corporations , government organizations and academic institutions in the usa and canada . we offer an extensive line of products from leading publishers of software and tools for virtualization/cloud computing , security , networking , storage and infrastructure management , application lifecycle management and other technically sophisticated domains as well as computer hardware . we market these products through direct sales , the internet , our catalogs , direct mail programs , advertisements in trade magazines and e-mail promotions . forward-looking statements this report includes forward-looking statements within the meaning of section 21e of the exchange act . statements in this report regarding future events or conditions , including but not limited to statements regarding industry prospects and the company 's expected financial position , business and financing plans , are forward-looking statements . although the company believes that the expectations reflected in such forward-looking statements are reasonable , it can give no assurance that such expectations will prove to have been correct . we strongly urge current and prospective investors to carefully consider the cautionary statements and risks contained in this report , particularly the risks described under item 1a . risk factors above . such risks include , but are not limited to , the continued acceptance of the company 's distribution channel by vendors and customers , the timely availability and acceptance of new products , contribution of key vendor relationships and support programs , as well as factors that affect the software industry generally . the company operates in a rapidly changing business , and new risk factors emerge from time to time . management can not predict every risk factor , nor can it assess the impact , if any , of all such risk factors on the company 's business or the extent to which any factor , or combination of factors , may cause actual results to differ materially from those projected in any forward-looking statements . accordingly , forward-looking statements should not be relied upon as a prediction of actual results and readers are cautioned not to place undue reliance on these forward-looking statements , which speak only as of their dates . the company undertakes no obligation to publicly update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . 14 the statements concerning future sales , future gross profit margin and future selling and administrative expenses are forward looking statements involving certain risks and uncertainties such as availability of products , product mix , pricing pressures , market conditions and other factors , which could result in a fluctuation of sales below recent experience . stock volatility . the technology sector of the united states stock markets has experienced substantial volatility in recent periods . numerous conditions which impact the technology sector or the stock market in general or the company in particular , whether or not such events relate to or reflect upon the company 's operating performance , could adversely affect the market price of the company 's common stock . furthermore , fluctuations in the company 's operating results , announcements regarding litigation , the loss of a significant vendor or customer , increased competition , reduced vendor incentives and trade credit , higher postage and operating expenses , and other developments , could have a significant impact on the market price of the company 's common stock . financial overview net sales totaled $ 382.0 million in 2015 as compared to $ 340.8 million in 2014 , representing a 12 % increase . gross profit increased by $ 1.8 million or 7 % in 2015 as compared to 2014. selling , general and administrative ( sg & a ) expenses increased by $ 1.6 million in 2015 as compared to 2014. income from operations amounted to $ 8.5 million in 2015 from $ 8.3 million in 2014 , representing an increase of $ 0.2 million or 3 % as compared to 2014. the increase in income from operations resulted from an increase in gross profit offset by the increase in sg & a expenses . our income before provision for income taxes increased by $ 0.1 million to $ 8.9 million in 2015 compared to $ 8.8 million in 2014. we reported net income of $ 5.8 million for both 2015 and 2014. the company 's sales , gross profit and results of operations have fluctuated and are expected to continue to fluctuate on a quarterly basis as a result of a number of factors , including but not limited to : the condition of the software industry in general , shifts in demand for software products , pricing , level of extended payment terms sales transactions , industry shipments of new software products or upgrades , fluctuations in merchandise returns , adverse weather conditions that affect response , distribution or shipping , shifts in the timing of holidays and changes in the company 's product offerings . the company 's operating expenditures are based on sales forecasts . story_separator_special_tag we plan to continue to expand our investment in information technology and marketing , while monitoring our sales and general and administrative expenses closely . income taxes for the year ended december 31 , 2014 , the company recorded a provision for income taxes of $ 3.0 million which consists of a provision of $ 2.7 million for u.s. federal income taxes , as well as a $ 0.1 million provision for state taxes , and a provision for foreign taxes of $ 0.2 million . the current year effective tax rate was 34.2 % compared to 32.1 % in 2013. the current year effective tax rates are higher primarily due to the fact that the prior year included an adjustment to reflect a change in state apportionment rules . as of december 31 , 2014 , the company had a u.s. deferred tax asset of approximately $ 0.4 million . for the year ended december 31 , 2013 , the company recorded a provision for income taxes of $ 3.0 million which consists of a provision of $ 2.9 million for u.s. federal income taxes , as well as a $ 0.1 million provision for foreign taxes , and a deferred tax expense of $ 0.1 million as of december 31 , 2013 , the company had a u.s. deferred tax asset of approximately $ 0.4 18 recently issued accounting pronouncements in may 2014 , the fasb issued guidance for revenue recognition for contracts , superseding the previous revenue recognition requirements , along with most existing industry-specific guidance . the guidance requires an entity to review contracts in five steps : 1 ) identify the contract , 2 ) identify performance obligations , 3 ) determine the transaction price , 4 ) allocate the transaction price , and 5 ) recognize revenue . the new standard will result in enhanced disclosures regarding the nature , amount , timing and uncertainty of revenue arising from contracts with customers . in august 2015 , the fasb issued asu no . 2015-14 which deferred the effective date of the new standard by one year . along with the deferral of the effective date , asu no . 2015-14 allows early application as of the original effective date . entities are allowed to transition to the new standard by either recasting prior periods or recognizing the cumulative effect as of the beginning of the period of adoption . the standard and related amendments will be effective for the company for its annual reporting period beginning january 1 , 2018 , including interim periods within that reporting period . the company is currently evaluating the newly issued guidance , including which transition approach will be applied and the estimated impact it will have on our consolidated financial statements in july 2015 , the fasb issued accounting standards update no . 2015-11 , simplifying the measurement of inventory ( topic 330 ) , ( asu 2015-11 ) . topic 330 , inventory , currently requires an entity to measure inventory at the lower of cost or market , with market value represented by replacement cost , net realizable value or net realizable value less a normal profit margin . the amendments in asu 2015-11 require an entity to measure inventory at the lower of cost or net realizable value . asu 2015-11 is effective for reporting periods beginning after december 15 , 2016. we do not expect the adoption of this new accounting pronouncement , will have a significant impact on our consolidated financial statements . in november 2015 , the fasb issued accounting standards update 2015-17 ( asu 2015-17 ) to simplify the presentation of deferred taxes . this amendment requires that all deferred tax assets and liabilities , along with any related valuation allowances , be classified as noncurrent on the balance sheet . adoption of this standard is required for annual periods beginning after december 15 , 2016. we do not expect the adoption of asu 2015-17 will have a significant impact on our consolidated financial statements and related disclosures . liquidity and capital resources our cash and cash equivalents increased by $ 0.7 million to $ 23.8 million at december 31 , 2015 from $ 23.1 million at december 31 , 2014. net cash provided by operating activities amounted to $ 8.2 million , net cash used in investing activities amounted to $ 0.2 million , and net cash used in financing activities amounted to $ 7.1 million . net cash provided by operating activities in 2015 was $ 8.2 million . in 2015 , cash was mainly provided by $ 7.3 million from net income including non-cash charges , a $ 1.1 million decrease in accounts receivable , and a $ 0.3 million decrease in accounts payable and accrued expenses prepaid , offset in part by an increase in inventory of $ 0.5 million . in 2015 , net cash used in investing activities was $ 0.2 million . this resulted primarily from $ 0.2 million for the purchase of equipment and leasehold improvements . net cash used in financing activities in 2015 of $ 7.1 million consisted of $ 3.2 million of dividend payments on our common stock and $ 4.6 million for the purchases of treasury shares of our common 19 stock offset by the tax benefit from share based compensation of $ 0.2 million and the exercise of stock options of $ 0.6 million . in 2014 the board of directors authorized the purchase of 500,000 shares of our common stock . in 2008 , the board of directors authorized the purchase of 500,000 shares of our common stock . in 2002 , the board of directors authorized the purchase of 1,490,000 shares of our common stock . in october 1999 , the company was authorized by the board of directors to buy back 521,013 shares of our common stock in both open market and private transactions , as conditions warrant .
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results of operations the following table sets forth for the years indicated the percentage of net sales represented by selected items reflected in the company 's consolidated statements of earnings . the year-to-year comparison of financial results is not necessarily indicative of future results : replace_table_token_5_th 15 year ended december 31 , 2015 compared to year ended december 31 , 2014 net sales net sales for 2015 increased 12 % , or $ 41.2 million to $ 382.0 million in 2015 compared to $ 340.8 million in 2014. total sales for our lifeboat distribution segment in 2015 were $ 339.7 million compared to $ 290.4 million in 2014 , representing a 17 % increase . total sales for the techxtend segment in 2015 amounted to $ 42.4 million , compared to $ 50.3 million in 2014 , representing a 16 % decrease . the 17 % increase in net sales from our lifeboat distribution segment was mainly a result of the addition of several key product lines and our ongoing strategy of strengthening of our account penetration . the 16 % decrease in net sales in the techxtend segment was primarily due to a decrease in both extended payment terms sales transactions and large transactions as compared to the same period in 2014. gross profit gross profit for 2015 was $ 26.6 million compared to $ 24.8 million in 2014 , a 7 % increase . total gross profit for our lifeboat distribution segment in 2015 was $ 21.5 million compared to $ 19.1 million in 2014 , representing a 12 % increase . the increase in gross profit for the lifeboat distribution segment was due to increased sales volume . total gross profit for our techxtend segment in 2015 was $ 5.0 million compared to $ 5.6 million in 2014 , representing a 10 % decrease .
