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other than the foregoing , none of the following persons has any direct or indirect material interest in any transaction to which we were or are a party since the beginning of our last fiscal year , or in any proposed transaction to which we propose to be a party : ( a ) any of our director ( s ) or executive officer ( s ) ; ( b ) any nominee for election as one of our directors ; ( c ) any person who is known by us to beneficially own , directly or indirectly , shares carrying more than 5 % of the voting rights attached to our common stock ; or ( d ) any member of the immediate family ( including spouse , parents , children , siblings and in-laws ) of any of the foregoing persons named in paragraph ( a ) , ( b ) or ( c ) above 21 item 14. principal accounting fees and services during the years ended september 30 , 2016 , the company incurred auditing expenses of approximately $ 6,480 and $ 3,240 , respectively , which includes audit and review engagement services . there were no other audit related services or tax fees incurred . there were no other audit related services or tax fees incurred . part iv item 15. exhibits , financial statement schedules the company 's financial statements filed as part of this annual report are listed in the and provided in response to item 8. exhibits required by item 601 of regulation s-k : replace_table_token_10_th * filed previously * * filed herewith signatures 22 pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . app incline corporation date : december 29 , 2016 by : adam elmquist adam elmquist chief executive officer , chief financial officer , president , secretary , treasurer and director 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 . adam elmquist chief executive officer and director december 29 , 2016 adam elmquist adam elmquist chief financial officer december 29 , 2016 adam elmquist 23 story_separator_special_tag the following discussion should be read in conjunction with our financial statements and the notes thereto included in this report beginning on page f-1 . the results shown herein are not necessarily indicative of the results to be expected in any future periods . this discussion contains 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 . we use words such as “ anticipate , ” “ estimate , ” “ plan , ” “ project , ” “ continuing , ” “ ongoing , ” “ expect , ” “ believe , ” “ intend , ” “ may , ” “ will , ” “ should , ” “ could , ” and similar expressions to identify forward-looking statements . significant accounting policies our discussion and analysis of our results of operations and liquidity and capital resources are based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates and judgments , including those related to revenue recognition , valuation of intangible assets and investments , share-based payments , income taxes and litigation . we base our estimates on historical and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances , including assumptions as to future events . these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . by their nature , estimates are subject to an inherent degree of uncertainty . actual results that differ from our estimates could have a significant adverse effect on our operating results and financial position . we believe that the significant accounting policies as included in note 1 of the financial statements contained herein and management 's ongoing assumptions may involve a higher degree of judgment and complexity than others . emerging growth company we qualify as an “ emerging growth company ” under the jobs act . as a result , we are permitted to , and intend to , rely on exemptions from certain disclosure requirements . for so long as we are an emerging growth company , we will not be required to : · have an auditor report on our internal controls over financial reporting pursuant to section 404 ( b ) of the sarbanes-oxley act ; · comply with any requirement that may be adopted by the public company accounting oversight board regarding mandatory audit firm rotation or a supplement to the auditor 's report providing additional information about the audit and the financial statements ( i.e. , an auditor discussion and analysis ) ; · submit certain executive compensation matters to shareholder advisory votes , such as “ say-on-pay ” and “ say-on-frequency ; ” and · disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the ceo 's compensation to median employee compensation . in addition , section 107 of the jobs act also provides that an emerging growth company can story_separator_special_tag other than the foregoing , none of the following persons has any direct or indirect material interest in any transaction to which we were or are a party since the beginning of our last fiscal year , or in any proposed transaction to which we propose to be a party : ( a ) any of our director ( s ) or executive officer ( s ) ; ( b ) any nominee for election as one of our directors ; ( c ) any person who is known by us to beneficially own , directly or indirectly , shares carrying more than 5 % of the voting rights attached to our common stock ; or ( d ) any member of the immediate family ( including spouse , parents , children , siblings and in-laws ) of any of the foregoing persons named in paragraph ( a ) , ( b ) or ( c ) above 21 item 14. principal accounting fees and services during the years ended september 30 , 2016 , the company incurred auditing expenses of approximately $ 6,480 and $ 3,240 , respectively , which includes audit and review engagement services . there were no other audit related services or tax fees incurred . there were no other audit related services or tax fees incurred . part iv item 15. exhibits , financial statement schedules the company 's financial statements filed as part of this annual report are listed in the and provided in response to item 8. exhibits required by item 601 of regulation s-k : replace_table_token_10_th * filed previously * * filed herewith signatures 22 pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . app incline corporation date : december 29 , 2016 by : adam elmquist adam elmquist chief executive officer , chief financial officer , president , secretary , treasurer and director 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 . adam elmquist chief executive officer and director december 29 , 2016 adam elmquist adam elmquist chief financial officer december 29 , 2016 adam elmquist 23 story_separator_special_tag the following discussion should be read in conjunction with our financial statements and the notes thereto included in this report beginning on page f-1 . the results shown herein are not necessarily indicative of the results to be expected in any future periods . this discussion contains 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 . we use words such as “ anticipate , ” “ estimate , ” “ plan , ” “ project , ” “ continuing , ” “ ongoing , ” “ expect , ” “ believe , ” “ intend , ” “ may , ” “ will , ” “ should , ” “ could , ” and similar expressions to identify forward-looking statements . significant accounting policies our discussion and analysis of our results of operations and liquidity and capital resources are based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates and judgments , including those related to revenue recognition , valuation of intangible assets and investments , share-based payments , income taxes and litigation . we base our estimates on historical and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances , including assumptions as to future events . these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . by their nature , estimates are subject to an inherent degree of uncertainty . actual results that differ from our estimates could have a significant adverse effect on our operating results and financial position . we believe that the significant accounting policies as included in note 1 of the financial statements contained herein and management 's ongoing assumptions may involve a higher degree of judgment and complexity than others . emerging growth company we qualify as an “ emerging growth company ” under the jobs act . as a result , we are permitted to , and intend to , rely on exemptions from certain disclosure requirements . for so long as we are an emerging growth company , we will not be required to : · have an auditor report on our internal controls over financial reporting pursuant to section 404 ( b ) of the sarbanes-oxley act ; · comply with any requirement that may be adopted by the public company accounting oversight board regarding mandatory audit firm rotation or a supplement to the auditor 's report providing additional information about the audit and the financial statements ( i.e. , an auditor discussion and analysis ) ; · submit certain executive compensation matters to shareholder advisory votes , such as “ say-on-pay ” and “ say-on-frequency ; ” and · disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the ceo 's compensation to median employee compensation . in addition , section 107 of the jobs act also provides that an emerging growth company can
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results of operations our results of operations are presented below : results of operations for the twelve months ended september 30 , 2016 compared to the twelve months ended september 30 , 2015. during the twelve months ended september 30 , 2016 we incurred a net loss of $ 42,138 , compared to a net loss of $ 51,071 during the same period in fiscal 2015. the decrease in our net loss during the year ended september 30 , 2016 was primarily due to a decrease in consulting fees which were related to the preparation of a business plan and other start up services during our first year of operation . this decrease in fees was offset by an increase to professional fees ( including audit , accounting and edgar filing fees ) and management fees in 2016 as compared to fees incurred during fiscal 2015 , as the company completed its first full year of operations and received a notice of effect with respect to its s-1 registration statement . the company recorded depreciation of $ 1,600 during fiscal 2016 with no comparative expense during the prior fiscal period , as well as interest expenses of $ 388 in the current fiscal year with no comparative expense during fiscal 2015. liquidity and capital resources as of september 30 , 2016 we had $ 15,467 in cash and $ 15,488 in total assets , and $ 37,039 in total liabilities as compared to $ nil in cash and $ 262 in total assets , and $ 6,000 in total liabilities as of september 30 , 2015. the company is looking
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products are either sourced complete , manufactured or assembled by subsidiaries in the united states , canada , puerto rico , mexico , china , the uk , brazil , australia , spain and ireland . the company also participates in joint ventures in hong kong and the philippines , and maintains offices in singapore , italy , china , india , mexico , south korea , chile , and countries in the middle east . the company employed approximately 19,100 individuals worldwide as of december 31 , 2020. the company 's reporting segments consist of the electrical solutions segment ( previously named electrical until january 1 , 2021 ) and the utility solutions segment ( formerly named the power segment ) . in the first quarter of 2020 our former power segment was re-named utility solutions to reflect the depth and breadth of our industry-leading offering for electric , water , gas and telecom utilities ranging from a wide variety of critical infrastructure components to full-scale smart grid solutions . results for 2020 and 2019 by segment are included under “ segment results ” within this management 's discussion and analysis . the company 's long-term strategy is to serve its customers with reliable and innovative electrical and related infrastructure solutions with desired brands and high-quality service , delivered through a competitive cost structure ; to complement organic revenue growth with acquisitions that enhance its product offerings ; and to allocate capital effectively to create shareholder value . our strategy to complement organic revenue growth with acquisitions is focused on acquiring assets that extend our capabilities , expand our product offerings , and present opportunities to compete in core , adjacent or complementary markets . our acquisition strategy also provides the opportunity to advance our revenue growth objectives during periods of weakness or inconsistency in our end-markets . our strategy to deliver products through a competitive cost structure has resulted in past and ongoing restructuring and related activities . our restructuring and related efforts include the consolidation of manufacturing and distribution facilities , and workforce actions , as well as streamlining and consolidating our back-office functions . the primary objectives of our restructuring and related activities are to optimize our manufacturing footprint , cost structure , and effectiveness and efficiency of our workforce . productivity improvement also continues to be a key area of focus for the company and efforts to drive productivity complement our restructuring and related activities to minimize the impact of rising material costs and other administrative cost inflation . because material costs are approximately two thirds of our cost of goods sold , volatility in this area can significantly impact profitability . our goal is to have pricing and productivity programs that offset material and other inflationary cost increases as well as pay for investments in key growth areas . productivity programs affect virtually all functional areas within the company by reducing or eliminating waste and improving processes . we continue to expand our efforts surrounding global product and component sourcing and supplier cost reduction programs . value engineering efforts , product transfers and the use of lean process improvement techniques are expected to continue to increase manufacturing efficiency . in addition , we continue to build upon the benefits of our enterprise resource planning system across all functions . a discussion regarding results of operations and analysis of financial condition for the year ended december 31 , 2019 , as compared to the year ended december 31 , 2018 , is included in part ii , item 7 , management 's discussion and analysis of financial condition and results of operations to our annual report on form 10-k for the fiscal year ended december 31 , 2019 , which discussion is incorporated herein by reference . acquisition of aclara on february 2 , 2018 the company acquired aclara for approximately $ 1.1 billion . aclara is a leading global provider of smart infrastructure solutions for electric , gas , and water utilities , with advanced metering solutions and grid monitoring sensor technology , as well as leading software enabled installation services . the acquisition extends the utility solutions segment 's capabilities into smart automation technologies , accelerates ongoing innovation efforts to address utility customer demand for data and integrated solutions , and expands the segment 's reach to a broader set of utility customers . for additional information about the aclara acquisition , refer to note 3 — business acquisitions and dispositions in the notes to the consolidated financial statements . hubbell incorporated - form 10-k 21 organizational changes effective january 1 , 2021 the company consolidated the three business groups within its electrical segment , and renamed the segment as hubbell electrical solutions ( `` electrical solutions '' ) . the electrical solutions segment unites businesses with similar operating models , products , and go to market strategies under one operating banner and common leadership to drive synergies and long-term growth opportunities . also effective january 1 , 2021 the company moved its hubbell gas connectors and accessories business , from the electrical solutions segment to the utility solutions segment to create synergies with the existing gas products offered within the utility solutions segment and to better serve its utility customers . the hubbell gas connectors and accessories business represented approximately $ 157.1 million of net sales and $ 19.4 million of operating profit in 2020. the company will report its segment results under this revised reporting structure beginning with the filing of its quarterly report on form 10-q for the first quarter ended march 31 , 2021 . story_separator_special_tag we also continue to expect savings from our restructuring and related activities and to invest in restructuring and related actions as appropriate . moreover , during the third quarter of 2020 , our strong cash position allowed us to pre-pay the remaining $ 90.6 million principal of the term loan incurred to acquire aclara approximately 2.5 years prior to its scheduled maturity as further discussed below . given continued economic uncertainty , however , we were selective with our capital expenditures in 2020. further quantification and discussion of these pandemic related effects are included in the discussion of results of operations below . hubbell incorporated - form 10-k 23 results of operations our operations are classified into two reportable segments : electrical ( renamed electrical solutions effective january 1 , 2021 ) and utility solutions . for a complete description of the company 's segments , see part i , item 1 of this annual report on form 10-k. within these segments , hubbell serves customers in five primary end markets : utility t & d components , utility communications and controls , non-residential , residential , and industrial . in 2020 , organic net sales ( 1 ) declined by 9.1 percent or $ 418 million on overall weak end markets , primarily as a result of the impact of the covid-19 pandemic . non-residential and industrial markets each experienced significant declines in the second quarter of 2020 and remained soft in the second half of the year , which affected the performance of the electrical solutions segment . demand in the utility t & d components market remained resilient ; however performance within our utility solutions segment