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the allowance for loan losses consists primarily of the following three components : ( 1 ) allowances are established for impaired loans ( generally defined by the company as non-accrual loans , troubled debt restructured loans and loans that were previously classified as troubled debt restructurings but story_separator_special_tag critical accounting policies the preparation of consolidated financial statements in accordance with u.s. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses , and to disclose contingent assets and liabilities . actual results could differ from those estimates . management has identified accounting for the allowance for loan losses , the analysis and valuation of its investment securities and the valuation of deferred tax assets , as the company 's most critical accounting policies and estimates in that they are important to the portrayal of the company 's financial condition and results . they require management 's most subjective and complex judgment as a result of the need to make estimates about the effect of matters that are inherently uncertain . the company 's significant accounting policies are described in note 1 to the consolidated financial statements included in this 2015 annual report on form 10-k. the company has adopted various accounting policies that govern the application of accounting principles generally accepted in the united states of america ( u.s. gaap ) and that are consistent with general practices within the banking industry in the preparation of its financial statements . certain accounting policies involve significant judgments and assumptions by the company that have a material impact on the carrying value of certain assets and liabilities . the company considers these accounting policies to be critical accounting policies . the judgment and assumptions used are based on historical experience and other factors , which are believed to be reasonable under the circumstances . because of the nature of the judgments and assumptions management makes , actual results could differ from these judgments and estimates , which could have a material impact on the carrying values of the company 's assets and liabilities and results of operations . allowance for loan losses . the company maintains an allowance for loan losses at a level management believes is sufficient to absorb estimated credit losses incurred as of the report date . management ' s determination of the adequacy of the allowance is based on periodic evaluations of the loan portfolio and other relevant factors . however , this evaluation is inherently subjective as it requires significant estimates by management . consideration is given to a variety of factors in establishing these estimates including historical losses , peer and industry data , current economic conditions , the size and composition of the loan portfolio , delinquency statistics , criticized and classified assets and impaired loans , results of internal loan reviews , borrowers ' perceived financial and management strengths , the adequacy of underlying collateral , the dependence on collateral , or the strength of the present value of future cash flows and other relevant factors . these factors may be susceptible to significant change . to the extent actual outcomes differ from management estimates , additional provisions for loan losses may be required which may adversely affect the company 's results of operations in the future . subsequent to acquisition of purchased-credit-impaired loans , estimates of cash flows expected to be collected are updated each reporting period based on updated assumptions regarding default rates , loss severities , and other factors that are reflective of current market conditions . subsequent decreases in expected cash flows will generally result in a provision for loan losses . subsequent increases in expected cash flows result in a reversal of the provision for loan losses to the extent of prior charges . unrealized gains and losses on securities available for sale . the company receives estimated fair values of debt securities from independent valuation services and brokers . in developing these fair values , the valuation services and brokers use estimates of cash flows based on historical performance of similar instruments in similar rate environments . debt securities available for sale consist primarily of mortgage-backed securities issued by u.s. government-sponsored agencies . the company uses various indicators in determining whether a security is other-than-temporarily impaired including , for debt securities , when it is probable that the contractual interest and principal will not be collected , or for equity securities , whether the market value is below its cost for an extended period of time with low expectation of recovery . the debt securities are monitored for changes in credit ratings because adverse changes in credit ratings could indicate a change in the estimated cash flows of the underlying collateral or issuer . for marketable equity securities , the company considers the issuer ' s financial condition , capital strength and near term prospects to determine whether an impairment is temporary or other-than-temporary . the company also considers the volatility of a security ' s price in comparison to the market as a whole and any recoveries or declines in fair value subsequent to the balance sheet date . if management determines that the impairment is other-than-temporary , the entire amount of the impairment as of the balance sheet date is recognized in earnings even if the decision to sell the security has not been made . the fair value of the security becomes the new amortized cost basis of the investment and is not adjusted for subsequent recoveries in fair value.the unrealized losses associated with available-for-sale debt securities were not considered to be other-than-temporarily impaired as of december 31 , 2015 and 2014 because the unrealized losses were related to changes in interest rates and did not affect the expected cash flows of the underlying collateral or issuer . story_separator_special_tag the overall credit quality of the loan portfolio , continues to be strong and stable . based upon the overall assessment and evaluation of the loan portfolio at december 31 , 2015 , management believes the allowance for loan losses of $ 5.2 million , which represents 1.08 % of gross loans outstanding , is adequate under prevailing economic conditions to absorb existing losses in the loan portfolio . at december 31 , 2014 , the allowance for loan losses was $ 4.9 million , or 1.03 % , of gross loans outstanding . analysis of allowance for loan losses replace_table_token_7_th 24 allocation of the allowance for loan losses replace_table_token_8_th non-accrual , past due and restructured loan s the accrual of interest on loans is discontinued at the time the loan is 90 days past due for payment unless the loan is well-secured and in process of collection . consumer installment loans are typically charged off no later than 180 days past due . past due status is based on contractual terms of the loan . in all cases , loans are placed on non-accrual status or charged-off at an earlier date if collection of principal or interest is considered doubtful . all interest accrued but not collected for loans that are placed on non-accrual status or charged off is reversed against interest income . the interest on these loans is accounted for on the cash-basis method until qualifying for return to accrual status . loans are returned to accrual status when all the principal and interest amounts contractually due are brought current , future payments are reasonably assured , and there is 6 months of performance . management considers all non-accrual loans and troubled debt restructurings to be impaired . in most cases , loan payments that are past due less than 90 days , based on contractual terms , are considered collection delays and the related loans are not considered to be impaired . the bank considers consumer installment loans to be pools of smaller balance homogeneous loans , which are collectively evaluated for impairment . 25 the following table is a summary of non-accrual and accruing loans which were past due by over 90 days at the end of each of the last five years . replace_table_token_9_th non-accrual loans increased from $ 0.9 million at december 31 , 2014 to $ 1.6 million at december 31 , 2015. the $ 1.6 million of non-performing loans was comprised of 3 borrowers at december 31 , 2015 , compared to 4 borrowers at december 31 , 2014. one loan of $ 0.3 million which had been non-accrual at december 31 , 2014 subsequently paid off in february 2015. included in loans receivable are loans for which the accrual of interest income has been discontinued due to deterioration in the financial condition of the borrowers . the recorded balance of these nonaccrual loans was $ 1.6 million and $ 866,000 at december 31 , 2015 , and december 31 , 2014 respectively . generally , loans are placed on non-accruing status when they become 90 days or more delinquent , and remain on non-accrual status until they are brought current , have six months of performance under the loan terms , and factors indicating reasonable doubt about the timely collection of payments no longer exist . therefore , loans may be current in accordance with their loan terms , or may be less than 90 days delinquent and still be on a non-accruing status . additionally , certain loans that can not demonstrate sufficient global cash flow to continue loan payments in the future and certain troubled debt restructures ( tdrs ) are placed on non-accrual status . loans past due ninety days or more , and still accruing interest , were $ 2.0 million and $ 279,000 at december 31 , 2015 , and december 31 , 2014 respectively . loans over 90 days past due were comprised of eight loans as of december 31 , 2015. four loans were commercial loans with matured lines of credit with acceptable risk ratings awaiting renewal . two loans were residential real estate loans and remaining two were credit card loans with acceptable risk rating . loans over 90 days past due were comprised of four commercial loans as of december 31 , 2014. all four loans were matured lines of credit with acceptable risk ratings awaiting renewal . these loans were past the loan 's maturity date and were current within 60 days as to interest payments . 26 other real estate owned there was no other real estate owned at december 31 , 2015 and december 31 , 2014. during the twelve months ended december 31 , 2015 , there was no oreo activity . during the twelve months ended december 31 , 2014 , one oreo property was foreclosed , and subsequently sold . deferred taxes the determination of the amount of deferred tax assets which are more likely than not to be realized is primarily dependent on projections of future earnings , which are subject to uncertainty and estimates that may change given economic conditions and other factors . a valuation allowance related to deferred tax assets is required when it is considered more likely than not that all or part of the benefit related to such assets will not be realized . the valuation allowance is analyzed quarterly for changes affecting the deferred tax asset . in september 2014 , the company released $ 16.8 million , or 96.7 % , of the valuation allowance previously recorded on its net deferred tax asset . after weighing all the evidence , management determined that it was more likely than not that the bank would be able to realize substantially all of its deferred tax asset and , therefore , the valuation allowance on that portion was no longer required .
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results of operations comparison of results of operations for the years 201 5 and 201 4 for the year ended december 31 , 2015 , the company recorded net income of $ 2.1 million ( $ .55 per share ) compared to a net income of $ 15.7 million ( $ 4.08 per share ) for the year ended december 31 , 2014. income before income tax expense was $ 3.5 milllion , an increase of $ 2.5 million compared to income before income tax expense of $ 1.0 million in 2014 . ● net interest income increased $ 3.7 million ● provision for loan losses increased $ 250,000 ● non-interest income decreased $ 281,000 ● non-interest expense increased $ 580,000 the positive results for 2015 were the company 's second consecutive year of net profitability since 2007 and was primarily due to balance sheet and operational restructuring initiatives implemented during 2013 , 2014 and 2015 by the new executive management team . these initiatives included : ● prepayment of high cost borrowings and replacement with borrowings at significantly lower rates . ● strategic repricing of deposits ● streamlining of branch and back office operations and exiting the residential lending business , resulting in non-interest expense reductions . ● negotiating vendor price concessions . ● purchasing three branch buildings where the cost of the leases exceeded the cost to own the properties . the company 's improved earnings and balance sheet resulting from the initiatives noted and continued drive for efficiencies enabled the company to recognize a $ 16.8 million income tax benefit in the third quarter of 2014 via reversal of most of the valuation allowance against its deferred tax asset ( “ dta ” ) . recognition of the dta increased regulatory capital , enabling the company to increase its asset base .
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however , this exception was repealed in the tax reform legislation signed into law on december 22 , 2017. as a result , it is uncertain whether compensation that the compensation committee intended to structure as performance-based compensation under section 162 ( m ) will be deductible in the future . non-qualified deferred compensation . on october 22 , 2004 , the american jobs creation act of 2004 was signed into law , changing the tax rules applicable to non-qualified deferred compensation arrangements . we believe we are in compliance with the statutory provisions which were effective january 1 , 2005 and the regulations which became effective on january 1 , 2009. if such compensation does story_separator_special_tag the following is a discussion of our consolidated financial condition , results of operations , liquidity and capital resources . this discussion should be read in conjunction with our consolidated financial statements and the notes thereto . see “ financial statements and supplementary data ” in item 8. general we are an independent energy company primarily engaged in the acquisition , exploration , exploitation , development and production of oil and gas in the united states . historically , we have grown through the acquisition and subsequent development and exploitation of producing properties , principally through the redevelopment of old fields utilizing new technologies such as modern log analysis and reservoir modeling techniques as well as 3-d seismic surveys and horizontal drilling . as a result of these activities , we believe that we have a number of development opportunities on our properties . in addition , we intend to expand upon our development activities with complementary acreage acquisitions in our core areas of operation . success in our development and exploration activities is critical in the maintenance and growth of our current production levels and associated reserves . our financial results depend upon many factors which significantly affect our results of operations including the following : commodity prices and the effectiveness of our hedging arrangements ; the level of total sales volumes of oil and gas ; the availability of and our ability to raise additional capital resources and provide liquidity to meet cash flow needs ; the level of and interest rates on borrowings ; and the level and success of exploration and development activity . commodity prices and hedging arrangements . the results of our operations are highly dependent upon the prices received for our oil and gas production . the prices we receive for our production are dependent upon spot market prices , differentials and the effectiveness of our derivative contracts , which we sometimes refer to as hedging arrangements . substantially all of our sales of oil and gas are made in the spot market , or pursuant to contracts based on spot market prices , and not pursuant to long-term , fixed-price contracts . accordingly , the prices received for our oil and gas production are dependent upon numerous factors beyond our control . significant declines in prices for oil and gas could have a material adverse effect on our financial condition , results of operations , cash flows and quantities of reserves recoverable on an economic basis . oil and gas prices have been volatile , and this volatility is expected to continue . as a result of the many uncertainties associated with the world political environment , worldwide supplies of oil , ngl and gas , the availability of other worldwide energy supplies and the relative competitive relationships of various energy sources in the view of consumers , we are unable to predict what changes may occur in oil , ngl , and gas prices in the future . the market price of oil , ngl and gas in 2021 will impact the amount of cash generated from operating activities , which will in turn impact our financial position . as of april 30 , 2021 , the nymex oil and gas price was $ 63.58 per bbl of oil and $ 2.93 per mcf of gas , respectively . during 2020 , the nymex future price for oil averaged $ 39.57 per barrel as compared to $ 57.05 per barrel in 2019 and the nymex future spot price for gas averaged $ 2.13 per mcf compared to $ 2.53 per mcf in 2019. prices closed on december 31 , 2020 at $ 48.52 per bbl of oil and $ 2.13 per mcf of gas . if commodity prices decline from these levels , our revenue and cash flows from operations will also likely decline . in addition , lower commodity prices could also reduce the amount of oil and gas that we can produce economically . if oil and gas prices decline , our revenues , profitability and cash flows from operations will also likely decrease which could cause us to alter our business plans , including reducing our drilling activities . such declines will require us to write down the carrying value of our oil and gas assets which will also cause a reduction in net income . the realized prices that we receive for our production differ from nymex futures and spot market prices , principally due to : basis differentials which are dependent on actual delivery location ; adjustments for btu content ; quality of the hydrocarbons ; and gathering , processing and transportation costs . the following table sets forth our average differentials for the years ended december 31 , 2019 and 2020 : replace_table_token_12_th _ ( 1 ) average realized prices are before the impact of hedging activities . the company 's derivative contracts as of december 31 , 2020 and december 31 , 2019 consisted of nymex-based fixed price swaps and basis differential swaps . under fixed price swaps , we receive a fixed price for our production and pay a variable market price to the contract counter-party . story_separator_special_tag due to declines in oil prices , we suspended our planned capital expenditures for 2020. this suspension of our capital expenditure budget is subject to change depending upon a number of factors , including the availability and costs of drilling and service equipment and crews , economic and industry conditions at the time of drilling , prevailing and anticipated prices for oil and gas , the availability of sufficient capital resources the results of our exploitation efforts , our financial results and our ability to obtain permits for drilling locations . the following table presents historical net production volumes for the years ended december 31 , 2019 and 2020 : replace_table_token_14_th availability of capital . as described more fully under “ liquidity and capital resources ” below , our sources of capital are cash flows from operating activities , cash on hand , proceeds from the sale of properties , monetizing of derivative instruments , and if an appropriate opportunity presents itself , the sale of debt or equity securities , although we may not be able to complete any financing on terms acceptable to us , if at all . our credit facilities were amended in june 2020 and the borrowing base under our first lien credit facility was reduced to the then outstanding balance of $ 102.0 million , resulting in no additional availability , additionally , any excess cash , as defined in the first lien credit facility , will be applied to the outstanding balance on a monthly basis , and the borrowing base will be reduced to the new outstanding balance . 39 borrowings and interest . at december 31 , 2020 , we had a total of $ 95.0 million outstanding under our first lien credit facility , $ 112.7 million under our second lien credit facility , and total indebtedness of $ 220.5 million , including a $ 10.0 million exit fee . as of april 30 , 2021 , we had a total of $ 89.5 million outstanding under our first lien credit facility , $ 127.2 million under our second lien credit facility , including a $ 10.0 million exit fee , and total indebtedness of $ 219.4 million . if interest expense increases as a result of higher interest rates or increased borrowings , more cash flow from operations would be used to meet debt service requirements . as a result , we would need to increase our cash flow from operations in order to fund the development of our drilling opportunities which , in turn , will be dependent upon the level of our production volumes and commodity prices . exploration and development activity . we believe that our asset base , high degree of operational control and inventory of drilling projects position us for future growth . at december 31 , 2020 , we operated properties comprising approximately 97 % of the boe 's of our estimated net proved reserves , giving us substantial control over the timing and incurrence of operating and capital expenditures . we have identified numerous additional drilling locations on our existing leaseholds , the successful development of which we believe could significantly increase our production and proved reserves . over the five years ended december 31 , 2020 , we drilled or participated in 92 gross ( 42.8 net ) wells all of which were commercially productive . the amendments to our first lien credit facility and second lien credit facility place severe restrictions on our future capital expenditures . we have suspended any planned drilling activity for 2021 indefinitely . our future oil and gas production , and therefore our success , is highly dependent upon our ability to find , finance , acquire and develop additional reserves that are profitable to produce . the rate of production from our oil and gas properties and our proved reserves will decline as our reserves are produced unless we acquire additional properties containing proved reserves , conduct successful development and exploration activities or , through engineering studies identify additional behind-pipe zones or secondary recovery reserves . we can not assure you that our exploration and development activities will result in increases in our proved reserves . if our proved reserves decline in the future , our production may also decline and , consequently , our cash flows from operations will decline . we may be unable to acquire or develop additional reserves , in which case our results of operations and financial condition could be adversely affected . story_separator_special_tag margin : 0pt ; text-align : justify ; text-indent : 27pt ; ' > income taxes . due to losses in the periods and loss carry forwards , we did not recognize any income tax expense for the years ended december 31 , 2020 and 2019 . ( gain ) loss on derivative contracts . derivative gains or losses are determined by actual derivative settlements during the period and by periodic mark to market valuation of derivative contracts in place . we have elected not to apply hedge accounting to our derivative contracts as prescribed by accounting standards codification 815 , derivatives and hedging `` asc 815 '' ; therefore , fluctuations in the market value of the derivative contracts are recognized in earnings during the current period . our derivative contracts consisted of fixed price swaps and basis differential swaps in 2020 and 2019. the net estimated value of our commodity derivative contracts was an asset of approximately $ 19.4 million as of december 31 , 2020. when our derivative contract prices are higher than prevailing market prices , we recognize gains and conversely , when our derivative contract prices are lower than prevailing market prices , we incur losses . for the year ended december 31 , 2020 , we incurred a gain of $ 42.9 million , consisting of a gain of $ 17.5 million on closed contracts and a gain of $ 25.4 million on the mark to market valuation on open contracts .
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results of operations selected operating data . not required for smaller reporting company . comparison of year ended december 31 , 2020 to year ended december 31 , 2019 revenue . during the year ended december 31 , 2020 , revenue decreased to $ 43.0 million from $ 129.1 million in 2019. the decrease in revenue was primarily due to lower sales volumes and lower prices for all products in 2020 . lower sales volumes were the result of our decision to shut-in a significant amount of our production in mid-march as a result of the drastic price drop in early march due predominantly to the covid 19 pandemic as well as geopolitical issues impacting supply and demand lower commodity prices negatively impacted revenue by $ 18.5 million , while lower sales volumes had a negative impact on revenue of $ 67.5 million . during 2020 we experienced a decrease in the average realized oil price of approximately 29 % from 2019 levels . average realized gas prices decreased by approximately 57 % and average realized ngl prices decreased by approximately 75 % from 2019 levels . oil sales volumes decreased to 1,133 mbbls for the year ended december 31 , 2020 from 2,388 mbbls for the same period of 2019. the decrease in oil sales volumes was primarily due to wells being shut in for most of the second quarter of 2020 due to severely depressed prices . we started bringing the shut in wells back on production in june , and had a majority of such wells back on production by early september .
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the new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services . the company adopted asc 606 on january 1 , 2018 under the modified retrospective method . the modified retrospective method requires that the cumulative effect of initially applying asc 606 be recognized as an adjustment to the opening balance of retained earnings or accumulated deficit of the annual period that includes the date of initial application . the company did not have any arrangements that were story_separator_special_tag financial condition and results of operations overview you should read the following discussion and analysis of our financial condition and results of operations together with our “ selected consolidated financial data ” and our consolidated financial statements and the related notes included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . as a result of many factors , including those factors set forth in the “ risk factors ” section of this annual report on form 10-k , our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a late-stage , clinical biopharmaceutical company dedicated to developing and commercializing first-in-class , oral enzyme therapeutics to treat patients with rare and severe metabolic and kidney disorders . we are focused on metabolic disorders that result in excess accumulation of certain metabolites that can cause kidney stones , damage the kidney , and potentially lead to chronic kidney disease , or ckd , and end-stage renal disease . our lead product candidate , reloxaliase ( formerly known as alln-177 ) , is a first-in-class , oral enzyme therapeutic that we are developing for the treatment of hyperoxaluria , a metabolic disorder characterized by markedly elevated urinary oxalate levels and commonly associated with kidney stones , ckd and other serious kidney diseases . there are currently no approved therapies for the treatment of hyperoxaluria . we have conducted a robust clinical development program of reloxaliase , including three phase 2 clinical trials , which demonstrated reductions of urinary oxalate excretion in patients with secondary hyperoxaluria , particularly in patients with enteric hyperoxaluria . reloxaliase has also been well tolerated in clinical trials to date . based on these data , the high unmet medical need , the enzyme ' s specific mechanism of action , and the significant market opportunity , we are initially developing reloxaliase for adult patients with enteric hyperoxaluria . in march 2018 , we initiated urirox-1 tm ( urirox-1 ) ( formerly study 301 ) , the first of our two anticipated phase 3 clinical trials in support of our planned biologic license application , or bla , for reloxaliase in patients with enteric hyperoxaluria . based on our enrollment progress to date , we expect to announce topline data from this trial in the second half of 2019. in the fourth quarter of 2018 , we initiated urirox-2 ( formerly study 302 ) , our second pivotal phase 3 trial of reloxaliase in patients with enteric hyperoxaluria . the fda has advised us that it agrees with our strategy to pursue a bla submission for reloxaliase using the accelerated approval regulatory pathway . we expect to submit a bla filing to the fda after 400 patients have been randomized and followed for six months in urirox-2 . for the long-term follow-up phase of the trial , subjects would continue in urirox-2 for a minimum treatment period of two years to confirm clinical benefit post-approval . in addition to our phase 3 program of reloxaliase for enteric hyperoxaluria , we are also evaluating reloxaliase in study 206 , a phase 2 basket trial in adults and adolescents with primary hyperoxaluria or enteric hyperoxaluria with hyperoxalemia , which we initiated in march 2018. we expect to announce interim data from study 206 in the second quarter of 2019 and topline data from this trial in the second half of 2019. in addition , we have designed our second product candidate , alln-346 , an orally administered , novel , urate degrading enzyme , for patients with hyperuricemia and gout in the setting of advanced ckd . hyperuricemia , or elevated levels of uric acid in the blood , results from overproduction or insufficient excretion of urate , or often a combination of the two . alln-346 has demonstrated a robust reduction in both plasma and urine uric acid levels in an established urate oxidase knock-out mouse model , a severe animal model of hyperuricemia with advanced ckd and kidney damage due to urate crystal deposition . we presented preclinical data for alln-346 in october at the 2018 american college of rheumatology ( acr/arhp ) annual meeting . we are advancing our preclinical program for alln-346 and scaling our manufacturing processes for clinical studies . subject to the successful completion of these activities , we expect to file an ind for alln-346 with the fda in the second half of 2019 and to initiate our first clinical trial of alln-346 in patients with hyperuricemia in the first half of 2020. on november 6 , 2017 , we completed our ipo , in which we issued and sold 5,333,333 shares of our common stock at a public offering price of $ 14.00 per share , for aggregate gross proceeds of $ 74.7 million . the underwriters partially exercised their over-allotment option on december 1 , 2017 , and purchased 16,969 shares of our common stock , for aggregate gross 90 proceeds of $ 0.2 million . story_separator_special_tag nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized , even when there is no alternative future use for the research and development . the capitalized amounts are expensed as the related goods are delivered or the services are performed . the following summarizes our most advanced current research and development programs : reloxaliase is our lead product candidate which we are developing for the treatment of hyperoxaluria . substantially all of our research and development costs to date have been used to fund this program . alln-346 is our second product candidate which we are developing for patients with hyperuricemia and ckd . we began incurring external research and development costs for this program in 2016. we typically use our employee and infrastructure resources across our development programs . we track outsourced development costs by product candidate or development program , but we do not allocate personnel costs and other internal costs to specific product candidates or development programs . the following table summarizes our research and development expenses by program ( in thousands ) : replace_table_token_3_th research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages , primarily due to the increased size and duration of later-stage clinical trials . since inception , we have incurred $ 65.0 million of external research and development 92 costs for reloxaliase and $ 2.4 million of external research and development costs for alln-346 . we expect that our research and development costs will continue to increase for the foreseeable future as we initiate additional clinical trials of reloxaliase , scale our manufacturing processes and advance development of alln-346 . the successful development of reloxaliase , alln-346 and other potential future product candidates is highly uncertain . accordingly , at this time , we can not reasonably estimate or know the nature , timing and costs of the efforts that will be necessary to complete the development of these product candidates . we are also unable to predict when , if ever , we will generate revenue and material net cash inflows from the commercialization and sale of any of our product candidates for which we may obtain marketing approval . we may never succeed in achieving regulatory approval for any of our product candidates . the duration , costs and timing of preclinical studies , clinical trials and development of our product candidates will depend on a variety of factors , including : successful enrollment in , and completion of , clinical trials for reloxaliase ; successful data from our clinical program of reloxaliase that supports an acceptable benefit-risk profile of reloxaliase in the intended populations ; establishing an appropriate safety profile for alln-346 and any potential future product candidate with studies to enable the filing of an investigational new drug application ; approval of inds for alln-346 and any potential future product candidate to commence planned or future clinical trials ; significant and changing government regulation and regulatory guidance ; timing and receipt of marketing approvals from applicable regulatory authorities ; making arrangements with cmos for third-party commercial manufacturing of our product candidates ; obtaining and maintaining patent and other intellectual property protection and regulatory exclusivity for our product candidates ; commercializing the product candidates , if and when approved , whether alone or in collaboration with others ; acceptance of the product , if and when approved , by patients , the medical community and third-party payors ; and maintenance of a continued acceptable safety profile of the drugs following approval . a change in the outcome of any of these variables with respect to the development , manufacture or commercialization enabling activities of any of our product candidates could mean a significant change in the costs , timing and viability associated with the development of that product candidate . general and administrative expenses general and administrative expenses consist primarily of salaries and other related costs , including stock-based compensation , for personnel in executive , finance , accounting , business development and human resources functions . other significant costs include facility costs not otherwise included in research and development expenses , legal fees relating to patent and corporate matters and professional fees for accounting , auditing , tax and consulting services . we expect that our general and administrative expenses will increase in the future to support continued research and development activities and potential commercialization of our product candidates . these increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants , attorneys and accountants , among other expenses . interest income ( expense ) , net interest income ( expense ) , net , primarily consists of interest income earned on our cash and cash equivalents , interest expense incurred on our credit facilities , amortized debt discount related to the fair value of the warrants issued in conjunction with the advances under our former credit facility with silicon valley bank , or svb related debt issuance costs . 93 other income ( expense ) , net other income ( expense ) , net , primarily consists of gain ( loss ) on foreign currency transactions and non-cash changes in the fair value of warrants issued in connection with our former credit facility with svb . the warrants converted upon the closing of our ipo and therefore became exercisable into common stock instead of convertible preferred stock . the warrants for the purchase of common stock met the criteria to be classified in stockholders ' equity and the fair value of the warrant liability as of the ipo date was reclassified to stockholders ' equity ( deficit ) . as a result , we will no longer recognize any changes to the fair value of the warrants through other income ( expense ) .