was affected by the previously noted temporary delays of certain meter installations and regulatory restrictions on smart infrastructure projects and deployments . operating margin declined in 2020 , by 30 basis points and adjusted operating margin ( 1 ) declined by 10 basis points , driven by lower net sales volume , and inefficiencies and cost increases within gross margin resulting primarily from the pandemic . these headwinds were partially offset by higher savings from our restructuring and related actions , cost actions and reductions within s & a expense associated with lower volume and the covid-19 pandemic , and favorable price realization and material costs . in 2020 , net income attributable to hubbell declined by 12.4 percent compared to the prior year and diluted earnings per share declined by 12.0 percent . adjusted net income attributable to hubbell ( 1 ) declined by 7.1 percent in 2020 compared to the prior year and adjusted diluted earnings per share ( 1 ) declined by 6.7 percent in 2020. free cash flow ( 2 ) was strong in 2020 at $ 559.6 million as compared to $ 497.7 million in the prior year . in 2020 we paid $ 201.4 million in shareholder dividends , an increase of 7.9 percent as compared to the prior year , while also reducing our long term debt by $ 106.3 million , and allocating approximately $ 239.6 million of capital to acquisitions . ( 1 ) organic net sales , adjusted operating margin , adjusted net income attributable to hubbell and adjusted diluted earnings per share are non-gaap financial measures . see `` adjusted operating measures '' below for a reconciliation to the comparable gaap financial measures . ( 2 ) free cash flow is a non-gaap financial measure . see `` adjusted operating measures '' and `` financial condition , liquidity and capital resources - cash flow '' below for a reconciliation to the comparable gaap financial measure . summary of consolidated results ( in millions , except per share data ) replace_table_token_2_th 24 hubbell incorporated - form 10-k adjusted operating measures in the following discussion of results of operations , we refer to `` adjusted '' operating measures . we believe those adjusted measures , which exclude the impact of certain costs , gains and losses , may provide investors with useful information regarding our underlying performance from period to period and allow investors to understand our results of operations without regard to items we do not consider a component of our core operating performance . adjusted operating measures exclude amortization of all intangible assets associated with our business acquisitions , including inventory step-up amortization associated with those acquisitions . the intangible assets associated with our business acquisitions arise from the allocation of the purchase price using the acquisition method of accounting in accordance with accounting standards codification 805 , “ business combinations. ” these assets consist primarily of customer relationships , developed technology , trademarks and tradenames , and patents , as reported in note 6 – goodwill and other intangible assets , under the heading “ total definite-lived intangibles '' within the notes to consolidated financial statements . the company believes that the exclusion of these non-cash expenses ( i ) enhances management 's and investors ' ability to analyze underlying business performance , ( ii ) facilitates comparisons of our financial results over multiple periods , and ( iii ) provides more relevant comparisons of our results with the results of other companies as the amortization expense associated with these assets may fluctuate significantly from period to period based on the timing , size , nature , and number of acquisitions . although we exclude amortization of these acquired intangible assets and inventory step-up from our non-gaap results , we believe that it is important for investors to understand that revenue generated , in part , from such intangibles is included within revenue in determining adjusted net income attributable to hubbell incorporated .
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segment results electrical solutions replace_table_token_5_th the following table reconciles our organic net sales to the directly comparable gaap financial measure ( in millions and percentage change ) : replace_table_token_6_th net sales of the electrical solutions segment in 2020 were $ 2.3 billion and decreased by $ 362.1 million , or 13.8 % as compared to 2019. organic net sales in 2020 declined by 13.6 % as compared to the same prior year period due to lower unit volume , primarily driven by the unfavorable effects of the covid-19 pandemic on demand . net sales in 2020 also declined , by less than 1 % from the effect of acquisitions and dispositions , as the decline from the disposal of the haefely business was greater than net sales added by acquisitions . within the segment , the aggregate net sales of our commercial and industrial and construction and energy business groups decreased in 2020 by approximately 14 percentage points as compared to the prior year , primarily due to lower volume driven by the unfavorable impact of the covid-19 pandemic on demand , partially offset by favorable price realization . net sales of our lighting business group in 2020 declined by approximately 14 percentage points as compared to the prior year period due to lower unit volumes also driven by the unfavorable effects of the covid-19 pandemic on demand . within the lighting business group , net sales of commercial and industrial lighting products in 2020 decreased by approximately 22 % compared to the prior year period driven by lower overall market demand , as well as softness in our national accounts . net sales of residential lighting products increased by approximately 6 % in 2020 as compared to the same prior year period due to strength in home center and e-commerce sales , partially offset by weakness in home builder markets in 2020 as compared to the prior year .
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company organization curtiss-wright corporation and its subsidiaries is a global , diversified , industrial provider of highly engineered , technologically advanced , products and services to a broad range of industries which are reported through our commercial/industrial , defense , and power segments . we are positioned as a market leader across a diversified array of niche markets through engineering and technological leadership , precision manufacturing , and strong relationships with our customers . we provide products and services to a number of global markets , including the commercial aerospace , defense , general industrial , and power generation markets . our overall strategy is to be a balanced and diversified company , less vulnerable to cycles or downturns in any one market , with a focus on establishing and expanding strong technological breadth , market positions , and financial performance . impacts of inflation , pricing , and volume we have not historically been and do not expect to be significantly impacted by inflation . increases in payroll costs and any increases in raw material costs that we have encountered are generally offset through lean manufacturing activities . we have consistently made annual investments in capital that deliver efficiencies and cost savings . the benefits of these efforts generally offset the margin impact of competitive pricing conditions in all of the markets we serve . analytical definitions throughout management 's discussion and analysis of financial condition and results of operations , the terms “ incremental ” and “ organic ” are used to explain changes from period to period . the term “ incremental ” is used to highlight the impact acquisitions had on the current year results for which there was no comparable prior-year period . therefore , the results of operations for acquisitions are incremental for the first twelve months from the date of acquisition . the remaining businesses are referred to as the “ organic ” . the definition of “ organic ” excludes the effect of foreign currency translation . market analysis and economic factors economic factors impacting our markets 21 curtiss-wright corporation is a global , diversified manufacturing and service company that designs , manufactures , and overhauls precision components and provides highly engineered products and services to the aerospace , defense , general industrial , and power generation markets . many of curtiss-wright 's industrial businesses are driven in large part by global economic growth , primarily led by operations in the u.s. , canada , europe , and china . the u.s. economy , as measured by real gross domestic product ( gdp ) , has slowly improved since 2009 , aided by decreased levels of unemployment , improvements in the housing market , and a low interest rate environment . in 2018 , u.s. gdp is expected to show solid growth of 3.0 % , according to the most recent estimate , led by tax cuts and corporate spending increases which drove an acceleration in growth through mid-2018 , ahead of gdp growth of 2.2 % in 2017 and 1.6 % in 2016. looking ahead to 2019 , economists have mixed views on the broader u.s. economy , with current estimates for u.s. real gdp growth indicating a rate of growth between 2 % and 3 % , despite the administration 's goal to raise the pace of expansion to 4 % per year through increased fiscal stimulus . meanwhile , the global environment 's rebound in economic activity that began in mid-2016 is expected to moderate somewhat from recent peak levels , influenced by international trade tensions , tightening financial conditions , and rising geopolitical uncertainty . as a result , 2019 gdp growth in world economies is expected to grow by approximately 3.5 % , below the 2018 growth rate of 3.7 % , according to the international monetary fund . this outlook is expected to be driven by a moderation in u.s. and european economic growth rates , as well as a flattening of growth in emerging market and developing economies . looking ahead to the next few years , we remain cautiously optimistic that our economically-sensitive commercial and industrial markets will improve based on normalized global conditions . defense we have a well-diversified portfolio of products and services that supply all branches of the u.s. military , with content on many high performance programs and platforms , as well as a growing international defense business . a significant portion of our defense business operations is attributed to the united states market , and characterized by long-term programs and contracts driven primarily by the department of defense ( dod ) budgets and funding levels . the u.s. defense budget serves as a leading indicator of our growth in the defense market . following across-the-board sequestration mandated by the bca , defense spending and related supplemental budgets bottomed in 2015. however , growth has stabilized in recent years , and in early 2018 , congress signed a bill to provide relief against the spending caps associated with the bca . further , a two-year budget agreement , signed in 2018 , paved the way for lawmakers to fund defense at $ 700 billion in fiscal year 2018 and $ 716 billion in fiscal year 2019 , both significant increases from the fiscal year 2017 budget . these growth rates are expected to provide the dod with additional stability and flexibility to enter into multi-year contracts without the impact of sequestration . in addition , the fiscal year 2019 defense appropriations bill , signed by the president in september 2018 , was the first to be signed into law on time in over a decade . looking ahead , the fiscal year 2020 budget is expected to range from $ 700 to $ 750 billion , with most reports indicating the likelihood of a $ 733 billion budget and continued growth in defense . we derive revenue from the naval defense , aerospace defense , and ground defense markets . story_separator_special_tag in addition , the continued supply constraints and environmental concerns attributed to the current dependence on fossil fuels have led to a greater appreciation of the value of nuclear technology as the most efficient and environmentally friendly source of energy available today . as a result , we expect growth opportunities in this market both domestically and internationally , although the timing of orders remains uncertain . we also play an important role in the new build market for the westinghouse ap1000 reactor design , for which we are a supplier of rcps and also expect to supply a variety of ancillary plant products and services . domestically , two new build reactors remain under construction in georgia utilizing the ap1000 design . on a global basis , nuclear plant construction is active . currently , there are approximately 57 new reactors under construction across 17 countries , with approximately 132 planned and 376 proposed over the next several decades . in particular , china intends to expand its nuclear power capabilities 23 significantly through the construction of new nuclear power plants over the next few decades , led by the successful start-up and operation of the first two ap1000 plants ( four reactors ) in late 2018 and early 2019 , which are the first generation iii+ reactors in operation worldwide . we continue to expect to play a role in new build nuclear plant construction with our largest opportunities in china and india . our future success in this industry will be led by new order activity for our vast array of nuclear technologies due to ongoing maintenance and upgrade requirements on operating nuclear plants , a renewed interest in products to aid safety and extend the reliability of existing reactors , and the continued emphasis on global nuclear power construction . general industrial revenue derived from our widely diversified offering to the general industrial market consists of industrial sensors and control systems , critical-function valves and valve systems , as well as surface treatment services . we supply our products and services to oems and aftermarket industrial customers , including the transportation , commercial trucking , off-road equipment , agriculture , construction , automotive , chemical , and oil and gas industries . our performance in these markets is typically sensitive to the performance of the u.s. and global economies , with changes in global gdp rates and industrial production driving our sales , particularly for our surface treatment services . one of the key drivers within our general industrial market is our sensors and controls systems products , most notably for electronic throttle controls , shift controls , joysticks , power management systems , traction control systems , serving on-and-off highway , medical mobility and specialty vehicles markets . increased industry demand for electronic control systems and sensors has been driven by the need for improved operational efficiency , safety , repeatability , reduced emissions , enhanced functionality , and greater fuel efficiencies to customers worldwide . key to our future growth is expanding the human-machine interface technology portfolio and providing a complete system solution to our customers . existing and emerging trends in commercial vehicle safety , emissions control , and improved driver efficiency are propelling commercial vehicle oems toward higher performance subsystems . these trends are accelerating the evolution from discrete human machine interface components towards a more integrated vehicle interface architecture . meanwhile , our surface treatment services , including shot and laser peening , engineered coatings , and analytical testing services , which are used to increase the safety , reliability , and longevity of components , are primarily driven by demand from general industrial customers . we also service the oil and gas , chemical , and petrochemical industries through numerous industrial valve products , where nearly all of our industrial valve sales are to the downstream markets . we maintain a global maintenance , repair , and overhaul ( mro ) business for our pressure-relief valve technologies as refineries opportunistically service or upgrade equipment that has been operating at or near full capacity . we also produce severe service , operation-critical valves for the power and process industries . earlier in the decade through mid-2014 , the industry had experienced solid performance driven by new exploration and expansion of sub-segments , including offshore drilling and shale gas , which boosted end-user demand . as a result of these market initiatives and reduced global economic growth , the industry experienced an excess of oil supply globally , driving a steady decline in crude oil prices throughout 2014 and 2015 , as well as reducing capital expenditures . though oil prices rebounded in late 2016 and throughout the past two years , they remain well below the recent 2014 peak . despite the challenges in the oil and gas market , we have seen an industrial renaissance in the u.s. chemical industry due to plentiful , affordable natural gas , which has led to further adoption of severe service valve technology . over the long run , we believe improved economic conditions and continued global expansion will be key drivers for future growth of our severe service and operation-critical valves serving the process industry . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; font-weight : bold ; '' > foreign currency translation adjustments during the year ended december 31 , 2017 resulted in a $ 78 million gain , compared to a foreign currency translation loss of $ 65 million in the comparable prior period . the comprehensive gain during the current period was primarily attributed to increases in the british pound , canadian dollar , and euro with the prior period comprehensive loss primarily impacted by a decrease in the british pound . results by business segment commercial/industrial sales in the commercial/industrial segment are primarily generated from the general industrial and commercial aerospace markets and , to a lesser extent , the defense and power generation markets . the following tables summarize sales , operating income and margin , and new orders within the commercial/industrial segment .