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results of operations comparison of years ended december 31 , 2018 and 2017 the following table summarizes our results of operations for the years ended december 31 , 2018 and 2017 ( in thousands ) : replace_table_token_6_th research and development expenses research and development expense increased by $ 10.9 million from $ 15.5 million for the year ended december 31 , 2017 to $ 26.4 million for the year ended december 31 , 2018. the following table summarizes our research and development expenses for the years ended december 31 , 2018 and 2017 ( in thousands ) : replace_table_token_7_th the $ 10.9 million increase in research and development expense was primarily attributable to the following : our clinical development external costs increased by $ 6.6 million from $ 4.1 million for the year ended december 31 , 2017 to $ 10.7 million for the year ended december 31 , 2018 : we initiated our urirox-1 study during the first quarter of 2018. expenses for this study were $ 6.6 million for the year ended december 31 , 2018 ; we also initiated our 206 study during the first quarter of 2018 and incurred $ 1.6 million of costs for this study during the year ended december 31 , 2018 ; we initiated our urirox-2 study during the fourth quarter of 2018. we began preparation and start-up activities for this study during the second quarter of 2018 and incurred $ 1.5 million of costs relating to this study during the year ended december 31 , 2018 ; and the increase in costs due to our urirox-1 study , urirox-2 study and 206 study was partially offset by costs incurred during the year ended december 31 , 2017 , for which there were no comparable costs during the year ended december 31 , 2018. we incurred $ 1.9 million of costs during the year ended december 31 , 2017 on the closeout of our 713 and
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the following discussion of our financial condition and results of operations in conjunction with our audited consolidated financial statements and the notes thereto included in this form 10-k. all per share amounts , common units and shares outstanding and stock-based compensation amounts for all periods presented reflect our one-for-eight reverse stock split , which was effective at approximately 5:00 pm eastern time on march 31 , 2017 ( the `` effective time '' ) . for more detailed information regarding the basis of presentation for the following information , you should read the notes to the audited consolidated financial statements included in this form 10-k. company overview we are a maryland corporation formed with the principle objective of acquiring , financing , developing , leasing , owning and managing income producing , strip centers , neighborhood centers , grocery-anchored centers , community centers and free-standing retail properties . our strategy is to opportunistically acquire quality , well-located , predominantly retail properties in secondary and tertiary markets that generate attractive risk-adjusted returns . we generally target competitively protected properties located within developed areas , commonly referred to as in-fill , that possess minimal competition risk and are surrounded by communities that have strong demographics and dynamic , diversified economies that will continue to generate jobs and future demand for commercial real estate . our primary target markets include the northeast , mid-atlantic , southeast and southwest . our portfolio is comprised of fifty-nine retail shopping centers , five free-standing retail properties , our office building , seven undeveloped land parcels , and one redevelopment project . fifteen of these properties are located in virginia , three are located in florida , seven are located in north carolina , twenty-five are located in south carolina , twelve are located in georgia , two are located in kentucky , two are located in tennessee , one is located in new jersey , three are located in oklahoma , one is located in alabama , one is located in west virginia and one is located pennsylvania . our operating portfolio has a total gross leasable area ( `` gla '' ) of 4,902,381 square feet and an occupancy level of approximately 91.93 % . recent trends and activities there have been several significant events in 2017 that have impacted our company . these events are summarized below . 2017 dispositions on june 27 , 2017 , the company completed the sale of the 2.14 acre land parcel at carolina place for a contract price of $ 250 thousand , resulting in a loss of $ 12 thousand with net proceeds of $ 238 thousand . on june 26 , 2017 , the company completed the sale of the steak n ' shake , a 1.06 acre outparcel at rivergate , for a contract price of approximately $ 2.25 million , resulting in a gain of $ 1.03 million with net proceeds of $ 2.18 million . the sales of the steak n ' shake outparcel at rivergate and the land parcel at carolina place do not represent a strategic shift that has a major effect on the company 's financial position or results of operations . accordingly , the operating results of these properties remains classified within continuing operations for all periods presented . on february 28 , 2017 , the company completed its sales of ruby tuesday 's and outback steakhouse at pierpont centre for a contract price of approximately $ 2.29 million , resulting in a gain of $ 1.50 million . the company has defeased the $ 1.69 million loan payable at a cost of $ 223 thousand . the operating results of these properties are classified as discontinued operations for all period presented as they reflect the execution of our strategy of acquiring multi-tenant properties , monetizing core-assets and using proceeds to re-invest in our specialized markets . 45 financing activities key bank credit agreement on august 7 , 2017 , the company executed a third amendment ( the `` third amendment '' ) to the keybank credit agreement ( the `` credit agreement '' ) . the third amendment changed the interest payment date to the first day of each calendar month and decreased the total commitment on the revolving credit line by $ 25.00 million to $ 50.00 million effective october 7 , 2017. the company and keybank agreed shoppes at myrtle park shall continue to be included in the calculation of the borrowing base availability ( as defined in the credit agreement ) through december 21 , 2017. on october 6 , 2017 , the company executed a fourth amendment to the credit agreement ( the `` fourth amendment '' ) . the fourth amendment provided for a sixty day extension from october 7 , 2017 to december 6 , 2017 upon which the $ 75.00 million total commitment on the revolving credit line was to decrease to $ 50.00 million . on december 21 , 2017 , the company entered into an amended and restated credit agreement to the credit agreement ( the “ amended and restated credit agreement ” ) . the amended and restated credit agreement provides for an increase in borrowing capacity from $ 50.00 million to $ 52.50 million and also increases the accordion feature by $ 50.00 million to $ 150.00 million . additionally , the amended and restated credit agreement provides for an extension of the requirement to reduce the outstanding borrowings under the facility from $ 68.03 million to $ 52.50 million by july 1 , 2018. the revolving facility will mature on december 21 , 2019 , but may be extended at the company 's option for an additional one-year period , subject to certain customary conditions . the interest rate remains the same at libor plus 250 basis points based on the company 's consolidated leverage ratio ( as defined in the amended and restated credit agreement ) . story_separator_special_tag the company has fully reserved $ 390 thousand in amounts due from sea turtle development for these services at december 31 , 2017. the determination to fully reserve amounts due from sea turtle development and recognize a note impairment are a result of uncertainty surrounding the recoverability of those amounts . as of december 31 , 2017 , the company believes the estimated fair market value of the development at stabilization at a future date will not provide for the cash required to repay 47 the entire note receivable due the company in the event of a sale . the company 's estimated fair value of the project is based upon cash flow models that include development costs to date , anticipated cost to complete , executed leases , and financing available to complete and stabilize the project . capitalization rates utilized in these models are based upon rates that the company believes to be within a reasonable range of current market rates for the respective project . the notes are collateralized by a 2 nd deed of trust on the property . if the holder of the 1st deed of trust proceeds to foreclosure , this may have an adverse effect on assumptions used in the company 's fair value analysis leading to further impairment . other related party receivables the company has reserved $ 636 thousand of amounts due from non-reit properties for asset management and lease commissions based on available cash flows at the respective properties and payment history . new leases , leasing renewals and expirations the following table presents selected lease activity statistics for our properties . replace_table_token_19_th anchor lease modifications in september 2017 , the company modified leases with two anchor tenants . the lease modifications include a reduction of lease term from 2028 to 2023 on 34,264 square feet and no change in the 2018 lease expiration term on 33,218 square feet . the overall weighted average base rent reduction is $ 5.59 per square foot . 48 funds from operations we use ffo , a non-gaap measure , as an alternative measure of our operating performance , specifically as it relates to results of operations and liquidity . we compute ffo in accordance with standards established by the board of governors of nareit in its march 1995 white paper ( as amended in november 1999 and april 2002 ) . as defined by nareit , ffo represents net income ( computed in accordance with gaap ) , excluding gains ( or losses ) from sales of property , plus real estate related depreciation and amortization ( excluding amortization of loan origination costs ) and after adjustments for unconsolidated partnerships and joint ventures . most industry analysts and equity reits , including us , consider ffo to be an appropriate supplemental measure of operating performance because , by excluding gains or losses on dispositions and excluding depreciation , ffo is a helpful tool that can assist in the comparison of the operating performance of a company 's real estate between periods , or as compared to different companies . management uses ffo as a supplemental measure to conduct and evaluate our business because there are certain limitations associated with using gaap net income alone as the primary measure of our operating performance . historical cost accounting for real estate assets in accordance with gaap implicitly assumes that the value of real estate assets diminishes predictably over time , while historically real estate values have risen or fallen with market conditions . accordingly , we believe ffo provides a valuable alternative measurement tool to gaap when presenting our operating results . critical accounting policies the following discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements included in this form 10-k , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses . on an on-going basis , we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . the critical accounting policies summarized in this section are discussed in further detail in the notes to the financial statements appearing elsewhere in this form 10-k. we believe that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about our operating results and financial condition . revenue recognition principal components of our total revenues include base and percentage rents and tenant reimbursements . we accrue minimum ( base ) rent on a straight-line basis over the terms of the respective leases which results in an unbilled rent asset or deferred rent liability being recorded on the balance sheet . certain lease agreements contain provisions that grant additional rents based on tenants ' sales volumes ( contingent or percentage rent ) which we recognize when the tenants achieve the specified targets as defined in their lease agreements . we periodically review the valuation of the asset/liability resulting from the straight-line accounting treatment of our leases in light of any changes in lease terms , financial condition or other factors concerning our tenants . rents and other tenant receivables we record a tenant receivable for amounts due from tenants such as base rents , tenant reimbursements and other charges allowed under the lease terms . we periodically review tenant receivables for collectability and determine the need for an allowance for the uncollectible portion of accrued rents and other accounts receivable based upon customer creditworthiness ( including expected recovery of a claim with respect to any tenants in bankruptcy ) , historical bad debt levels and current economic trends .
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results of operations the following table presents a comparison of the consolidated statements of operations for the years ended december 31 , 2017 and 2016 , respectively ( in thousands , except property data ) . replace_table_token_23_th ( 1 ) excludes the undeveloped land parcels and riversedge north , our corporate headquarters , and the redevelopment property . includes assets held for sale . 54 total revenue total revenue was $ 58.54 million for the year ended december 31 , 2017 compared to $ 44.16 million for the year ended december 31 , 2016 , a $ 14.38 million increase . the increase in rental revenues and tenant reimbursements of $ 13.37 million is attributable to a full period of operations reported for the twenty-three retail acquisitions made during the year ended december 31 , 2016. the increase in development income and other revenues is due to $ 293 thousand of incremental development fees for the sea turtle development along with $ 701 thousand of incremental lease termination fees , of which $ 460 thousand is a result of the bi-lo closure at shoppes at myrtle park . total operating expenses total operating expenses for the year ended december 31 , 2017 were $ 57.99 million , representing an increase of $ 13.54 million over the year ended december 31 , 2016. total operating expenses increased due to a non-cash impairment charge of $ 5.26 million on notes receivable to sea turtle development along with an increase of $ 2.40 million in provision for credit losses primarily attributable to sea turtle development and other related party receivables . overall increases of $ 5.59 million were noted in depreciation and amortization and $ 3.49 million in property operations resulting from the additional expenses associated with the twenty-three retail properties acquired in 2016. these amounts were offset by a decrease of $ 2.56 million in general and administrative expenses .
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rental increases based on the change in the cpi are contingent and accounted for prospectively . following is a summary of future minimum payments under operating leases that have initial or remaining story_separator_special_tag the following discussion is intended to assist in the understanding of our results of operations and our present financial condition . the consolidated financial statements and the accompanying notes contain additional detailed information that should be referred to when reviewing this material . statements in this discussion may be forward-looking . such forward-looking statements involve risks and uncertainties that could cause actual results to differ significantly from those expressed . see forward looking statements section preceding item 1 , business . overview of our business monarch casino & resort , inc. , was incorporated in 1993 and through its wholly-owned subsidiary , golden road motor inn , inc. ( golden road ) , owns and operates the atlantis casino resort spa , a hotel/casino facility in reno , nevada ( the atlantis ) . monarch 's wholly owned subsidiaries , high desert sunshine , inc. ( high desert ) , golden east , inc. ( golden east ) and golden north , inc. ( golden north ) , each own separate parcels of land located proximate to the atlantis . monarch 's wholly owned subsidiary monarch growth inc. ( monarch growth ) , formed in 2011 , acquired riviera black hawk , inc. , owner of the riviera black hawk casino on april 26 , 2012. riviera black hawk , inc. was renamed monarch casino black hawk , inc. and riviera black hawk casino was renamed monarch casino black hawk in october 2013. monarch growth also owns a parcel of land in black hawk , colorado contiguous to the monarch casino black hawk . in addition to owning the monarch casino black hawk , monarch black hawk , inc. also wholly owns chicago dogs eatery , inc. and monarch promotional association both of which were formed related to extended licensure for extended hours of liquor operation in black hawk . the company has included the results of monarch black hawk , inc. in its consolidated financial statements since the date of acquisition . monarch 's wholly owned subsidiary monarch interactive , inc. ( monarch interactive ) received approval from the nevada gaming commission on august 23 , 2012 , which approval was extended three times , each for an additional six-month period , for a license as an operator of interactive gaming . the company has decided to allow the current approval to lapse pending a change in market conditions that would support the company 's investment in this line of business . monarch interactive is not currently engaged in any operating activities . in nevada , legal interactive gaming is currently limited to intrastate poker . our operating assets are the atlantis and the monarch casino black hawk . our business strategy is to maximize revenues , operating income and cash flow primarily through our casino , food and beverage operations and at the atlantis , our hotel operations . the monarch casino black hawk does not have a hotel ; however , we are in the process of renovations that will include a hotel . see item 1 , business - the monarch casino black hawk. we focus on delivering exceptional service and value to our guests . our hands-on management style focuses on customer service and cost efficiencies . unless otherwise indicated , monarch , company , we , our and us refer to monarch casino & resort , inc. and its subsidiaries . operating results summary our operating results may be affected by , among other things , competitive factors , gaming tax increases , the commencement of new gaming operations , construction at our facilities , general public sentiment regarding travel , overall economic conditions and governmental policies affecting the disposable income of our patrons and weather conditions affecting our properties , as well as those matters discussed in item 1a . risk factors above . 33 the following significant factors and trends should be considered in analyzing our operating performance : atlantis : our business strategy is to maximize revenues , operating income and cash flow primarily through our casino , food and beverage operations and hotel operations . during the recessionary periods of 2008 and 2009 , we expanded and upgraded the facility . with quality gaming , hotel and dining products , we believe the atlantis is well positioned to benefit from future macro and local economic growth . several national businesses have announced plans to expand or relocate operations to northern nevada . while such economic activity could ultimately drive additional revenue and profit at atlantis , we are experiencing the more immediate effect of increased labor costs , which combined with continued aggressive marketing programs by our competitors have applied upward pressure on atlantis operating costs . monarch casino black hawk : since the acquisition of monarch casino black hawk in april 2012 , our focus has been to maximize casino and food and beverage revenues while upgrading the existing facility and laying the groundwork for the major expansion that we plan . there is currently no hotel on the property . in october 2012 , we began a project to redesign and upgrade the existing monarch casino black hawk facility . in september 2013 , we opened a new buffet , which was an important step in our ongoing process of redesigning and upgrading the existing monarch casino black hawk facility . in december 2013 , we began a project to remodel and upgrade the casino . to minimize disruption , we staged the work in three equal phases . story_separator_special_tag , accounting and other professional fees expense by $ 0.6 million and lower employee benefit expense by $ 0.5 million . as a percentage of net revenue , sg & a expense increased to 28.2 % in the year 2014 from 27.7 % in the year 2013. depreciation and amortization expense increased to $ 17.8 million for the year ended december 31 , 2014 as compared to $ 16.6 million for the same period in 2013 as a result of : i ) accelerated depreciation on the parking structure at the monarch casino black hawk recognized in anticipation of its early removal from service as part of the expansion project , and ii ) new assets related to the remodel and upgrade project at the monarch casino black hawk , all partially offset by lower depreciation expense at atlantis due to assets from the 2008 atlantis expansion and remodel becoming fully depreciated in july 2013. the company incurred an approximately $ 0.3 million and $ 0.2 million net loss on disposal of slot machines and other equipment in the years ended december 31 , 2014 and 2013 , respectively . in 2014 the company incurred $ 1.9 million of expense related to the campaign against the proposed 2014 ballot initiatives to expand gaming in colorado . the company had no such expense in 2013. during the year ended december 31 , 2014 the company paid down the principal balance on its credit facility by $ 7.5 million , which decreased the outstanding balance of the credit facility to $ 46.3 million at december 31 , 2014 from $ 53.8 million at december 31 , 2013. interest expense , net of amounts capitalized , decreased to $ 1.1 million for the year 2014 from $ 1.9 million for the year 2013 primarily as a result of a lower interest rate driven by our lower leverage ratio combined with lower average outstanding borrowings in 2014 compared to 2013. see further discussion of our credit facility in the liquidity and capital resources section below . capital spending and development we seek to continuously upgrade and maintain our facilities in order to present a fresh , high quality product to our guests . capital expenditures during the years ended december 31 , 2015 and 2014 were as follows ( in thousands ) : capital expenditures : replace_table_token_5_th during the twelve months ended december 31 , 2015 and 2014 , capital expenditures related primarily to the redesign and upgrade of the monarch casino black hawk property and work for the facility 's new parking structure , as well as acquisition of gaming equipment to upgrade and replace existing equipment in the monarch casino black hawk and the atlantis . 37 master planned expansion of the monarch casino black hawk the company has completed a master plan to expand and convert the monarch casino black hawk into a full-scale casino resort ( the black hawk expansion plan ) . in october 2012 , we began an extensive redesign and upgrade of the existing facility at monarch casino black hawk . we have upgraded the property 's food and beverage operations ( including an all-new buffet ) and completed the redesign and upgrade of the existing casino floor . our plans also call for the exterior of the existing facility to be refinished to match the master planned expansion which is expected to cost approximately $ 17- $ 19 million and is expected to be funded primarily from operating cash flow . we have also begun work on our master plan to expand and convert the monarch casino black hawk into a full-scale casino resort . the excavation and foundation work for the facility 's new parking structure has been completed and construction of the new parking structure is well underway . the new 9-story parking structure will increase on-site parking from approximately 500 spaces to approximately 1,500 spaces . construction of the new parking structure began in the first quarter of 2015 and construction is anticipated to be completed in the second quarter of 2016. upon completion of the new parking structure , the existing parking structure will be razed to make room for the new hotel tower and casino expansion . the remaining cost of the parking structure-related work is expected to be approximately $ 10- $ 13 million , which we expect to fund primarily from operating cash flow and , to a lesser extent , from our credit facility . we expect to begin construction of the new hotel tower and casino expansion during the fourth quarter of 2016. the new 23-story tower will nearly double the existing casino space and will include approximately 500 hotel rooms , an upscale spa and pool facility , three additional restaurants and additional bars . tower floors will be opened as they are finished beginning with the casino expansion and additional restaurants . we currently expect completion of the entire tower in the third quarter of 2018 at a total cost of approximately $ 229- $ 234 million . the cost is expected to be financed through a combination of operating cash flow and an expansion or replacement of our credit facility . the company 's current credit facility will mature in november 2016 , and before that time , we expect to negotiate a new or amended credit facility with sufficient borrowing capacity to complete the expansion . we can provide no assurance that any project will be completed on schedule , if at all , or within established budgets , or that any project will result in increased earnings to us . in addition , no assurance can be given that we will be able to enter into a new or amended credit facility on a timely basis , if at all , or upon terms favorable to us .
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results of operations comparison of operating results for the years ended december 31 , 2015 and 2014 for the year ended december 31 , 2015 , our net income totaled $ 20.7 million , or $ 1.19 per diluted share , compared to net income of $ 14.2 million , or $ 0.83 per diluted share for the same period of 2014 , reflecting a 45.6 % increase in net income and a 43.4 % increase in diluted earnings per share . net revenue for the year ended december 31 , 2015 and 2014 , is $ 202.2 million and $ 187.8 million , respectively , reflecting an increase of $ 14.5 million , or 7.7 % . income from operations for the year ended december 31 , 2015 totaled $ 32.5 million compared to $ 22.2 million for the same period in 2014 , representing an increase of $ 10.3 million or 46.5 % . casino revenues increased 8.1 % in the year ended december 31 , 2015 compared to the same period of 2014. casino revenues increased at both the monarch casino black hawk and at the atlantis . the increase in monarch casino black hawk revenues is primarily due to the completion of the casino floor upgrade and remodel which attracted more gaming customers . the increase in casino revenues at the atlantis was driven primarily by the increased local patrons visitation . casino operating expenses as a percentage of casino revenue decreased to 42.1 % for the twelve months ended december 31 , 2015 , compared to 42.4 % in 2014 due to the effect of higher casino revenues partially offset by higher casino expense . 34 food and beverage revenues for the twelve months ended december 31 , 2015 increased 8.1 % over the same period in 2014 , due to a 5.4 % increase in average revenue per cover , combined with a 2.5 % increase in total covers served .
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at the closing of our ipo on january 21 , 2014 , cep llc and a 50.1 % interest in the tir entities were contributed to us and became our water and environmental services ( “ w & es ” ) segment and our pipeline inspection and integrity services ( “ pi & is ” ) segment , respectively . these contributions were treated for accounting purposes as a combination of entities under common control and the results of cep llc are included as if the contributions had occurred as of march 15 , 2012 and the results of the tir entities were included in our financial statements for periods subsequent to june 26 , 2013 , the date holdings acquired a controlling interest . the following discussion contains forward-looking statements that reflect our future plans , estimates , beliefs and expected performance . the forward-looking statements are dependent upon events , risks and uncertainties that may be outside our control , including among other things , the risk factors discussed in “ item 1a . risk factors ” of this annual report on form 10-k. 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 , market prices for oil and natural gas , production volumes , estimates of proved reserves , capital expenditures , economic and competitive conditions , regulatory changes and other uncertainties , as well as those factors discussed below and elsewhere in this annual report on form 10-k , all of which are difficult to predict . in light of these risks , uncertainties and assumptions , the forward-looking events discussed may not occur . see “ cautionary remarks regarding forward-looking statements ” in the front of this annual report on form 10-k. overview we are a growth-oriented master limited partnership that provides saltwater disposal and other water and environmental services and pipeline inspection and integrity services . through w & es , we own and operate ten swd facilities , eight of which are in the bakken shale region of the williston basin in north dakota and two of which are in the permian basin in west texas . we also manage three other swd facilities in the bakken shale region , one of which we have a 25 % ownership interest . w & es customers are oil and natural gas exploration and production companies and trucking companies operating in the regions that we serve . through pi & is , we provide independent pipeline inspection and integrity services to various energy , public utility and pipeline companies . in both of these business segments , we work closely with our customers to help them comply with increasingly complex and strict environmental and safety rules and regulations applicable to production and pipeline operations and reduce their operating costs . how we generate revenue we generate revenue in w & es primarily by treating flowback and produced water and injecting the saltwater into our swd facilities . our results in w & es are driven primarily by the volume of water we inject into our swd facilities and the fees we charge for our services . these fees are charged on a per barrel basis and vary based on the quantity and type of saltwater disposed , competitive dynamics and operating costs . in addition , for minimal marginal cost , we generate revenue by selling residual oil we recover from the disposed water . through our 51.0 % ownership interest in ces llc , we also generate revenue managing swd facilities for a fee . we generate revenue in pi & is primarily by providing inspection and integrity services on midstream pipelines , gathering systems and distribution systems , including data gathering and supervision of third-party construction , inspection , and maintenance and repair projects . our results in pi & is are driven primarily by the number of inspectors that perform services for our customers and the fees that we charge for those services , which depend on the type and number of inspectors used on a particular project , the nature of the project and the duration of the project . we bill our customers on a per inspector basis , including per diem charges , mileage and other reimbursement items . 49 how we evaluate our operations our management uses a variety of financial and operating metrics to analyze our performance . we view these metrics as significant factors in assessing our operating results and profitability and intend to review these measurements frequently for consistency and trend analysis . these metrics include : saltwater disposal and residual oil volumes in w & es inspector headcount in pi & is operating expenses ; segment gross margin ; adjusted ebitda ; and distributable cash flow . saltwater disposal and residual oil volumes the amount of revenue we generate in w & es depends primarily on the volume of produced water and flowback water that we dispose for our customers pursuant to published or negotiated rates , as well as the volume of residual oil that we sell pursuant to rates that are determined based on the quality of the oil sold and prevailing oil prices . our revenues from produced water , flowback water or residual oil sales are generated pursuant to contracts that are short-term in nature . revenues in this segment are recognized when the service is performed and collectability of fees is reasonably assured . the volumes of saltwater disposed at our swd facilities are driven by water volumes generated from existing oil and natural gas wells during their useful lives and development drilling and production volumes from the wells located near our facilities . producers ' willingness to engage in new drilling is determined by a number of factors , the most important of which are the prevailing and projected prices of oil , natural gas and ngls , the cost to drill and operate a well , the availability and cost of capital and environmental and governmental regulations . story_separator_special_tag although we have not quantified distributable cash flow on a historical basis , we intend to use distributable cash flow , which we define as adjusted ebitda less net cash interest paid , cash taxes paid and maintenance capital expenditures , to analyze our performance . distributable cash flow will not reflect changes in working capital balances , which could be significant as headcount of pi & is varies from period to period . adjusted ebitda is a non-gaap , supplemental financial measure used by management and by external users of our financial statements , such as investors , commercial banks and research analysts , to assess : our operating performance as compared to those of other providers of similar services , without regard to financing methods , historical cost basis or capital structure ; the ability of our assets to generate sufficient cash flow to support our indebtedness and make distributions to our partners ; the viability of capital expenditure projects and the overall rates of return on alternative investment opportunities ; our ability to incur and service debt and fund capital expenditures ; and the viability of acquisitions and other capital expenditure projects and the rates of return on various investment opportunities . 