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results of operations 24 replace_table_token_9_th components of sales and operating income growth ( decrease ) : replace_table_token_10_th year ended december 31 , 2018 compared to year ended december 31 , 2017 sales for the year increased $ 141 million , or 6 % , to $ 2,412 million , compared with the prior year period . on a segment basis , sales from the commercial/industrial and power segments increased $ 46 million and $ 95 million , respectively , with sales from the defense segment essentially flat . changes in sales by segment are discussed in further detail in the `` results by business segment '' section below . operating income for the year increased $ 49 million , or 15 % , to $ 374 million , and operating margin increased 120 basis points compared with 2017 . in the commercial/industrial segment , operating income and operating margin increased primarily due to higher sales volumes and favorable overhead absorption for industrial vehicle and industrial valve products . operating income and operating margin in the defense segment benefited from higher sales and favorable overhead absorption , improved profitability due to the absence of first year purchase accounting costs from our acquisition of teletronics technology corporation ( ttc ) , and favorable contract adjustments . in the power segment , operating income and operating margin increased primarily due to higher profitability on the ap1000 china direct program , partially offset by first year purchase 25 accounting costs from our dresser-rand government business ( drg ) acquisition . additionally , the benefits of our ongoing margin improvement initiatives were recognized across all segments . non-segment operating expense for the year increased $ 3 million , or 9 % , to $ 36 million , primarily due to higher environmental costs .
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the section entitled “ risk factors ” set forth in part i , item 1a of this report , and similar discussions in our other sec filings , describe some of the important factors , risks and uncertainties that may affect our business , results of operations and financial condition and could cause actual results to differ materially from those expressed or implied by these or any other forward-looking statements made by us or on our behalf . you are cautioned not to place undue reliance on these forward-looking statements , which are based on current expectations and reflect management 's opinions only as of the date thereof . we do not assume any obligation to revise or update forward-looking statements . finally , our historic results should not be viewed as indicative of future performance . overview we are one of the largest online providers of aftermarket auto parts , including body parts , hard parts , and performance parts and accessories . our user-friendly websites provide customers with a broad selection of skus , with detailed product descriptions and photographs . our proprietary product database maps our skus to product applications based on vehicle makes , models and years . we principally sell our products to individual consumers through our network of websites and online marketplaces . our flagship websites are located at www.autopartswarehouse.com , www.carparts.com , www.jcwhitney.com and www.automd.com and our corporate website is located at www.usautoparts.net . we believe our strategy of disintermediating the traditional auto parts supply chain and selling products directly to customers over the internet allows us to more efficiently deliver products to our customers while generating higher margins . industry-wide trends that support our strategy include : 1. number of skus required to serve the market . the number of automotive skus has grown dramatically over the last several years . in today 's market , unless the consumer is driving a high volume vehicle and needs a simple maintenance item , the part they need is not typically on the shelf at a brick-and-mortar store . we believe our user-friendly websites provide customers with a comprehensive selection of approximately 1.6 million skus with detailed product descriptions , attributes and photographs paired with the flexibility of fulfilling orders using both drop-ship and stock-and-ship as well as our internally developed distributor selection system , and provide customers with a favorable alternative to the brick-and-mortar shopping experience . 24 2. u.s. vehicle fleet expanding and aging . the average age of u.s. vehicles , an indicator of auto parts demand , remained at a record-high 11.4 years as of january 2014 , according to ihs automotive , a market analytics firm that expects the average age to remain at 11.4 years through 2015 , and then rise to 11.5 years by 2017 and 11.7 years by 2019. ihs expects the number of vehicles that are 12 years or older to increase by 15 % by 2019. ihs found that the total number of light vehicles in operation in the u.s. has increased to record levels , with new vehicle registrations outpacing scrappage rates by more than 24 % . we believe an increasing vehicle base and rising average age of vehicles will have a positive impact on overall aftermarket parts demand because older vehicles generally require more repairs . 3. growth of online sales . the overall revenue from online sales of auto parts and accessories is expected to increase from $ 5.1 billion in 2013 to $ 16.56 billion in 2020 , according to a forecast from frost and sullivan . lower prices and consumers ' growing comfort with digital platforms are driving the shift to online sales . we believe that we are well positioned for the shift to online sales due to our history of being a leading source for aftermarket automotive parts through online marketplaces and our network of websites . our history . we were formed in delaware in 1995 as a distributor of aftermarket auto parts and launched our first website in 2000. we rapidly expanded our online operations , increasing the number of skus sold through our e-commerce network , adding additional websites , improving our internet marketing proficiency and commencing sales in online marketplaces . additionally , in august 2010 , through our acquisition of whitney automotive group , inc. ( referred to herein as “ wag ” ) , we expanded our product-lines and increased our customer reach in the do-it-yourself ( “ diy ” ) automobile and off-road accessories market . international operations . in april 2007 , we established offshore operations in the philippines . our offshore operations allow us to access a workforce with the necessary technical skills at a significantly lower cost than comparably experienced u.s.-based professionals . our offshore operations are responsible for a majority of our website development , catalog management , and back office support . our offshore operations also house our main call center . we had 714 employees in the philippines as of december 28 , 2013 . we had 704 employees in the philippines as of january 3 , 2015 . we believe that the cost advantages of our offshore operations provide us with the ability to grow our business in a cost-effective manner . automd . on october 8 , 2014 , automd entered into a common stock purchase agreement to sell seven million shares of automd common stock at a purchase price of $ 1.00 per share to third-party investors , reducing the company 's ownership interest in automd to 64.1 % . automd 's mission is to be the repair shop advocate for all vehicle owners , increase their confidence in the repair process and provide the most affordable and high quality options for automobile repair . automd 's current focus is on marketing and technology . automd 's current marketing strategy involves driving growth in their repair shop network . story_separator_special_tag it should not be considered , however , as an alternative to operating income , as an indicator of the company 's operating performance , or as an alternative to cash flows as measures of the company 's overall liquidity , as presented in the company 's consolidated financial statements . further , the adjusted ebitda measure shown may not be comparable to similarly titled measures used by other companies . refer to the table presented below for reconciliation of net loss to adjusted ebitda . total revenues increased in fiscal year 2014 compared to the same period in 2013 primarily due to growth in our online sales . our online sales , which include our e-commerce , online marketplace sales channels and online advertising , contributed 90.7 % of total revenues , and our offline sales , which consist of our kool-vue and wholesale operations , contributed 9.3 % of total revenues . our online sales for fiscal year 2014 increased by $ 27,764 , or 12.1 % , to $ 257,160 compared to $ 229,396 in 26 fiscal year 2013 primarily due to a 14.1 % increase in the total number of orders . our offline sales increased by $ 992 , or 3.9 % , to $ 26,349 compared to the same period last year . quarterly revenue increased year-over-year in each quarter of 2014. prior to the first quarter of fiscal 2014 , year-over-year quarterly revenue declined for six consecutive quarters beginning in the third quarter of 2012. the highest decline occurred during the first quarter of 2013 ( 25.2 % ) as compared to the first quarter of 2012 , and the least in the fourth quarter of 2013 compared to the fourth quarter of 2012 ( 5.0 % ) . the table below presents quarterly revenues ( in thousands ) and the change in quarterly year-over-year revenues . all quarters presented below represent thirteen week periods with the exception of the quarter ended january 3 , 2015 , which is a fourteen week period . replace_table_token_5_th like most e-commerce retailers , our success depends on our ability to attract online consumers to our websites and convert them into customers in a cost-effective manner . historically , marketing through search engines provided the most efficient opportunity to reach millions of on-line auto part buyers . we are included in search results through paid search listings , where we purchase specific search terms that will result in the inclusion of our listing , and algorithmic searches that depend upon the searchable content on our websites . algorithmic listings can not be purchased and instead are determined and displayed solely by a set of formulas utilized by the search engine . we have had a history of success with our search engine marketing techniques , which gave our different websites preferred positions in search results . but search engines , like google , revise their algorithms from time to time in an attempt to optimize their search results . since 2011 , google has released changes to google 's search results ranking algorithm aimed to lower the rank of certain sites and return other sites near the top of the search results based upon the quality of the particular site as determined by google . google made additional updates throughout fiscal year 2012 and 2013. we were negatively impacted by the changes in methodology for how google displayed or selected our different websites for customer search results . this reduced our unique visitor count which adversely affected our financial results . our unique visitor count decreased by 13.1 million , or 9.9 % , for fiscal 2014 to 119.8 million unique visitors compared to 132.9 million unique visitors for fiscal 2013. in 2012 and 2013 we believe we were affected by search engine algorithm changes due to the use of our product catalog across multiple websites . to address this issue we consolidated to a significantly smaller number of websites to ensure unique catalog content . the consolidation resulted in fewer visitors in both 2013 and 2014 as websites continued to close . however , because of the consolidation and improvements in catalog content , orders increased in 2014. as we are significantly dependent upon search engines for our website traffic , if we are unable to attract unique visitors , our business and results of operations will be harmed . barriers to entry in the automotive aftermarket industry are low , and current and new competitors can launch websites at a relatively low cost . due to a number of factors , including the rise of online marketplaces , it is easier for a traditional offline supplier to begin selling online and compete with us . these larger suppliers have access to merchandise at lower costs , enabling them to sell products at lower prices while maintaining adequate gross margins . our financial results were negatively impacted by the increased level of competition . our average order value went down marginally by $ 4 , or 3.0 % , for fiscal year 2014 to $ 95 compared to $ 99 in fiscal year 2013 as a result of increased pricing competition . our current and potential customers may decide to purchase directly from our suppliers . continuing increased competition from our suppliers that have access to products at lower prices than us could result in reduced sales , lower operating margins , reduced profitability , loss of market share and diminished brand recognition . in addition , some of our competitors have used and may continue to use aggressive pricing tactics . we expect that competition will further intensify in the future as internet use and online commerce continue to grow worldwide . we took a number of steps during 2014 to attempt to reduce the selling prices of our products while increasing margins , which are discussed below . total expenses , which primarily consisted of cost of sales and operating costs , increased in fiscal year 2014 compared to the same period in 2013 .
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results of operations the following table sets forth selected statement of operations data for the periods indicated , expressed as a percentage of net sales : replace_table_token_8_th fifty-three weeks ended january 3 , 2015 compared to the fifty-two weeks ended december 28 , 2013 net sales and gross margin replace_table_token_9_th net sales increased $ 28,755 , or 11.3 % , for fiscal year 2014 compared to fiscal year 2013 . our net sales consisted of online sales , which included mobile based online sales , representing 90.7 % of the total for fiscal year 2014 ( compared to 90.0 % in fiscal year 2013 ) , and offline sales , representing 9.3 % of the total for fiscal year 2014 ( compared to 10.0 % in fiscal year 2013 ) . the net sales increase was due to an increase of $ 27,764 , or 12.1 % , in online sales and a $ 992 , or 3.9 % , increase in offline sales . online sales increased primarily due to a 14.1 % increase in number of orders . gross profit increased $ 4,317 , or 5.8 % , in fiscal year 2014 compared to fiscal year 2013 . gross margin decreased 1.4 % to 27.7 % in fiscal year 2014 compared to 29.1 % in fiscal year 2013 . gross margin primarily decreased in fiscal year 2014 compared to fiscal year 2013 due to reduced margins from online sales . our gross margins were negatively impacted by the factors described in further detail under “ executive summary ” above .
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in addition , the company elected the short-term lease recognition exemption for all leases that qualify , including the agreement under which the company occupies certain office space as discussed in note 9. in may 2014 , the fasb issued new guidance related to revenue recognition , asu 2014-09 , revenue from contracts with customers ( “ asc 606 story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this annual report on form 10-k. the various sections of this discussion contain a number of forward-looking statements , all of which are based on our current expectations and could be materially affected by the uncertainties and risk factors described throughout this annual report . see “ special note regarding forward-looking statements. ” our actual results may differ materially . overview our business adma biologics , inc. ( the “ company , ” “ adma , ” “ we , ” “ us ” or “ our ” ) is an end-to-end commercial biopharmaceutical and specialty immunoglobulin company dedicated to manufacturing , marketing and developing specialty plasma-derived biologics for the treatment of immunodeficient patients at risk for infection and others at risk for certain infectious diseases . our targeted patient populations include immune-compromised individuals who suffer from an underlying immune deficiency disorder or who may be immune-suppressed for medical reasons . we currently have three products with u.s. food and drug administration ( the “ fda ” ) approval , all of which are currently marketed and commercially available : ( i ) bivigam ( immune globulin intravenous , human ) , an ivig product indicated for the treatment of pi , also known as pidd , and for which we received fda approval on may 9 , 2019 for the commercial re-launch of the product and commenced the commercial re-launch in august 2019 ; ( ii ) asceniv ( immune globulin intravenous , human – slra 10 % liquid ) , previously referred to as ri-002 , an ivig product indicated for the treatment of pi , for which we received fda approval on april 1 , 2019 and commenced first commercial sales in october 2019 ; and ( iii ) nabi-hb ( hepatitis b immune globulin , human ) , which is indicated for the treatment of acute exposure to blood containing hbsag and other listed exposures to hepatitis b. we seek to develop a pipeline of plasma-derived therapeutics , including a product based on our most recently approved patent application under u.s. patent no . 10,259,865 related to methods of treatment and prevention of s. pneumonia infection for an immunoglobulin manufactured to contain standardized antibodies to numerous serotypes of s. pneumonia . our products and product candidates are intended to be used by physician specialists focused on caring for immune-compromised patients with or at risk for certain infectious diseases . through adma bio centers , we currently operate one fda-approved source plasma collection facility in the u.s. , which provides us with a portion of our blood plasma for the manufacture of our products and product candidates . we intend to open five to 10 additional plasma collection centers in the u.s. during the next three to five years . a typical plasma collection center , such as those operated by adma bio centers , can collect approximately 30,000 to 50,000 liters of source plasma annually , which may be sold for different prices depending upon the type of plasma , quantity of purchase and market conditions at the time of sale . plasma collected from adma bio centers ' facilities that is not used to manufacture our products or product candidates is sold to third-party customers in the u.s. and in other locations outside the u.s. where we are approved under supply agreements or in the open “ spot ” market . we also sell plasma-derived intermediate fractions to certain customers , which are generated as part of our fda-approved manufacturing process for ivig products . in january 2020 , we announced our entry into a five-year manufacturing and supply agreement to produce and sell these intermediate by-products , which are used as the starting raw material to produce other plasma-derived biologics . in addition , from time to time we provide contract manufacturing services for certain historical clients . on june 6 , 2017 , we completed the acquisition of certain assets ( the “ biotest assets ” ) of the therapy business unit ( “ btbu ” ) of biotest pharmaceuticals corporation ( “ bpc ” and , together with biotest ag , “ biotest ” ) , which included two fda-licensed products , nabi-hb and bivigam , and an fda-licensed plasma fractionation facility located in boca raton , fl ( the “ boca facility ” ) ( the “ biotest transaction ” ) . 52 our products bivigam bivigam is a plasma-derived ivig that contains a broad range of antibodies similar to those found in normal human plasma . these antibodies are directed against bacteria and viruses , and help to protect pi patients against serious infections . bivigam is a purified , sterile , ready-to-use preparation of concentrated human immunoglobulin g antibodies indicated for the treatment of pi , a group of genetic disorders . this includes , but is not limited to , the humoral immune defect in common variable immunodeficiency , x-linked agammaglobulinemia , congenital agammaglobulinemia , wiskott-aldrich syndrome and severe combined immunodeficiency . these pis are a group of genetic disorders . story_separator_special_tag for the years ended december 31 , 2019 and 2018 , we determined that there was no impairment of our long-lived assets . goodwill is not amortized , but is assessed for impairment on an annual basis or more frequently if impairment indicators exist . we have the option to perform a qualitative assessment of goodwill to determine whether it is more likely than not that the fair value of the reporting unit associated with the goodwill is less than its carrying amount , including goodwill and other intangible assets . if we conclude that this is the case , then we must perform a goodwill impairment test by comparing the fair value of the reporting unit to its carrying value . an impairment charge is recorded to the extent the reporting unit 's carrying value exceeds its fair value , with the impairment loss recognized not to exceed the total amount of goodwill allocated to that reporting unit . we did not recognize any impairment charges related to goodwill for the years ended december 31 , 2019 and 2018 . 55 recent accounting pronouncements in july 2017 , the financial accounting standards board ( the “ fasb ” ) issued accounting standards update ( “ asu ” ) no . 2017-11 , earnings per share ( topic 260 ) , distinguishing liabilities from equity ( topic 480 ) , derivatives and hedging ( topic 815 ) ” ( “ asu 2017-11 ” ) . asu 2017-11 changed the classification analysis of certain equity-linked financial instruments ( or embedded features within such instruments ) with down round features . when determining whether certain financial instruments should be classified as liabilities or equity instruments , a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity 's own stock . the amendments also clarify existing disclosure requirements for equity-classified instruments . as a result , a freestanding equity-linked financial instrument ( or embedded conversion option ) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature . for freestanding equity classified financial instruments , the amendments require entities that present earnings per share ( “ eps ” ) in accordance with asc 260 to recognize the effect of the down round feature when it is triggered . that effect is treated as a dividend and as a reduction of income available to common shareholders in basic eps . in addition , convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features in asc 470-20 , “ debt—debt with conversion and other options . ” asu 2017-11 became effective for us on january 1 , 2019 , and this update did not have a significant impact on our consolidated financial statements . in february 2016 , the fasb issued asu no . 2016-02 , leases ( topic 842 ) ( “ asu 2016-02 ” ) , which requires lessees to recognize assets and liabilities for the rights and obligations created by most leases on their balance sheet . the guidance became effective for fiscal years beginning after december 15 , 2018 , including interim periods within those fiscal years . asu 2016-02 requires modified retrospective adoption for all leases existing at , or entered into after , the date of initial application , with an option to use certain transition relief . we adopted asu 2016-02 on january 1 , 2019 using the option to recognize the cumulative-effect adjustment , if any , as of the date of application , which was also january 1 , 2019. as a result , there was no restatement of comparative periods . we recognized right-to-use assets of approximately $ 1.4 million and corresponding lease liabilities of approximately $ 1.6 million at the date of adoption . we also elected the “ package of practical expedients , ” which permits us to not reassess under the new standard our prior conclusions about lease identification , lease classification and initial direct costs . in addition , we elected the short-term lease recognition exemption for all or embedded leases that qualify . in may 2014 , the fasb issued new guidance related to revenue recognition , asu 2014-09 , revenue from contracts with customers ( “ asc 606 ” ) , which outlines a comprehensive revenue recognition model and supersedes most current revenue recognition guidance . the new guidance requires a company to recognize revenue upon transfer of goods or services to a customer at an amount that reflects the expected consideration to be received in exchange for those goods or services . asc 606 defines a five-step approach for recognizing revenue , which may require a company to use more judgment and make more estimates than under the current guidance . the new guidance became effective in calendar year 2018. two methods of adoption are permitted : ( a ) full retrospective adoption , meaning the standard is applied to all periods presented ; or ( b ) modified retrospective adoption , meaning the cumulative effect of applying the new guidance is recognized at the date of initial application as an adjustment to the opening retained earnings balance . in march 2016 , april 2016 and december 2016 , the fasb issued asu no . 2016-08 , revenue from contracts with customers ( asc 606 ) : principal versus agent considerations , asu no . 2016-10 , revenue from contracts with customers ( asc 606 ) : identifying performance obligations and licensing , and asu no . 2016-20 , technical corrections and improvements to topic 606 , revenue from contracts with customers , respectively , which further clarify the implementation guidance on principal versus agent considerations contained in asu no .
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results of operations critical accounting policies and estimates this management 's discussion and analysis of financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ u.s . gaap ” ) . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses . on an ongoing basis , we evaluate these estimates and assumptions , including those described below . we base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances . these estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results and experiences may differ materially from these estimates . significant estimates include the realizable value of accounts receivable , valuation of inventory , assumptions used in the fair value of awards granted under our equity incentive plans and warrants issued in connection with the issuance of notes payable and the valuation allowance for our deferred tax assets . some of the estimates and assumptions we have to make under u.s. gaap require difficult , subjective and or complex judgments about matters that are inherently uncertain and , as a result , actual results could differ from those estimates . due to the estimation processes involved , the following summary of accounting policies and their application are considered to be critical to understanding our business operations , financial condition and results of operations .