51 adjusted ebitda and distributable cash flow are not financial measures presented in accordance with gaap . we believe that the presentation of these non-gaap financial measures will provide useful information to investors in assessing our financial condition and results of operations . net income is the gaap measure most directly comparable to adjusted ebitda . the gaap measure most directly comparable to distributable cash flow is net cash provided by operating activities . our non-gaap financial measures should not be considered as alternatives to the most directly comparable gaap financial measure . each of these non-gaap financial measures has important limitations as an analytical tool because it excludes some but not all items that affect the most directly comparable gaap financial measure . you should not consider adjusted ebitda or distributable cash flow in isolation or as a substitute for analysis of our results as reported under gaap . because adjusted ebitda and distributable cash flow may be defined differently by other companies in our industry , our definitions of these non-gaap financial measures may not be comparable to similarly titled measures of other companies , thereby diminishing their utility . for a further discussion of the non-gaap financial measures of adjusted ebitda and reconciliation of that measure to their most comparable financial measures calculated and presented in accordance with gaap , please read “ item 6 — selected financial data — non-gaap financial measures . ” outlook w & es crude oil prices declined sharply during the six months ended december 31 , 2014 ( the spot price for nymex west texas intermediate ( “ wti ” ) crude oil at cushing , oklahoma declined from $ 106.06 per barrel at july 1 , 2014 to $ 53.45 per barrel at december 31 , 2014 ) . subsequently , wti has further declined to approximately $ 47.00 per barrel at march 25 , 2015 and bakken clearbrook , which trades at a discount to wti , was trading at approximately $ 42.00 per barrel . in our w & es segment , the market price of crude oil has a direct impact on our revenues associated with the sale of residual oil . it also has an indirect impact on our water disposal volumes and revenues , depending on the reaction of oil and gas producers in the vicinity of our facilities to declining oil and or gas prices . many producers have announced material and significant cuts in their 2015 capital budgets and drilling activities that would reduce new flowback water and produced water and , although unlikely , could potentially stop production on existing wells , which would have a direct impact on the volumes of disposed water and residual oil recovery at our facilities . the material decline in rig count and new drilling activity in many basins , including the bakken and the permian , will lead to lower water volumes , reduced skim oil volumes and pricing pressures . many of our e & p customers have requested pricing concessions to help them cope with the lower commodity prices . in the majority of the basins in the country , new swd facilities were developed to support the previous rig counts and activity levels prior to the sharp contraction in activity and commodity prices . these events have led to excess supply relative to current demand in many locations , including the bakken and the permian that , in turn , has led to aggressive pricing . we have always focused on produced water vs. flowback water and therefore are less impacted than many competitors . however , we are clearly being impacted on all metrics . we are focused on reducing operating costs and identifying operating efficiencies in an effort to offset the financial impact of declining volumes and prices . additionally , we continue to focus on piped water opportunities to secure additional long term volumes of produced water for the life of the oil and gas wells ' production . we also manage some third party facilities , who are also being impacted by the facts above leading to lower management fee revenue . pi & is demand remains solid for our pipeline inspection and integrity services in a very large market with many customer prospects that we do not currently serve . we have strengthened our management team and focused on non-destructive testing services as we continue to look at a number of other new lines of business to serve our existing customers . the majority of our clients are public investment grade companies with long planning cycles leading to healthy backlogs of new long-term projects in addition to maintaining their existing pipeline networks that also require inspection .
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segment operating results w & es the following table summarizes the operating results of our w & es segment for the years ended december 31 , 2014 and 2013. replace_table_token_8_th ( a ) average revenue per barrel disposed is calculated by dividing revenues ( which include flowback , produced water , residual oil sales and management fees ) by the total barrels of saltwater disposed . 58 revenue . the increase of $ 0.2 million in revenues is primarily due to a $ 0.7 million positive price variance as the average revenue per barrel disposed increased from $ 1.14 in 2013 to $ 1.18 in 2014. this increase was partially offset by a $ 0.5 million negative volume variance as water volumes disposed decreased from 19.5 million barrels in 2013 to 19.1 million barrels in 2014. the increase in average revenue per barrel disposed is due primarily to higher management fee revenues associated with a full year of operations of ces llc which was acquired effective december 1 , 2013. costs of services . costs of services increased from 2013 to 2014 due primarily to increased repairs and maintenance expenses related to higher periodic required expenditures as the wells age . these expenditures primarily include pump repairs and clean out of oil storage and separation tanks . gross margin . the decrease in gross margin is mainly caused by higher repair and maintenance expenses in 2014. general and administrative expense . the increase in general and administrative expense is primarily attributable to the allocation of the annual administration fee charged by holdings under our amended and restated omnibus agreement . the allocation to w & es for 2014 was $ 1.1 million which exceeded 2013 allocated costs by $ 0.6 million . in addition , general and administrative expenses increased $ 0.2 million as a result of having a full year of operations of ces llc .
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this model enables us to quickly adapt to and offer efficient and cost-effective solutions for our clients ' shipping needs . we focus primarily on arranging transportation by truckload ( `` tl '' ) and less than truckload ( `` ltl '' ) carriers . we also offer intermodal ( which involves moving a shipment by rail and truck ) , small parcel , domestic air , expedited and international transportation services . our core logistics services include carrier selection , dispatch , load management and tracking . we procure transportation and provide logistics services for clients across a wide range of industries , such as manufacturing , construction , food and beverage , consumer products and retail . our clients fall into two categories , transactional and managed transportation . we provide brokerage and transportation management services to our transactional clients on a shipment-by-shipment basis , typically with individual , or spot market , pricing . we typically enter into multi-year contracts with our managed transportation clients , which are often on an exclusive basis for a specific transportation mode or point of origin . as part of our value proposition , we also provide core logistics services to these clients . 21 results of operations the following table represents certain results of operations data : replace_table_token_5_th ( 1 ) 2017 results included a tax benefit of $ 8.9 million resulting from the enactment of the tax cuts and jobs act of 2017 ( the `` act '' or `` tcja '' ) . ( 2 ) net revenue is a non-gaap measure calculated as revenue less transportation costs . see item 6 , `` selected financial data '' of this form 10-k , for a reconciliation of net revenue to revenue , the most comparable gaap measure . 22 revenue we generate revenue through the sale of brokerage and transportation management services to our clients . for our brokerage and transportation management services , revenue is recognized as the client 's shipment travels from origin to destination by a third-party carrier . our revenue was $ 2.4 billion , $ 1.9 billion and $ 1.7 billion for the years ended december 31 , 2018 , 2017 and 2016 , respectively , reflecting growth rates of 25.6 % and 13.2 % in 2018 and 2017 , respectively , compared to the corresponding prior year . our revenue is generated from two different types of clients : transactional and managed transportation . most of our clients are categorized as transactional . we provide services to our transactional clients on a shipment-by-shipment basis . we categorize a client as a managed transportation client if we have a contract with the client for the provision of services on a recurring basis . our contracts with managed transportation clients typically have a multi-year term and are often on an exclusive basis for a specific transportation mode or point of origin . in several cases , we provide substantially all of a client 's transportation and logistics requirements . our managed transportation accounts typically generate higher dollar amounts and volume than our transactional relationships . in 2018 , 2017 and 2016 , transactional clients accounted for 78.5 % , 79.2 % and 81.3 % of our revenue , respectively , and managed transportation clients accounted for 21.5 % , 20.8 % and 18.7 % of our revenue , respectively . we expect to continue to expand both our transactional and managed transportation client base in the future , although the rate of growth for each type of client will vary depending on opportunities in the marketplace . revenue recognized per shipment will vary depending on the transportation mode , fuel prices , shipment weight , density and mileage of the product shipped . the primary shipment modes that we transact in are tl and ltl . other transportation modes include intermodal , small parcel , domestic air , expedited and international . material shifts in the percentage of our revenue by transportation mode could have a significant impact on our revenue growth . in 2018 , tl accounted for 69.1 % of our revenue , ltl accounted for 26.2 % of our revenue and other transportation modes accounted for 4.7 % of our revenue . in 2017 , tl accounted for 68.1 % of our revenue , ltl accounted for 26.8 % of our revenue and other transportation modes accounted for 5.1 % of our revenue . in 2016 , tl accounted for 67.6 % of our revenue , ltl accounted for 26.4 % of our revenue and other transportation modes accounted for 6.0 % of our revenue . the transportation industry has historically been subject to seasonal sales fluctuations as shipments generally are lower during and after the winter holiday season because many companies ship goods and stock inventories prior to the winter holiday season . while we experience some seasonality , differences in our revenue between periods have been driven primarily by growth in our client base . transportation costs and net revenue we act primarily as a service provider to add value and expertise in the procurement and execution of brokerage and transportation management services for our clients . our pricing structure is primarily variable , although we have entered into a limited number of fixed-fee arrangements that represent an insignificant portion of our revenue . net revenue is a non-gaap measure equal to revenue minus transportation costs . our transportation costs consist primarily of the direct cost of transportation paid to the carrier . net revenue is considered by management to be an important measurement of our success in the marketplace . our transportation costs are typically lower for an ltl shipment than for a tl shipment . in turn , our net revenue margin is typically higher for an ltl shipment than for a tl shipment . material shifts in the percentage of our revenue by transportation mode could have a significant impact on our net revenue . the discussion of our results of operations below focuses on changes in our expenses as a percentage of net revenue . story_separator_special_tag under asc topic 606 , revenue is recognized when control of the promised goods or services is transferred to our customers , in an amount that reflects the consideration we expect to receive in exchange for services . we generate revenue from two different client types : transactional and managed transportation . most clients are categorized as transactional 24 clients . for our transactional business , we provide brokerage and transportation management services on a shipment-by-shipment basis . carrier selection , dispatch , load management and tracking are integrated services that occur within the brokerage and transportation management performance obligation . for the brokerage and transportation management services performance obligation , revenue is recognized as the client 's shipment travels from origin to destination by a third-party carrier . we are the principal in these transactions and recognize revenue on a gross and relative transit time basis . we categorize a client as a managed transportation client if there is an agreement with the client for the provision of services , typically for a multi-year term . brokerage and transportation management services is typically the performance obligation for our managed transportation clients . other performance obligations for managed transportation clients may include transportation management services , which includes the integrated services of dispatch , tracking and carrier payment . for these types of transactions , revenue is recorded on a net basis as we do not have latitude in carrier selection or establish rates with the carrier . we also perform project-based services , such as compliance management , customized re-billing services and freight studies for certain managed transportation clients . our 2017 and 2016 revenue was recognized in accordance with asc topic 605-20 revenue recognition - services , transportation revenue and related transportation costs were recognized when the shipment was delivered by a third-party carrier . fee for service revenue was recognized when the services were rendered . at the time of delivery or rendering of services , as applicable , our obligation to fulfill a transaction was complete and collection of revenue was reasonably assured . in accordance with asc topic 605-45 revenue recognition - principal agent considerations , we generally recognized revenue on a gross basis , as opposed to a net basis similar to a commission arrangement , because we undertook the risks and benefits associated with revenue-generated activities by , among other things : ( 1 ) acting as a principal in the transaction ; ( 2 ) establishing prices ; ( 3 ) managing all aspects of the shipping process , including selection of the carrier ; and ( 4 ) taking the risk of loss for collection , delivery , and returns . certain transactions to provide specific services were recorded at the net amount charged to the client due to the following key factors : ( a ) we did not have latitude in carrier selection ; ( b ) we did not establish rates with the carrier ; and ( c ) we had credit risk for only the net revenue earned from our client while the carrier has credit risk for the transportation costs . net revenue equals revenue minus transportation costs . accounts receivable and allowance for doubtful accounts accounts receivable are uncollateralized customer obligations due under normal trade terms . we extend credit to certain clients in the ordinary course of business based on the clients ' credit history . invoices require payment within 30 to 90 days from the invoice date . accounts receivable are stated at the amount billed to the client . client account balances with invoices past due 90 days are considered delinquent . we generally do not charge interest on past due amounts . the carrying amount of accounts receivable is reduced by an allowance for doubtful accounts that reflects management 's best estimate of amounts that will not be collected . the allowance is based on historical loss experience and any specific risks identified in client collection matters . accounts receivable are charged off against the allowance for doubtful accounts when it is determined that the receivable is uncollectible . goodwill and other intangibles goodwill represents the excess of consideration transferred over the value assigned to the net tangible and identifiable intangible assets of businesses acquired . in accordance with asc topic 350 intangibles - goodwill and other : testing goodwill for impairment , goodwill is not amortized , but instead is tested for impairment annually , or more frequently if circumstances indicate a possible impairment may exist . absent any special circumstances that could require an interim test , we have elected to test for goodwill impairment during the fourth quarter of each year . we manage the business as one operating segment and one reporting unit pursuant to the provisions of asc topic 280 segment reporting , which established accounting standards for segment reporting . in september 2011 , the financial accounting standards board ( `` fasb '' ) approved accounting standards update ( `` asu '' ) no . 2011-08 , “ intangibles - goodwill and other : testing goodwill for impairment . '' this asu permits an entity to first assess qualitative factors to determine whether it is more likely than not ( a likelihood of more than 50 percent ) that the fair value of a reporting unit is less than its carrying amount . after assessing qualitative factors , if an entity determines that it is more likely than not that the fair value of the reporting unit is greater than its carrying amount , no further testing is necessary . in october 2018 , we performed a qualitative goodwill impairment assessment of the reporting unit in accordance with asc topic 350. as part of the qualitative assessment , we compared our current results to the forecasted expectations of our most recent quantitative analysis , along with analyzing macroeconomic conditions and industry trends . we concluded that it was more likely than not that the fair value of the reporting unit exceeded its carrying amount .