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the company , at its option , may story_separator_special_tag general w.w. grainger , inc. ( grainger ) is a broad line , business-to-business distributor of maintenance , repair and operating ( mro ) products and services with operations primarily in north america , europe and japan . more than 3.5 million customers worldwide rely on grainger for products such as safety , gloves , ladders , motors and janitorial supplies , along with services like inventory management and technical support . these customers represent a broad collection of industries ( see note 2 to the consolidated financial statements ( financial statements ) ) . they place orders online , on mobile devices , through sales representatives , over the phone and at local branches . approximately 5,000 suppliers provide grainger with about 1.7 million products stocked in grainger 's distribution centers ( dcs ) and branches worldwide . grainger 's two reportable segments are the u.s. and canada ( acklands - grainger , inc. and its subsidiaries ) . these reportable segments reflect the results of the company 's high-touch , high-service businesses in those geographies . other businesses include the endless assortment businesses , ( zoro in the u.s. and monotaro in japan ) , and smaller high-touch , high-service businesses in europe , asia and mexico . business environment given grainger 's large number of customers and the diverse industries it serves , several economic factors and industry trends tend to shape grainger 's business environment and provide general insight into projecting grainger 's growth . grainger 's sales in the u.s. and canada tend to positively correlate with business investment , business inventory , exports , industrial production and gross domestic product ( gdp ) . sales in canada also tend to positively correlate with oil prices . the table below provides these estimated indicators for 2018 and 2019 : u.s. canada estimated 2018 forecasted 2019 estimated 2018 forecasted 2019 business investment 7.3 % 3.4 % 2.8 % 1.2 % business inventory 1.6 % 2.7 % — — exports 4.0 % 4.1 % 3.2 % 2.2 % industrial production 3.9 % 2.4 % 2.6 % 1.0 % gdp 2.9 % 2.5 % 2.1 % 2.0 % oil prices — — $ 65/barrel $ 55/barrel source : global insight u.s. ( january 2019 ) , global insight canada ( january 2019 ) in the u.s. , business investment and exports are two major indicators of mro spending . per the global insight january 2019 forecast , business inventory and exports are forecast to improve while business investment , industrial production and gdp are forecast to slow , yet still remain stable during 2019 despite slowing global growth , financial market volatility and fading fiscal stimulus . per the global insight january 2019 forecast , canada 's business investment , exports and industrial production are expected to slow due to a reduction in spending and oil production quotas and increasing interest rates . outlook each business in grainger 's portfolio has a specific set of strategic imperatives focused on creating unique value for customers . in the u.s. business , grainger is focused on growing market share through the three pillars of its strategy : ( i ) building advantaged mro solutions , which means being able to get customers the exact product they need to solve a problem quickly ; ( ii ) offering differentiated sales and services ; grainger has an advantage in serving complex businesses at their place of business through its direct customer relationships and onsite services and ( iii ) enabling flawless order to cash ; grainger is committed to providing the absolute best customer experience in the industry through its effort to deliver flawlessly on every customer transaction . 18 the canada business is focused on stabilizing volume performance in 2019 after completing the majority of its cost structure reset . in other businesses , the company is focused on growing the endless assortment businesses profitably , investing in product assortment and innovating around customer acquisition by building marketing and analytics capabilities . the high-touch , high-service international businesses are focused on the same initiatives as the u.s. business , as mentioned above . matters affecting comparability there were 255 sales days in the full years 2018 and 2016 versus 254 sales days in the full year 2017 . grainger completed one divestiture in 2017 , which was immaterial . story_separator_special_tag style= '' vertical-align : bottom ; padding-left:2px ; padding-top:2px ; padding-bottom:2px ; border-top:1px solid # 000000 ; '' > $ 1,158 $ 1,035 12 % total restructuring and impairment charges , net of branch gains and other charges 186 112 operating earnings adjusted $ 1,344 $ 1,147 17 % 2018 2017 % net earnings attributable to w.w. grainger , inc. reported $ 782 $ 586 33 % total restructuring and impairment charges , net of branch gains and other charges 186 112 tax effect ( 1 ) ( 16 ) ( 13 ) u.s. tax legislation ( 2 ) — ( 3 ) discrete tax items — ( 12 ) total restructuring and impairment charges , net of branch gains and other charges and tax 170 84 net earnings attributable to w.w. grainger , inc. adjusted $ 952 $ 670 42 % ( 1 ) the tax impact of adjustments is calculated based on the income tax rate in each applicable jurisdiction , subject to deductibility and the company 's ability to realize the associated tax benefits . ( 2 ) u.s. tax legislation reflects the 2017 impact of the benefit of remeasurement of deferred taxes , partially offset by one-time deemed repatriation tax . 20 sg & a of $ 3,190 million for 2018 increased $ 127 million , or 4 % from $ 3,063 million compared with the same period in 2017 . in the third quarter of 2018 grainger recorded $ 139 million of impairment charges related to goodwill and tradename intangible asset at the cromwell business . story_separator_special_tag 112 147 tax effect ( 1 ) ( 13 ) ( 33 ) u.s. tax legislation ( 2 ) ( 3 ) — discrete tax items ( 12 ) ( 9 ) total restructuring and impairment charges , net of branch gains and other charges and tax 84 105 net earnings attributable to w.w. grainger , inc. adjusted $ 670 $ 711 ( 6 ) % ( 1 ) the tax impact of adjustments is calculated based on the income tax rate in each applicable jurisdiction , subject to deductibility and the company 's ability to realize the associated tax benefits . ( 2 ) u.s. tax legislation reflects the 2017 impact of the benefit of remeasurement of deferred taxes , partially offset by one-time deemed repatriation tax . sg & a of $ 3,063 million for 2017 increased 2 % from $ 3,002 million for 2016. excluding restructuring and impairment charges net of branch gains and other charges in both periods as noted in the table above , operating expenses increased 3 % , driven primarily by higher employee-related costs . operating earnings of $ 1,035 million for 2017 decreased 7 % from $ 1,113 million for 2016. excluding restructuring and impairment charges net of branch gains and other charges in both periods as noted in the table above , operating earnings decreased 9 % or $ 113 million , driven primarily by lower gross profit and higher operating expenses . 23 other expense , net was $ 99 million in 2017 compared to $ 94 million of expense in 2016. the increase in expense was primarily due to incremental interest expense on $ 400 million in long-term debt issued in may 2016 and $ 400 million in long-term debt issued in may 2017 , as well as higher operating losses from the company 's clean energy investments partially offset by higher benefits related to the company 's postretirement plan . see note 10 to the financial statements for additional information . income taxes of $ 313 million in 2017 decreased 19 % compared with $ 386 million in 2016. grainger 's effective tax rates were 33.5 % and 37.9 % in 2017 and 2016 , respectively . the lower rate versus the prior year is primarily due to discrete tax items and u.s. tax legislation . on december 22 , 2017 , the tax act was signed into law , which significantly revised the u.s. corporate income tax system by lowering corporate income tax rates from 35 % to 21 % effective january 1 , 2018 , allowing accelerated expensing of qualified capital investments for a specific period , limiting net interest expense deductions and transitioning u.s. international taxation from a worldwide to a territorial tax system , among other changes . grainger recognized a net provisional tax benefit of $ 3.2 million for the year ended december 31 , 2017 , related to the estimated impact of the tax act . see note 15 to the financial statements for additional information . net earnings attributable to w.w. grainger , inc. for 2017 decreased by 3 % to $ 586 million from $ 606 million in 2016. the decrease in net earnings primarily resulted from lower operating earnings , partially offset by lower income taxes . excluding restructuring and impairment charges net of branch gains and other charges net of income tax and discrete tax items from both years mentioned in the table above , net earnings decreased 6 % . diluted earnings per share of $ 10.02 in 2017 were 2 % higher than $ 9.87 for 2016 , due to lower average shares outstanding partially offset by lower earnings . excluding restructuring and impairment charges net of branch gains and other charges net of income taxes in the table above , diluted earnings per share would have been $ 11.46 compared to $ 11.58 in 2016 , a decrease of 1 % . segment analysis - 2018 compared to 2017 the following comments at the reportable segment and other business unit level include external and intersegment net sales and operating earnings . see note 17 to the financial statements . united states net sales were $ 8,588 million for 2018 , an increase of $ 628 million , or 8 % when compared with net sales of $ 7,960 million for 2017 . on a daily basis , the 7 % increase consisted of the following : percent increase ( decrease ) volume 8 % divestiture ( 1 ) % total 7 % sales to customers in the government end market increased in the low teens and natural resources increased in the high single digits . retail/wholesale , commercial and heavy manufacturing end markets increased in the mid-single digits . contractors increased in the low single digits while the light manufacturing end segment was flat year over year . overall , revenue increases were primarily driven by market share gains and improved demand in all industries , partially offset by the company 's pricing actions and the july 2017 divestiture of a specialty business . see note 2 to the financial statements . gross profit margin decreased 0.7 percentage point compared to the same period in 2017 . the decline was primarily driven by 0.5 percentage point due to the implementation of the fasb 's new revenue recognition standard . excluding the impact of the implementation of the new revenue recognition standard , gross profit margin would have been unfavorable by 0.2 percentage points . sg & a for 2018 increased 3 % compared to the same period in 2017 . this increase was primarily driven by variable compensation to reflect stronger performance , partially offset by the implementation of the fasb 's new revenue recognition standard . 24 operating earnings of $ 1,338 million increased $ 138 million , or 12 % from $ 1,200 million in the same period of 2017 . this increase was driven primarily by higher sales , higher gross profit dollars and improved sg & a leverage .
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results of operations the following table is included as an aid to understanding changes in grainger 's consolidated statements of earnings ( in millions of dollars ) : replace_table_token_7_th 2018 compared to 2017 grainger 's net sales of $ 11,221 million for 2018 increased $ 796 million , or 8 % , compared to the same period in 2017. on a daily basis , net sales increased 7 % . the increase in net sales was primarily driven by volume increases in the u.s. business due to market share gain and an improved demand environment and continued double digit growth in the endless assortment businesses , offset by lower sales in the canada business . see note 17 to the financial statements and refer to the segment analysis below for further details . gross profit of $ 4,348 million for 2018 increased $ 250 million , or 6 % compared with the same period in 2017 . the gross profit margin of 38.7 % decreased 0.6 percentage points when compared to the same period in 2017. the lower gross profit margin reflects a 0.5 percentage point decline from the implementation of the financial accounting standards board ( fasb ) new revenue recognition standard that primarily reclassified certain costs related to keepstock® services from selling , general and administrative expenses ( sg & a ) to cost of goods sold ( cogs ) . excluding this impact , gross profit margin would have decreased 0.1 percentage point compared to the prior year .
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( b ) debiopharm august 2009 license agreement ( i ) agreement summary in august 2009 , the company entered into a license agreement with debiopharm , pursuant to which the company has granted to debiopharm a worldwide , exclusive royalty-bearing license , with the right to grant sublicenses , to develop , manufacture , market and sell any product containing curis ' hsp90 inhibitor technology , including its lead hsp90 compound under development , cudc-305 , which debiopharm has since renamed debio 0932. debiopharm has assumed all future development responsibility and all future costs related to the development , registration and commercialization of products under the agreement . pursuant to the terms of the agreement , the company used its reasonable commercial efforts to transfer to debiopharm know how , information and clinical materials necessary for debiopharm to continue the development of products in accordance with the development plan outlined in the agreement , all of which were completed as of december 31 , 2009. furthermore , at no cost to debiopharm , the company provided a reasonable story_separator_special_tag the following discussion and analysis of financial condition and results of operations should be read together with selected financial data , and our financial statements and accompanying notes appearing elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements , based on current expectations and related to future events and our future financial performance , that involve risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of many important factors , including those set forth under item 1a , risk factors and elsewhere in this report . overview we are a drug discovery and development company that is committed to leveraging our innovative signaling pathway drug technologies in seeking to develop next generation network-targeted cancer therapies . we are building upon our experience in modulating signaling pathways , including the hedgehog signaling pathway , in our effort to develop network-targeted cancer therapies . we conduct our research and development programs both internally and through strategic collaborations . hedgehog pathway inhibitor program ( erivedge ) erivedge ( vismodegib ) capsule . our most advanced program is our hedgehog pathway inhibitor program under collaboration with genentech , inc. , a member of the roche group . the lead drug candidate being developed under this program is erivedge , a first-in-class orally-administered small molecule hedgehog pathway inhibitor , which is also referred to as vismodegib , gdc-0449 and rg3616 . erivedge is designed to selectively inhibit signaling in the hedgehog pathway by targeting a protein called smoothened . the hedgehog signaling pathway plays an important role in regulating proper growth and development in the early stages of life and becomes less active in adults . however , mutations in the pathway that reactivate hedgehog signaling are seen in certain cancers , including basal cell carcinoma , or bcc . abnormal signaling in the hedgehog pathway is implicated in over 90 % of bcc cases . in january 2012 , erivedge was approved by the u.s. food and drug administration , or fda , as the first and only fda-approved medicine for adults with advanced forms of basal cell carcinoma that has spread to other parts of the body or that has come back after surgery or that their healthcare provider decides can not be treated with surgery or radiation . it is not known if erivedge is safe and effective in children . we earned a $ 10,000,000 milestone payment from genentech as a result of the fda 's approval of erivedge in this indication and we are also entitled to receive royalties on future sales of the product . during the fourth quarter of 2011 , we received a total of $ 14,000,000 in milestone payments from genentech relating to the fda 's acceptance of genentech 's new drug application , or nda , for erivedge and the european medicines agency 's , or ema 's , acceptance for review of a marketing authorization application , or maa for erivedge , that was submitted by roche in december 2011. the genentech nda and roche maa applications were based on positive clinical data from erivance bcc/shh4476g , a pivotal phase ii study of erivedge in patients with advanced bcc . we will receive an additional milestone payment if erivedge also receives ema marketing authorization , as well as royalties on any future sales in this territory . genentech is also conducting a separate phase ii clinical trial of erivedge in patients with operable nodular basal cell carcinoma , which is a less severe form of the disease and accounts for a significant percentage of the approximately two million bccs diagnosed annually in the united states . we anticipate that the study will be completed during early 2013. in addition to the bcc clinical trials being conducted directly by genentech and roche , erivedge is also currently being tested in other cancers in trials under collaborative agreements between genentech and either third-party investigators or the u.s. national cancer institute , or nci . 