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quarterly results of operations the following table represents our unaudited results of operations data for our most recent eight fiscal quarters . you should read the following table in conjunction with our consolidated financial statements and related notes appearing elsewhere in this form 10-k. the results of operations of any quarter are not necessarily indicative of the results that may be expected for any future period . replace_table_token_6_th ( 1 ) fourth quarter 2017 results included a tax benefit of $ 8.9 million resulting from the enactment of the act . ( 2 ) net revenue is a non-gaap measure calculated as revenue less transportation costs . see item 6 , `` selected financial data '' of this form 10-k , for a reconciliation of net revenue to revenue , the most comparable gaap measure . liquidity and capital resources as of december 31 , 2018 , we had $ 40.3 million in cash and cash equivalents , $ 126.8 million in working capital and $ 248.6 million available under our abl facility . 29 cash provided by operating activities for the year ended december 31 , 2018 , $ 94.2 million of cash was provided by operating activities . this was an increase from $ 48.7 million in 2017 and $ 59.7 million in 2016. in 2018 , we generated $ 91.3 million in cash from net income , adjusted for noncash operating items , an increase from $ 59.3 million in 2017 and $ 58.9 million in 2016 . changes in working capital primarily relate to changes in accounts receivable , accounts payable and accrued expense balances . cash used in investing activities cash used in investing activities was $ 31.8 million , $ 20.7 million and $ 46.9 million for the years ended december 31 , 2018 , 2017 and 2016 , respectively .
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unallocated corporate items for fiscal 2013 , fiscal 2012 and fiscal 2011 included : replace_table_token_37_th as of may 26 , 2013 , the net notional value of commodity derivatives was $ 526.3 million , of which $ 297.4 million related to agricultural inputs and $ 228.9 million related to energy inputs . these contracts relate to inputs that generally will be utilized within the next 12 months . interest rate risk we are exposed to interest rate volatility with regard to future issuances of fixed-rate debt , and existing and future issuances of floating-rate debt . primary exposures include u.s. treasury rates , libor , euribor , and commercial paper rates in the united states and europe . we use interest rate swaps , forward-starting interest rate swaps , and treasury locks to hedge our exposure to interest rate changes , to reduce the volatility of our financing costs story_separator_special_tag executive overview we are a global consumer foods company . we develop distinctive value-added food products and market them under unique brand names . we work continuously to improve our established products and to create new products that meet consumers ' evolving needs and preferences . in addition , we build the equity of our brands over time with strong consumer-directed marketing and innovative new products and effective merchandising . we believe our brand-building strategy is the key to winning and sustaining leading share positions in markets around the globe . our fundamental business goal is to generate superior returns for our stockholders over the long term . we believe that increases in net sales , segment operating profit , earnings per share ( eps ) , and return on average total capital are the key measures of financial performance for our business . our specific growth objectives are to consistently deliver : low single-digit annual growth in net sales ; mid single-digit annual growth in total segment operating profit ; high single-digit annual growth in diluted eps excluding certain items affecting comparability ; and improvement in return on average total capital . we believe that this financial performance , coupled with an attractive dividend yield , should result in long-term value creation for stockholders . we return a substantial amount of cash to stockholders through share repurchases and dividends . in fiscal 2013 we maintained focus on our core strategies of brand building investment , international expansion , customer partnerships , product innovation and holistic margin management ( hmm ) initiatives , and we continued to invest for future growth . for the fiscal year ended may 26 , 2013 , our net sales grew 7 percent and total segment operating profit grew 6 percent . our return on average total capital declined by 80 basis points primarily due to the acquisitions of yoplait s.a.s. , yoplait marques s.a.s. , and yoki alimentos s.a. ( yoki ) . diluted eps grew 19 percent and diluted eps excluding certain items affecting comparability increased 5 percent ( see the non-gaap measures section below for a description of our discussion of total segment operating profit , diluted eps excluding certain items affecting comparability and return on average total capital , which are not defined by generally accepted accounting principles ( gaap ) ) . net cash provided by operations totaled $ 2.9 billion in fiscal 2013 , enabling us to partially fund the acquisition of yoki and to increase our annual dividend payments per share by 8 percent from fiscal 2012. we also made significant capital investments totaling $ 614 million in fiscal 2013 and repurchased $ 1.0 billion of shares of common stock . we achieved the following related to our key operating objectives for fiscal 2013 : we increased our worldwide sales base and strengthened our portfolio by making key strategic acquisitions that expanded our participation in fast-growing food categories and emerging markets , and grew net sales by 7 percent . we sustained a high level of new product activity , and executed effective marketing and merchandising actions in support of our leading brands and global platforms around the world . we achieved a 6 percent increase in total segment operating profit driven by our ongoing hmm program , the effect of our restructuring plan announced in may 2012 , volume growth from existing businesses , and contributions from new businesses . 17 our strong cash flows allowed us to fund the acquisition of new businesses in fiscal 2013 and also repurchase sufficient shares of company stock to more than offset stock option exercises during the year . details of our financial results are provided in the fiscal 2013 consolidated results of operations section below . in fiscal 2014 , we expect to generate growth consistent with our long term model : we have a strong line-up of consumer marketing , merchandising , and innovation planned to support our leading brands . we will continue to build our global platforms in markets around the world , accelerating our efforts in rapidly growing emerging markets . we are targeting low single-digit growth in net sales driven by volume growth , with incremental contributions from new businesses added in fiscal 2013. we are targeting mid single-digit growth in total segment operating profit in fiscal 2014 including incremental contributions from new businesses . we expect our hmm discipline of cost savings and mix management to more than offset expected input cost inflation . we are targeting high single-digit growth in diluted eps excluding certain items affecting comparability . we expect to deliver increased cash returns to shareholders in fiscal 2014 , including a 15 percent dividend increase and share repurchases that are expected to result in a 2 percent net reduction in shares outstanding . our businesses generate strong levels of cash flows and we will use some of this cash to reinvest in our business . our fiscal 2014 plans call for approximately $ 700 million of expenditures for capital projects . certain terms used throughout this report are defined in a glossary in item 8 of this report . story_separator_special_tag percentage point decrease was primarily related to the restructuring of our general mills cereals , llc ( gmc ) subsidiary during the first quarter of fiscal 2013 which resulted in a $ 63 million decrease to deferred income tax liabilities related to the tax basis of the investment in gmc and certain distributed assets , with a corresponding discrete non-cash reduction to income taxes . during fiscal 2013 , we also recorded a $ 34 million discrete decrease in income tax expense and an increase in our deferred tax assets related to certain actions taken to restore part of the tax benefits associated with medicare part d subsidies which had previously been reduced in fiscal 2010 with the enactment of the patient protection and affordable care act , as amended by the health care and education reconciliation act of 2010. our fiscal 2013 tax expense also includes a $ 12 million charge associated with the liquidation of a corporate investment . after-tax earnings from joint ventures for fiscal 2013 increased to $ 99 million compared to $ 88 million in fiscal 2012 primarily due to higher tax rates in fiscal 2012 as a result of discrete tax items and higher operating profit offset by unfavorable foreign currency exchange in fiscal 2013. the change in net sales for each joint venture is set forth in the following table : joint venture change in net sales fiscal 2013 vs. 2012 cpw ( 1 ) % hdj ( 2 ) joint ventures ( 1 ) % in fiscal 2013 , cpw net sales declined by 1 percentage point as 2 percentage points of net sales growth from favorable net price realization and mix were offset by 3 percentage points of net sales decline from unfavorable foreign currency exchange . contribution from volume growth was flat compared to fiscal 2012. in fiscal 2013 , net sales for hdj decreased 2 percentage points from fiscal 2012 as 6 percentage points of net sales growth from volume contribution was offset by 7 percentage points of net sales decline from unfavorable foreign currency exchange and 1 percentage point of net sales decline attributable to unfavorable net price realization and mix . average diluted shares outstanding decreased by 1 million in fiscal 2013 from fiscal 2012 , due primarily to the repurchase of 24 million shares , including 6 million purchased under an accelerated share repurchase ( asr ) agreement . fiscal 2013 consolidated balance sheet analysis cash and cash equivalents increased $ 270 million from fiscal 2012 , as discussed in the liquidity section below . receivables increased $ 123 million from fiscal 2012 primarily as a result of the acquisition of yoki . inventories increased $ 67 million from fiscal 2012 primarily as a result of the acquisition of yoki . prepaid expenses and other current assets increased $ 80 million from fiscal 2012 , mainly due to an increase in other receivables related to the liquidation of a corporate investment . land , buildings , and equipment increased $ 225 million from fiscal 2012 , as $ 614 million of capital expenditures and $ 216 million of additions from acquired businesses were partially offset by depreciation expense of $ 552 million . goodwill and other intangible assets increased $ 750 million from fiscal 2012. we recorded $ 407 million of goodwill and $ 311 million of other intangible assets related to acquisitions in fiscal 2013 . 20 other assets decreased $ 22 million from fiscal 2012 , primarily related to the liquidation of a corporate investment . accounts payable increased $ 274 million from fiscal 2012 , primarily due to the acquisition of yoki and the extension of payment terms . long-term debt , including current portion , and notes payable increased $ 540 million from fiscal 2012 primarily due to $ 1.0 billion of debt issuances , partially offset by $ 587 million of debt and commercial paper repayments . the current and noncurrent portions of net deferred income taxes liability increased $ 149 million from fiscal 2012 primarily as a result of contributions to our pension plan in fiscal 2013. other current liabilities increased $ 401 million from fiscal 2012 , primarily driven by increases in dividend accruals and trade and consumer accruals . other liabilities decreased $ 237 million from fiscal 2012 , primarily driven by a decrease in pension , postemployment , and postretirement liabilities . redeemable interest increased $ 120 million from fiscal 2012 , primarily due to a $ 104 million increase in the redemption value of the redeemable interest . retained earnings increased $ 744 million from fiscal 2012 , reflecting fiscal 2013 net earnings of $ 1,855 million less dividends paid of $ 868 million and dividends declared of $ 243 million . treasury stock increased $ 510 million from fiscal 2012 , due to $ 1,015 million of share repurchases , including $ 270 million related to an asr agreement , partially offset by $ 505 million related to stock-based compensation plans . additional paid in capital decreased $ 142 million from fiscal 2012 , including $ 30 million related to an asr agreement . accumulated other comprehensive loss ( aoci ) decreased by $ 158 million after-tax from fiscal 2012 , primarily driven by pension and postemployment activity of $ 144 million . noncontrolling interests decreased $ 5 million in fiscal 2013. story_separator_special_tag within our international operating segment . we revised the amounts previously reported in the net sales percentage change by division within our u.s. retail segment and geographic regions within our international segment . these realignments had no effect on previously reported consolidated net sales , operating segments ' net sales , operating profit , segment operating profit , net earnings attributable to general mills , or earnings per share . in the u.s. retail segment , big g , snacks , yoplait , and small planet foods were unchanged . baking products combines our baking aisle and refrigerated dough products . frozen foods includes our frozen products , as well as green giant canned vegetables .
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fiscal 2012 consolidated results of operations fiscal 2012 net sales grew 12 percent to $ 16,658 million . in fiscal 2012 , net earnings attributable to general mills was $ 1,567 million , down 13 percent from $ 1,798 million in fiscal 2011 , and we reported diluted eps of $ 2.35 in fiscal 2012 , down 13 percent from $ 2.70 in fiscal 2011. fiscal 2012 results include losses from the mark-to-market valuation of certain commodity positions and grain inventories versus fiscal 2011 which included gains . fiscal 2012 results also include restructuring charges reflecting employee severance expense and the write-off of certain long-lived assets related to our 2012 productivity and cost savings plan and integration costs resulting from the acquisitions of yoplait s.a.s . and yoplait marques s.a.s . fiscal 2011 results include the net benefit from the resolution of uncertain tax matters . diluted eps excluding these items affecting comparability was $ 2.56 in fiscal 2012 , up 3 percent from $ 2.48 in fiscal 2011 ( see the non-gaap measures section below for our use of this measure and our discussion of the items affecting comparability ) . the components of net sales growth are shown in the following table : components of net sales growth fiscal 2012 vs. 2011 contributions from volume growth ( a ) 9 pts net price realization and mix 3 pts foreign currency exchange flat net sales growth 12 pts ( a ) measured in tons based on the stated weight of our product shipments . 21 net sales grew 12 percent in fiscal 2012 , due to 9 percentage points of contribution from volume growth , including 12 percentage points of volume growth contributed by the acquisition of yoplait s.a.s . net price realization and mix contributed 3 percentage points of net sales growth .
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in addition , if baxter terminates the distribution agreement because baxter has been enjoined by a court of competent jurisdiction from selling in the united states any product covered by the distribution agreement due to a claim of intellectual property infringement or misappropriation relating to such product prior to the end of 2018 , baxter would be entitled to a refund of up to $ 10 million , or $ 6.6 million if the termination occurs in 2019. in no event would baxter be entitled to more than one refund payment . the distribution agreement also required the company to prepay its outstanding secured long-term indebtedness within 180 days and prohibits the company from entering into a subsequent contract encumbering the assets used in the company 's concentrate business without the prior written consent of baxter . baxter has also agreed to pay the company $ 10 million ( the `` facility fee `` ) to build and operate a new manufacturing facility located in the pacific time zone to service customers in the western united states . the facility fee will be reduced to the extent that the facility is not operational within 12 months after the start of construction . except for any leased components , the company will own the facility when completed . the distribution agreement may be extended an additional five years by baxter if baxter achieves a specified sales target and pays an extension fee of $ 7.5 million . if the first extension occurs , the distribution agreement term may later be extended an additional five years at baxter 's option at no additional cost . 7. inventory components of inventory as of december 31 , 2015 and 2014 are as follows : replace_table_token_15_th f-17 rockwell medical , inc. and subsidiary notes to consolidated financial statements ( continued ) 8. property and equipment major classes of property and equipment , stated at cost , as of december 31 , 2015 and 2014 are as follows : replace_table_token_16_th below is a summary of depreciation expense by period : 2015 2014 2013 depreciation expense $ 655,265 $ 829,292 $ 840,382 9. goodwill and intangible assets total goodwill was $ 920,745 at december 31 , 2015 and 2014. we completed our annual impairment tests as of november 30 , 2015 and 2014 , and determined that no adjustment for impairment of goodwill was required . story_separator_special_tag overview and recent developments rockwell is a fully-integrated pharmaceutical company targeting end-stage renal disease and chronic kidney disease with innovative products and services for the treatment of iron deficiency , secondary hyperparathyroidism and hemodialysis . we are also an established manufacturer and leader in delivering high-quality hemodialysis concentrates/dialysates to dialysis providers and distributors in the united states and abroad . our business focus is on unique , proprietary renal drug therapies . these novel renal drug therapies support disease management initiatives to improve the quality of life and care of dialysis patients and are designed to deliver safe and effective therapy , while decreasing drug administration costs and improving patient convenience and outcome . our strategy is to develop high potential drugs while expanding our dialysis products business . in january 2015 , we received fda approval to market triferic® our lead branded drug . based on our clinical trial results , we believe triferic® has the potential to capture significant market share due to its unique attributes and clinical benefits , including savings on nursing administration time , potential to reduce expensive esa treatments and excellent safety profile . triferic® has a unique mode of action and has proven to be both safe and effective in iron replacement and maintenance of hemoglobin . in 2015 , we had revenue of $ 55.4 million , an increase of 2.1 % or $ 1.2 million over 2014. all of our revenue in 2014 and nearly all of our revenue in 2015 was from our dialysis concentrate business . we supply approximately 25 % of the united states domestic market with dialysis concentrates and we also supply dialysis concentrates to distributors serving a number of foreign countries , primarily in the americas and the pacific rim . we obtained fda approval to market triferic® in january 2015 and commenced our marketing efforts following approval . after building sufficient inventory to support our product launch , we offered triferic® commercially in september 2015. triferic® sales and marketing efforts have been directed to providers controlling the vast majority of dialysis patients . the triferic® sales cycle is progressing in a manner and time frame consistent with the company 's prior experiences with its other product launches in the renal market . several providers have agreed to initiate pilot studies of triferic® and we anticipate these pilot programs will provide the basis for future adoption . triferic® sales in 2015 were not material . our global strategy is to out-license triferic® for key international markets . we are actively pursuing the international development and licensing of triferic® in targeted markets and regions . we recently completed a licensing agreement and product supply agreement for china . we are in discussions and negotiations regarding a number of other significant renal markets . in addition to marketing triferic® , we are working to produce sufficient inventory to begin marketing calcitriol , our generic injectable vitamin-d analogue . we are dependent upon contract manufacturing organizations to manufacture calcitriol for us . we expect to begin marketing calcitriol as soon as inventory levels are at an adequate level to ensure sufficient supply . in october 2014 , we entered into the distribution agreement with baxter , a leading global dialysis products supplier , to exclusively distribute our dialysis concentrates in the united states and certain foreign markets . the distribution agreement does not include our drug products . under the distribution agreement , we are the exclusive third party supplier of dialysis concentrates to baxter in the united states . story_separator_special_tag impairments of long-lived assets we account for impairment of long-lived assets , which include property and equipment , amortizable and non-amortizable intangible assets and goodwill , in accordance with authoritative accounting pronouncements . an impairment review is performed annually or whenever a change in condition occurs which indicates that the carrying amounts of assets may not be recoverable . such changes may include changes in our business strategies and plans , changes to our customer contracts , changes to our product lines and changes in our operating practices . we use a variety of factors to assess the realizable value of long-lived assets depending on their nature and use . goodwill is not amortized ; however , it must be tested for impairment at least annually . the goodwill impairment analysis is based on the fair market value of our common shares . amortization continues to be recorded for other intangible assets with definite lives over the estimated useful lives . intangible assets subject to amortization are reviewed for potential impairment whenever events or circumstances indicate that carrying amounts may not be recoverable based on future cash flows . if we determine that goodwill has been impaired , the change in value will be accounted for as a current period expense and could have a material adverse effect on earnings . accounting for income taxes we estimate our income tax provision to recognize our tax expense and our deferred tax liabilities and assets for future tax consequences of events that have been recognized in our financial statements using current enacted tax laws . deferred tax assets must be assessed based upon the likelihood of recoverability from future taxable income and to the extent that recovery is not likely , a valuation allowance is established . the allowance is regularly reviewed and updated for changes in circumstances that would cause a change in judgment about whether the related deferred tax asset may be realized . these calculations and assessments involve complex estimates and judgments because the ultimate tax outcome can be uncertain and future events unpredictable . if we determine that the deferred tax asset will be realized in the future , it may result in a material beneficial effect on earnings . 38 new accounting pronouncements in may 2014 , the financial accounting standards board issued accounting standards update no . 2014-09 , revenue from contracts with customers ( topic 606 ) , which will supersede the current revenue recognition requirements in topic 605 , revenue recognition . the asu is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . the asu also requires additional disclosure about the nature , amount , timing and uncertainty of revenue and cash flows arising from customer contracts , including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract . the new guidance will be effective for the company 's year ending december 31 , 2018 , including interim periods within that reporting period . the asu permits the new revenue recognition guidance to be applied using one of two retrospective application methods . the company has not yet determined which application method it will use or the potential effects of the new standard on the financial statements , if any . liquidity and capital resources we have adequate capital resources and substantial liquidity to pursue our business strategy . in addition to operating our concentrate business , our strategy is centered on developing , marketing and licensing high potential drug candidates including triferic® . we are actively selling and marketing triferic® and made our first commercial sales of triferic® late in 2015. as of december 31 , 2015 , we had current assets of $ 84.6 million and net working capital of $ 76.5 million . we have approximately $ 70.7 million in cash and investments as of december 31 , 2015. our uses of cash have primarily been for research and product development , investments in inventory to support our product launches and for operating expenses . cash flow from operations used $ 16.2 million in 2015 , which included research and development expenses of $ 5.0 million and an increase of $ 4.0 million in inventory levels . we also received $ 2.8 million from the exercise of stock options during 2015 and paid $ 2.9 million in taxes related to equity compensation in exchange for common shares retained by the company . our capital expenditures of $ 0.8 million in 2015 were approximately equivalent to our depreciation and amortization costs . we anticipate that we will increase our inventory and accounts receivable as we increase our drug product sales . we also expect to invest in research and product development in 2016 as we work to expand potential uses for triferic® , although spending on these indications is not expected to be substantial in relation to research and development expenditures relating to the fda approval of triferic® . we believe that we have adequate capital resources to make these investments in accounts receivable , inventory and research and product development . we expect to generate positive cash flow from operations upon increased sales of our drug products . we have no long term debt as of december 31 , 2015 and do not expect to incur interest expense in 2016. we are in the process of evaluating a potential expansion of our dialysis concentrate business to the western region of the united states where we currently have only a very minor presence . under the terms of our distribution agreement , capital spending related to such an expansion would be funded through payments by baxter of $ 5 million upon commencement of construction and up to $ 5 million following completion . other capital expenditures on our current facilities
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results of operations for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 sales in 2015 , our sales were $ 55.4 million compared to $ 54.2 million in 2014 an increase of $ 1.2 million or 2.1 % . our domestic concentrate business sales increased 4.2 % or $ 1.9 million in 2015 compared to 2014. we launched triferic® in late september 2015 and our net sales of triferic® were $ 0.2 million for 2015. our international concentrate sales increased 1.3 % or $ 0.1 million in 2015 over 2014. our net revenue from third party contract manufacturing decreased $ 1.0 million in 2015 compared to 2014 following cessation of contract manufacturing for a certain non-hemodialysis customer . as a result of our distribution agreement with baxter , all domestic customer contracts for concentrate products that permitted assignment to baxter without consent have been assigned to baxter throughout 2015. baxter subsequently began to invoice those customers following assignment . our 2015 sales largely reflect the lower distributor prices paid by baxter , such that our sales are lower on those accounts billed by baxter than they were historically . our 2015 sales were favorably impacted by the recognition of deferred license revenue under the distribution agreement of $ 2.1 million in 2015 compared to $ 0.5 million in 2014. gross profit our gross profit was $ 8.9 million in 2015 , an increase of $ 0.4 million or 4.6 % compared to 2014. gross profit margins were 16.1 % in 2015 compared to 15.8 % in 2014. gross profit was favorably impacted by recognition of deferred license revenue under the distribution agreement of $ 2.1 million in 2015 compared to $ 0.5 million in 2014. gross profit was negatively impacted by lower sales on those accounts billed by baxter following assumption of billing by baxter .
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