47 network-targeted cancer programs our internal drug development efforts are focused on our network-targeted cancer programs , in which we are seeking to design single novel small molecule drug candidates that inhibit multiple signaling pathways that are believed to play roles in cancer cell proliferation . we refer to this approach as cancer network disruption . we believe that our approach of targeting multiple nodes in cancer signaling pathway networks may provide a better therapeutic effect than many of the cancer drugs currently marketed or in development since our drug candidates are being designed to disrupt multiple targets in the cancer network environment as compared to most other cancer drugs which are designed to disrupt only one target . cudc-101 . story_separator_special_tag debiopharm has also indicated that it expects to initiate a combination phase i/ii study in non-small cell lung cancer patients in the second quarter of 2012. we are eligible for our next milestone payment under our license agreement if and when debiopharm treats its fifth patient in a phase ii clinical trial , assuming that debiopharm advances debio 0932 into phase ii clinical testing . we currently anticipate that phase ii testing could commence in the first half of 2013. liquidity since our inception , we have funded our operations primarily through license fees , contingent cash payments , research and development funding from our corporate collaborators , the private and public placement of our equity securities , debt financings and the monetization of certain royalty rights . we have never been profitable and have an accumulated deficit of $ 732,088,000 as of december 31 , 2011. we expect to incur significant operating losses for the next several years as we devote substantially all of our resources to our research and development programs . we will need to generate significant revenues to achieve profitability and do not expect to achieve profitability in the foreseeable future , if at all . we anticipate that existing capital resources as of december 31 , 2011 should enable us to maintain current and planned operations into the second half of 2013. we believe that near term key drivers to our success will include : genentech 's ability to successfully launch and commercialize erivedge in the us ; genentech 's receipt of ema approval to commercialize erivedge in advanced bcc as well as its ability to successfully launch and commercialize erivedge in the european market ; debiopharm 's ability to advance debio 0932 into later stages of clinical development ; our ability to successfully plan , finance and complete clinical trials for cudc-101 and advance cudc-101 into later stages of clinical development in indications other than head and neck cancers ; our ability to successfully advance early-stage development candidates , such as cudc-907 into clinical testing ; our ability to successfully enter into one or more material licenses or collaboration agreements for our proprietary drug candidates ; and our ability to advance the research of other small molecule cancer drug candidates that we are developing under our proprietary pipeline of network-targeted cancer programs . 49 in the longer term , a key driver to our success will be our ability , and the ability of any current or future collaborator or licensee , to successfully commercialize drugs based upon our proprietary technologies . collaboration agreements we are currently a party to a june 2003 collaboration with genentech relating to our hedgehog pathway inhibitor technologies , and an august 2009 license agreement with debiopharm relating to our hsp90 inhibitor technology . our past and current collaborations have generally provided for research , development and commercialization programs to be wholly or majority-funded by our collaborators and provide us with the opportunity to receive additional contingent cash payments if specified development and regulatory approval objectives are achieved , as well as royalty payments upon the successful commercialization of any products based upon the collaborations . we are currently not receiving any research funding and we do not expect to receive such funding in the future from genentech or debiopharm under our current agreements with these parties . under our collaborations with genentech , we currently expect to incur only costs related to the maintenance of licenses , including sublicense payments due upon milestone payments and any royalties we receive , as well as patent-related expenses . as a result of our licensing agreements with various universities , we are also obligated to make payments to these university licensors when we receive certain payments from genentech . as of december 31 , 2011 , we have incurred an aggregate of approximately $ 1,640,000 related to ongoing agreements , of which $ 1,600,000 relates to payments that we received from genentech . as we receive additional milestone payments from genentech upon fda approval of erivedge obtained in january 2012 , and ema approval , if achieved , we will be obligated to pay 5 % in additional sublicense fees to these licensors , as well as a total of 5 % of any royalties received from the sale of erivedge . we do not expect to incur any material costs related to our hsp90 technologies under development by debiopharm under our august 2009 license agreement with debiopharm . our current collaboration agreements are summarized as follows : genentech hedgehog pathway inhibitor collaboration . under the terms of the june 2003 agreement with genentech , we granted genentech an exclusive , global , royalty-bearing license , with the right to sublicense , to make , use , sell and import small molecule and antibody hedgehog pathway inhibitors . in november 2008 , genentech granted a sublicense to f. hoffmann-laroche , ltd ( roche ) for non-u.s. rights to gdc-0449 . roche received this sublicense pursuant to an agreement between genentech and roche under which genentech granted roche an option to obtain a license to commercialize certain genentech products in non-u.s. markets . in february 2010 , we announced that chugai pharmaceutical co. , ltd. had exercised its right of first refusal for the development and commercialization in japan of gdc-0449 under an existing agreement with roche . genentech and roche have primary responsibility for worldwide clinical development , regulatory affairs , manufacturing and supply , formulation and sales and marketing . we are not a party to this agreement between genentech and roche but we are eligible to receive cash payments for regulatory filing and approval objectives achieved and future royalties on products developed outside of the u.s. , if any , under our june 2003 collaboration agreement with genentech . the lead drug candidate being developed under this program is erivedge , a first-in-class orally-administered small molecule hedgehog pathway inhibitor that is the first and only fda-approved medicine for adults with advanced forms of basal cell carcinoma .
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maa review - erivedge ( vismodegib ) operable nodular bcc genentech phase ii network-targeted cancer programs - cudc-101 intravenous formulation ( hdac , egfr , her2 inhibitor ) cancer internal development phase i expansion - cudc-101 intravenous formulation ( hdac , egfr , her2 inhibitor ) locally advanced hpv- head and neck cancer internal development phase i - cudc-101 oral formulation ( hdac , egfr , her2 inhibitor ) cancer internal development development candidate - cudc-907 ( hdac , pi3k inhibitor ) cancer internal development development candidate - other network-targeted cancer programs cancer internal development preclinical - debio 0932 ( formerly cudc-305 ) ( hsp90 inhibitor ) cancer debiopharm phase ib in the chart above , fda approval means that genentech 's nda was approved by the fda for commercialization of erivedge in the united states . maa review means that roche has filed an maa with the ema , and the ema has accepted and is currently reviewing the application for potential approval to commercialize erivedge in europe . phase ii means that genentech is currently treating human patients in a phase ii clinical trial , the primary objective of which is a therapeutic response in the patient population . phase i expansion means that we are currently treating human patients with specific tumor types in an extension of our phase i dose escalation trial , at the maximum tolerated dose from such trial , the principal purpose of which is to evaluate the safety and tolerability of the compound being tested . phase ib means that debiopharm is further assessing the safety profile , pharmacokinetics and pharmacodynamics of debio 0932 at the recommended phase ii dose level , and seeking to make a preliminary assessment of anti-tumor activity in patients with advanced solid tumors .
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” management 's discussion and analysis of financial condition and results of operations contains a number of forward-looking statements , all of which are based on our current expectations and could be affected by the uncertainties and other factors described throughout this form 10-k , including the factors disclosed under “ item 1a . — risk factors. ” 27 we believe that the assumptions underlying the consolidated and combined financial statements included in this annual report are reasonable . however , the consolidated and combined financial statements may not necessarily reflect our results of operations , financial position and cash flows for future periods or what they would have been had tribune publishing been a separate , stand-alone company during all the periods presented . overview tribune publishing company ( collectively with its subsidiaries , “ tribune publishing ” or the “ company ” ) is a multiplatform media and marketing solutions company that delivers innovative experiences for audiences and advertisers . the company 's diverse portfolio of iconic news and information brands includes award-winning daily and weekly titles , digital properties and verticals in major markets across the country . as discussed in item 1 - business of this annual report on form 10-k , on august 4 , 2014 , ( “ distribution date ” ) , the company completed its separation from tribune media company , formerly tribune company ( “ tco ” ) . the company is a separately traded public company . prior to the distribution date , separate financial statements were not prepared for tribune publishing . the accompanying consolidated and combined financial statements were derived from the historical accounting records of tco and present tribune publishing 's consolidated and combined financial position , results of operations and cash flows as of and for the periods presented as if tribune publishing was a separate entity through the distribution date . management believes that assumptions and methodologies underlying the allocation of general corporate expenses are reasonable . however , such expenses prior to the distribution date may not be indicative of the actual level of expense that would have been incurred had tribune publishing operated as a separate stand-alone entity , and , accordingly , may not necessarily reflect tribune publishing 's consolidated and combined financial position , results of operations and cash flows had tribune publishing operated as a stand-alone entity during the periods presented . see note 6 in the consolidated and combined financial statements included elsewhere in this report for further information on costs allocated from tco . subsequent to the distribution date , tribune publishing 's financial statements are presented on a consolidated basis as the company became a separate consolidated entity . the company intends for the discussion of its 2014 and prior period financial condition and results of operations that follows to provide information that will assist in understanding the company 's financial statements , the changes in certain key items in those statements from period to period and the primary factors that accounted for those changes as well as how certain accounting principles , policies and estimates affect the company 's financial statements . the principal sources of the company 's revenue are from the sale of local , national and other advertising revenue , and the sale of the company 's published content . spin-off transaction on august 4 , 2014 , tco completed the spin-off of its principal publishing operations into an independent company , tribune publishing , by distributing 98.5 % of the outstanding shares of tribune publishing common stock to holders of tco common stock and warrants . in the distribution , each holder of tco class a common stock , class b common stock and warrants received 0.25 of a share of tribune publishing common stock for each share of tco common stock or tco warrant held as of the record date of july 28 , 2014. based on the number of shares of tco common stock and tco warrants outstanding as of 5:00 p.m. eastern time on july 28 , 2014 and the distribution ratio , 25,042,263 shares of tribune publishing common stock were distributed to the tco stockholders and holders of tco warrants and tco retained 381,354 shares of tribune publishing common stock , representing 1.5 % of outstanding common stock of tribune publishing . on august 5 , 2014 , tribune publishing became a separate publicly-traded company with its own board of directors and senior management team . shares of tribune publishing common stock are listed on the new york stock exchange under the symbol “ tpub. ” in connection with the separation and distribution , tribune publishing paid a $ 275.0 million cash dividend to tco from a portion of the proceeds of a senior secured credit facility entered into by tribune publishing . in connection with the separation and distribution , tco entered into a transition services agreement ( the “ tsa ” ) and certain other agreements with tribune publishing that govern the relationships between tribune publishing and tco following the separation and distribution . under the tsa , the providing company is generally allowed to fully recover all out-of-pocket costs and expenses it actually incurs in connection with providing the services , plus , in some cases , the allocated direct costs of providing the services , generally without profit . pursuant to the tsa , tco provides tribune publishing with certain specified services on a transitional basis , including support in areas such as human resources , risk management , treasury , technology , legal , real estate , procurement and advertising and marketing in a single market . tribune 28 publishing provides tco with certain specified services on a transitional basis , including in areas such as human resources , technology , legal , procurement , accounting , digital advertising operations , and advertising , marketing , event management and fleet maintenance in a single market . story_separator_special_tag this rate differs from the u.s. federal statutory rate of 35 % primarily due to state income taxes , net of federal benefit , non-deductible expenses , certain transaction costs not fully deductible for tax purposes and the domestic production activities deduction . year ended december 29 , 2013 compared to the year ended december 30 , 2012 consolidated —operating results for the years ended december 29 , 2013 and december 30 , 2012 are shown in the table below ( in thousands ) . references in this discussion to individual markets include daily newspapers in those markets and their related businesses . replace_table_token_5_th * represents positive or negative change in excess of 100 % operating revenues decreased 6.2 % , or $ 118.7 million , in the year ended december 29 , 2013 compared to the prior year period due to a $ 105.4 million decline in advertising revenues and a $ 17.3 million decrease in other revenues , partially offset by an increase of $ 4.0 million in circulation revenues . the largest declines in operating revenues were at newspaper operations in chicago , los angeles and south florida which accounted for an $ 80.6 million decline . income from operations increased $ 124.9 million , in the year ended december 29 , 2013 due primarily to reductions in operating expenses due to continued staffing declines as well as lower pension expense and depreciation expense as a result of the adoption of fresh-start reporting on the effective date . 33 operating revenues —total operating revenues , by classification , for the years ended december 29 , 2013 and december 30 , 2012 were as follows ( in thousands ) : replace_table_token_6_th advertising revenues —total advertising revenues decreased 9.1 % , or $ 105.4 million , in the year ended december 29 , 2013 compared to the prior year period . retail advertising fell 9.2 % , or $ 56.8 million , due to declines in most categories . the categories with the largest declines were food/drug stores , specialty merchandise , general merchandise and electronics categories , which comprised $ 31.2 million of the year-over-year decline . preprint revenues , which are primarily included in retail advertising , decreased 6.3 % , or $ 23.7 million , due to declines at all daily newspapers . national advertising revenues fell 13.6 % , or $ 33.7 million , due to declines in several categories , most notably movies , financial , technology , healthcare and wireless/telecom which together declined by a total of $ 31.0 million . classified advertising revenues decreased 5.0 % , or $ 14.9 million , due to declines in nearly all categories . the largest shortfalls were in automotive , recruitment and real estate categories , which collectively comprised $ 9.1 million of the year-over-year decline . digital advertising revenues , which are included in the above categories , were flat in 2013 compared to the prior year as declines in retail and national categories of $ 3.2 million and $ 0.6 million , were offset by an increase in the classified category of $ 3.7 million . circulation revenues —circulation revenues were up 0.9 % , or $ 4.0 million , in 2013. print circulation revenues decreased by less than $ 1 million to $ 420 million primarily due to higher home delivery rates , up 13.6 % on average compared to the prior year , offset by declines in average net paid print copies of 7.5 % on sunday and 12.1 % daily ( monday-friday ) . circulation revenues from digital editions increased $ 4.3 million in 2013 due to an increase in net paid circulation volume of digital editions of 66.1 % for daily issues and 90.2 % for sunday issues , compared to the prior year . the largest overall circulation revenue increase in 2013 was at los angeles . total daily net paid circulation , including digital editions , in 2013 and 2012 averaged 1.7 million copies , down 1 % in 2013. total sunday net paid circulation , including digital editions , for 2013 and 2012 averaged 2.9 million copies , up less than 1 % in 2013. other revenues —other revenues declined 5.2 % , or $ 17.3 million , in 2013 , due primarily to declines in commercial print revenues of $ 9.5 million and lower insertion and delivery revenues of $ 4.9 million for third-party publications , including certain publications of the sun-times media group , the wall street journal and the new york times . 34 operating costs and expenses — total operating expenses , by classification , for the years ended december 29 , 2013 and december 30 , 2012 were as follows ( in thousands ) : replace_table_token_7_th tribune publishing operating expenses decreased 13.0 % , or $ 243.6 million , in the year ended december 29 , 2013 due primarily to decreases in compensation , newsprint and ink , circulation distribution , depreciation and corporate allocations expense , partially offset by increases in other expenses and amortization . compensation expense —compensation expense decreased 17.6 % , or $ 127.4 million , in the year ended december 29 , 2013 due primarily to lower pension expense and reductions in direct pay and benefits realized from continued declines in staffing levels at the newspapers . pension expense decreased $ 90.5 million in 2013 largely as a result of the adoption of fresh-start reporting on the effective date , and direct pay decline of $ 33.3 million , primarily due to continued reductions in staffing levels . compensation expense in the year ended december 29 , 2013 included $ 15.6 million of severance and related expenses for the elimination of approximately 745 positions . compensation expense in the year ended december 30 , 2012 included $ 13.6 million of severance and related expenses for the elimination of approximately 800 positions .
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results of operations year ended december 28 , 2014 compared to the year ended december 29 , 2013 consolidated —operating results for the years ended december 28 , 2014 and december 29 , 2013 are shown in the table below ( in thousands ) . references in this discussion to individual markets include daily newspapers in those markets and their related businesses . replace_table_token_2_th operating revenues decreased 4.9 % , or $ 87.1 million , in the year ended december 28 , 2014 compared to the prior year period due to a $ 91.3 million decline in advertising revenues and a $ 1.8 million decrease in other revenues , partially offset by an increase of $ 6.0 million in circulation revenues . advertising revenues , excluding acquisitions , decreased 10.4 % , or $ 109.7 million , compared to the prior year . income from operations decreased 47.9 % , or $ 79.8 million , in the year ended december 28 , 2014 due mainly to lower advertising revenues and costs associated with the spin-off . 29 operating revenues —total operating revenues , by classification , for the years ended december 28 , 2014 and december 29 , 2013 were as follows ( in thousands ) : replace_table_token_3_th advertising revenues —total advertising revenues decreased 8.7 % , or $ 91.3 million , in the year ended december 28 , 2014 compared to the prior year end . retail advertising fell 9.8 % , or $ 54.5 million , due to declines in most categories . the categories with the largest declines were department stores , specialty merchandise , food/drug stores , general merchandise and electronics categories , which comprised $ 35.3 million of the year-over-year decline . preprint revenues , which are primarily included in retail advertising , decreased 8.9 % , or $ 31.3 million .
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important factors that could cause actual results to differ materially from those stated or implied by our forward-looking statements include , but are not limited to , those set forth in “ item 1a . risk factors ” in this annual report . all forward-looking statements included in this annual report are based on information available to us as of the time we file this annual report and , except as required by law , we undertake no obligation to update publicly or revise any forward-looking statements . in addition , statements that “ we believe ” and similar statements reflect our beliefs and opinions on the relevant subject . these statements are based upon information available to us as of the date of this annual report , and while we believe such information forms a reasonable basis for such statements , such information may be limited or incomplete , and our statements should not be read to indicate that we have conducted an exhaustive inquiry into , or review of , all potentially available relevant information . these statements are inherently uncertain . overview and recent developments we are a biopharmaceutical company focused on delivering novel , transformational medicines with optimized pharmacology and pharmacokinetics to patients globally . our internally-developed pipeline includes multiple potentially first- or best-in-class assets with broad clinical utility . our most advanced investigational clinical programs include : etrasimod , which we are evaluating in a phase 3 program for ulcerative colitis , or uc , a phase 2b/3 program for crohn 's disease , or cd , and a phase 2b program in atopic dermatitis , or ad . we also plan to evaluate etrasimod in a phase 2b program for eosinophilic esophagitis , or eoe , and a phase 2 program in alopecia areata , or aa . olorinab , which we are evaluating for a broad range of visceral pain conditions associated with gastrointestinal diseases and is currently in a phase 2b trial for treatment of abdominal pain associated with irritable bowel syndrome , or ibs . apd418 , which we are evaluating in a phase 1 trial for acute heart failure , or ahf . we continue to leverage our two decades of world-class g-protein-coupled receptor , or gpcr , target discovery research to develop breakthrough drugs and ultimately deliver these to patients with large unmet needs . our long-term pipeline prospects include an enhanced collaboration with beacon discovery across a broad range of immune-mediated inflammatory targets and compounds and the buildout of arena neuroscience to focus on treating neurological conditions with microglial neuroinflammation . we have license agreements or collaborations with various companies , including : united therapeutics ( ralinepag in a phase 3 program for pulmonary arterial hypertension ) , everest medicines limited ( etrasimod in greater china and select countries in asia ) , beacon discovery ( early research platform for gpcr targets ) , boehringer ingelheim international gmbh ( undisclosed orphan gpcr program for central nervous system – preclinical ) , and eisai co. , ltd. and eisai inc. , collectively , eisai ( belviq®/belviq xr® ) . program development update . in january 2020 , we announced acceptance of our investigational new drug application and were granted fast track designation for apd418 . we have initiated a phase 1 clinical trial . in december 2019 , we initiated our phase 2/3 program to evaluate etrasimod in crohn 's disease . the program consists of a phase 2 dose ranging trial that is intended to provide an operationally seamless transition into the phase 3. cultivate is a phase 2b dose-ranging multicenter , randomized , double-blinded , placebo-controlled study to assess the safety and efficacy of once-daily etrasimod in subjects with moderate to severely active crohn 's disease . the primary efficacy endpoint in the cultivate trial will be endoscopic response at week 14 , in addition to a variety of scales of crohn 's disease activity , including abdominal pain and stool 48 frequency . the cultivate trial aims to enroll approximately 225 patients in study sites globally . the phase 3 will include two induction trials with re-randomization of clinical responders into a single maintenanc e trial . in october 2019 , we announced that the first subject has been dosed in the phase 2 advise trial evaluating two dose levels etrasimod in development for the treatment of ad . advise is a multicenter , randomized , double-blinded , placebo-controlled 16-week study ( with a 52-week open-label extension ) to assess the safety and efficacy of once-daily etrasimod in approximately 120 subjects with moderate-to-severe ad . in july 2019 , we announced the first subject dosed in the phase 2 captivate trial evaluating olorinab in development for the treatment of visceral pain associated with ibs . the trial will evaluate the efficacy and safety of three dose levels of olorinab for 12-weeks in approximately 240 subjects experiencing abdominal pain associated with ibs , including ibs with constipation or ibs with diarrhea . captivate is a phase 2 , multi-center , randomized , double-blind , placebo-controlled , 12-week study . we expect data in the second half of 2020. in june 2019 , we announced that the first subject has been dosed in elevate uc 52 , the first of two planned pivotal trials within the phase 3 elevate uc registrational program evaluating etrasimod 2 mg in subjects with moderately to severely active ulcerative colitis . elevate uc 52 is a treat-through trial with a 12-week induction period followed by 40 weeks of maintenance . collaborations and license agreement update . in october 2019 , everest announced that the first subject has been dosed in a phase 3 trial evaluating etrasimod in development for the treatment of ulcerative colitis in greater china and south korea . everest paid us a $ 5.0 million milestone payment earned from this achievement . other corporate events . story_separator_special_tag we believe our cash resources are sufficient to allow us to continue operations for at least the next 12 months from the date this annual report is filed with the sec . there is no guarantee that adequate funds will be available when needed from additional debt or equity financing , development and commercialization partnerships or from other sources , or on terms acceptable to us . if our efforts to obtain sufficient additional funds are not successful , we would be required to delay , scale back , or eliminate some or all of our research or development , manufacturing operations , administrative operations , and clinical or regulatory activities , which could negatively affect our ability to achieve certain corporate goals . short term liquidity at december 31 , 2019 , we had $ 1.1 billion in cash and cash equivalents , and available-for-sale investments . our potential sources of liquidity in the short term include ( i ) milestone and other payments from collaborators , ( ii ) entering into new collaboration , licensing or commercial agreements for one or more of our drug candidates or programs , ( iii ) the lease of our facilities or sale of other assets and ( iv ) sale of equity , issuance of debt or other transactions . long term liquidity it will require substantial cash to achieve our objectives of discovering , developing and commercializing drugs , and this process typically takes many years and potentially several hundreds of millions of dollars for an individual drug . we may not have adequate available cash , or assets that could be readily turned into cash , to meet these objectives in the long term . we will need to obtain significant funds under our existing collaborations , under new collaboration , licensing or other commercial agreements for one or more of our drug candidates and programs or patent portfolios , or from other potential sources of liquidity , which may include the sale of equity , issuance of debt or other transactions . in addition to potential payments from our current collaborators , as well as funds from public and private financial markets , potential sources of liquidity in the long term include ( i ) upfront , milestone , royalty and other payments from any future collaborators or licensees and ( ii ) revenues from sales of any drugs we obtain regulatory approval to commercialize on our own . the length of time that our current cash and cash equivalents and any available borrowings will sustain our operations will be based on , among other things , the rate of adoption and commercial success of any drugs we or our collaborators obtain regulatory approval to market , regulatory decisions affecting our and our collaborator 's drug candidates , prioritization decisions regarding funding for our programs , progress in our clinical and earlier-stage programs , the time and costs related to current and future clinical trials and nonclinical studies , our research , development , manufacturing and commercialization costs ( including personnel costs ) , our progress in any programs under collaborations , costs associated with intellectual property , our capital expenditures , and costs associated with securing any in-licensing opportunities . any significant shortfall in funding may result in us reducing our development and or research activities , which , in turn , would affect our development pipeline and ability to obtain cash in the future . we evaluate from time to time potential acquisitions , in-licensing and other opportunities . any such transaction may impact our liquidity as well as affect our expenses if , for example , our operating expenses increase as a result of such acquisition or license or we use our cash to finance the acquisition or license . sources and uses of our cash net cash provided in operating activities was $ 568.7 million in the year ended december 31 , 2019 , compared to net cash used in operating activities of $ 132.2 million in the year ended december 31 , 2018. this increase was primarily the result of an $ 800.0 million upfront payment from united therapeutics received in 2019 , partially offset by an increase of $ 66.0 million in payments made for external clinical study fees , an increase in cash expenditures of approximately $ 24.4 million for personnel costs resulting primarily from an increase in the number of employees , a payment of $ 14.6 million for the expenses related to the united therapeutics transaction in the first quarter of 2019 , reduced by a class action litigation settlement payment of $ 12.0 million in the second quarter of 2018 . net cash used in investing activities increased by $ 245.6 million to $ 496.9 million in the year ended december 31 , 2019 , compared to $ 251.3 million in the year ended december 31 , 2018. this increase was primarily due to $ 493.1 million in net purchases of available-for-sale investments , net of proceeds from the sales and maturity of available-for-sale investments in the year ended december 31 , 2019 , compared to $ 254.0 million in net purchases of available-for-sale investments in the year ended december 31 , 2018 . 52 net cash of $ 9.9 million was provided by financing activitie s in the year ended december 31 , 2019 , as a result of net proceeds of $ 13.1 million from stock option exercises and stock award releases , partially offset by $ 3.3 million of principal payments on our lease financing obligations . net cash of $ 385.0 million was provided by financing activities in the year ended december 31 , 2018 , as a result of net proceeds of $ 383.1 million from our march 2018 offering of our common stock and net proceeds of $ 5.9 million from stock option exercises , partially offset by $ 4.0 million of principal payments on our lease financing obligations .
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results of operations we are providing the following summary of our revenues , research and development expenses and general and administrative expenses to supplement the more detailed discussion below . this summary excludes our revenues , research and development expenses and general and administrative expenses associated with our manufacturing operations , which are reported within loss from discontinued operations for the year ended december 31 , 2018. see note 5 to our consolidated financial statements included in this annual report for additional information regarding the manufacturing operations . the dollar values in the following tables are in millions . for our discussion of the year ended december 31 , 2018 , compared to the year ended december 31 , 2017 , please read item 7. management 's discussion and analysis of financial condition and results of operations located in our 2018 form 10-k. research and development expenses replace_table_token_3_th 49 * the change is more than 100 % . general and administrative expenses replace_table_token_4_th * the change is more than 100 % . year ended december 31 , 2019 , compared to year ended december 31 , 2018 revenues . we recognized revenues of $ 806.4 million for the year ended december 31 , 2019 , compared to $ 18.0 million for the year ended december 31 , 2018. this increase resulted primarily from the revenue associated with the upfront payment of $ 800.0 million we received in january 2019 pursuant to the collaboration and license agreement with united therapeutics . in connection with the united therapeutics transaction we incurred transaction expenses of $ 17.0 million , consisting of $ 14.6 million incurred in the first quarter of 2019 and $ 2.4 million incurred in the fourth quarter of 2018 , which are presented as transaction costs in our consolidated statements of operations . absent any new collaborations , we expect our 2020 revenues will primarily consist of potential milestone payments from our existing collaborations and license agreements .
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we are organized for the purpose of providing electricity to our members that serve large portions of colorado , nebraska , new mexico and wyoming . we currently have 43 members after the withdrawal in june 2016 of kcec from membership in us . we also sell a portion of our generated electric power to other utilities in our regions pursuant to long‑term contracts and short-term sale arrangements . our members provide retail electric service to rural residences , farms and ranches , cities , towns and suburban communities , as well as large and small businesses and industries . as of december 31 , 2016 , our members served approximately 600,000 retail electric meters over a 200,000 square‑mile area . in 2016 , we sold 18.4 million mwhs , of which 86 percent was to members . total revenue from electric sales was $ 1.3 billion for 2016 , of which 90 percent was from member sales . we have entered into substantially similar contracts with each member extending through 2050 for 42 members ( which constitute approximately 96 percent of our revenue from member sales in 2016 ) and extending through 2040 for the remaining member ( dmea ) . these contracts are subject to automatic extension thereafter until either party provides at least a two years ' notice of its intent to terminate . each contract obligates us to sell and deliver to the member and obligates the member to purchase and receive at least 95 percent of its electric power requirements from us . each member may elect to provide up to 5 percent of its electric power requirements from distributed or renewable generation owned or controlled by the member . as of december 31 , 2016 , 18 members have enrolled in this program with capacity totaling approximately 113 mws . we provide electric power to our members at rates established by our board . rates to members are designed to generate revenues sufficient to recover our cost of service and to generate margins sufficient to establish reasonable reserves and to meet or exceed certain financial requirements . we also provide electric power to non‑members at contractual rates under long‑term arrangements and at market prices in short-term sale transactions . we are a taxable cooperative subject to federal and state taxation . as a taxable cooperative , we are allowed a tax exclusion for margins allocated to our members as patronage capital . under the cooperative structure , margins represent the excess of revenues over expenses . margins not distributed to members in cash constitute patronage capital , a cooperative 's principal source of equity . patronage capital is held for the account of our members without interest and is retired when our board deems it appropriate to do so . our master indenture restricts our ability to retire patronage capital during an event of default ( as defined in our master indenture ) . we must also satisfy the required ecr after giving effect to such retirement . additionally , the board evaluates liquidity goals and equity goals ( that are a part of the board policy for financial goals and capital credits ) in determining the timing and amount of patronage capital retirement , and if the board determines that our financial condition will not be impaired , retained patronage capital may be retired . historically , patronage capital has been retired in order of priority according to the year in which the patronage capital was furnished and credited ; however , our bylaws were amended in 2015 to provide the board discretion on order of retirement . as of december 31 , 2016 , patronage capital equity was $ 961.4 million . we supply and transmit our members ' electric power requirements through a portfolio of resources , including generating and transmission facilities , long‑term purchase contracts and short‑term energy purchases . we own , lease , have undivided percentage interests in , or have tolling arrangements with respect to , various generating stations . additionally , we transmit power to our members through resources that we own , lease or have undivided percentage interests in , or by wheeling power across lines owned by other transmission providers . see “ business - overview- power supply and transmission ” for a description of miles of transmission lines and substations . depending on our system requirements and contractual obligations , we are likely to both purchase and sell electric power during the same fiscal period . we purchase hydroelectric power under long‑term purchase contracts . these contracts constituted our original power resource , and they remain a cost‑effective power source . we also 38 purchase , under a long‑term purchase contract with basin , the electric power needs of our members in the state of nebraska above our hydroelectric based power purchases there . these purchases are necessary because large portions of our members ' loads in nebraska are located in the eastern interconnection and are generally isolated from our facilities that are located in the western interconnection . these long‑term purchase commitments represent a majority of our electric power purchases . at the same time , we have agreed to supply electric power to non‑members . in addition , we utilize market purchases to optimize our position by routinely purchasing power when the market price is lower than our incremental production cost and routinely selling power to the short‑term market when we have excess power available above our firm commitments to both members and non‑members . we also use short-term energy purchases during periods of generation outages at our facilities . 2016 developments kcec withdrawal . on june 30 , 2016 , kcec withdrew from membership in us pursuant to the withdrawal agreement . the withdrawal agreement provided for the termination of the wholesale electric service contract between us and kcec that extended through 2040 and the withdrawal of kcec from membership in us . story_separator_special_tag over time , the liability is adjusted to its present value by recognizing accretion expense and the capitalized cost of the long‑lived asset is depreciated in a manner consistent with the depreciation of the underlying physical asset . in the absence of quoted market prices , we determine fair value by using present value techniques in which estimates of future cash flows associated with retirement activities are discounted using a credit adjusted risk‑free rate and market risk premium . upon settlement of an asset retirement obligation , we will apply payment against the estimated liability and incur a gain or loss if the actual retirement costs differ from the estimated recorded liability . asset retirement obligations are included in deferred credits and other liabilities . story_separator_special_tag style= '' margin-left:10.2941176470588 % ; margin-right:10.2941176470588 % ; '' > 41 nmprc review or approval . on december 9 , 2015 , we and the new mexico members filed a joint motion with the nmprc seeking continuation of the suspension of the procedural schedule related to the rate protests to allow the parties additional time to proceed with further negotiations towards a global settlement . on january 6 , 2016 , the nmprc ordered that the procedural schedule related to the rate protests remains suspended until further order of the nmprc . on september 20 , 2016 , we gave notice , as required by new mexico law , to the nmprc of our 2017 ( a-40 ) wholesale rate which became effective on january 1 , 2017. no new mexico member filed a protest with the nmprc of our a-40 rate and thus the a-40 rate became effective without nmprc review or approval . master indenture as of december 31 , 2016 , we had approximately $ 2.8 billion of secured indebtedness outstanding under our master indenture . substantially all of our tangible assets and certain of our intangible assets are pledged as collateral under our master indenture . our master indenture requires us to establish rates annually that are reasonably expected to achieve a dsr of at least 1.10 on an annual basis and permits us to incur additional secured obligations as long as after giving effect to the additional secured obligation , we will continue to meet the dsr requirement on both a historic and pro forma basis . our dsr is calculated by dividing ( x ) our net margins available for debt service ( as defined in our master indenture ) , which is equal to our net margins for a period plus amounts deducted for the period to pay or make provision for interest on debt ( including capitalized interest other than allowance for funds used during construction ) , lease expense , income tax expense , amortization of debt discount or premium , and depreciation and certain other non-cash items by ( y ) our annual debt service requirement ( as defined in our master indenture ) , which is generally equal to the principal of , premium , if any , and interest ( whether capitalized or expensed ) on all of our debt and lease payments which become due in the applicable fiscal year or 12-month period at maturity or stated maturity , subject to special calculation rules applicable to specific types of debt ( such as balloon debt ) . for purposes of the dsr calculation , we are permitted to exclude from the annual debt service requirement principal and interest on debt if the debt is paid or to be paid from defeasance obligations which have been irrevocably deposited or set aside in trust for payment of such debt . our dsr for the twelve months ended december 31 , 2016 was 1.17. see appendix a – calculation of financial ratios . our master indenture also requires us to maintain an ecr at the end of each fiscal year of at least 18 percent . our ecr equals our equity divided by the sum of our debt plus equity . equity primarily consists of our aggregate net margins that we have not distributed in cash to our members . debt includes our indebtedness for borrowed money and capitalized leases but excludes indebtedness for which defeasance obligations ( i.e. , non-callable obligations of the united states ) have been irrevocably deposited in trust . as of december 31 , 2016 , our ecr was 24.9 percent . see appendix a – calculation of financial ratios . pursuant to the master indenture , dsr and ecr are calculated based on unconsolidated tri-state financials . therefore , the details of the calculations are shown in appendix a–calculation of financial ratios . tax status we are a taxable cooperative subject to federal and state taxation . as a taxable electric cooperative , we are allowed a tax exclusion for margins allocated as patronage capital . we utilize the liability method of accounting for income taxes . accordingly , changes in deferred tax assets or liabilities result in the establishment of a regulatory asset or liability . a regulatory asset or liability associated with deferred income taxes generally represents the future increase or decrease in income taxes payable that will be settled or received through future rate revenues . results of operations general our electric sales revenues are derived from electric power sales to our members and non‑member purchasers . rates for electric power sales to our members consist of two billing components : an energy rate and a demand rate ( s ) . see “ —factors affecting results – rates and regulation ” for a description of our energy and demand rates to our 42 members . long‑term contract sales to non‑members generally include energy and demand components . short-term sales to non‑members are sold at market prices after consideration of incremental production costs . demand billings to non‑members are typically billed per kilowatt of capacity reserved or committed to that customer . weather has a significant effect on the usage of electricity by impacting both the electricity used per hour and the total peak demand for electricity .
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factors affecting results margins and patronage capital we operate on a cooperative basis and , accordingly , seek only to generate revenues sufficient to recover our cost of service and to generate margins sufficient to meet certain financial requirements and to establish reasonable reserves . revenues in excess of current period costs in any year are designated as net margins in our statement of operations . net margins are treated as advances of capital by our members and are allocated to our members on the basis of revenue from electricity purchases from us . net losses , should they occur , are not allocated to our members but are offset by future margins . our board policy for financial goals and capital credits , approved and subject to change by our board , sets guidelines to achieve margins and retain patronage capital sufficient to maintain a sound financial position and to allow for the orderly retirement of capital credits allocated to our members . pursuant to the policy , we target rates payable by our members to produce financial results in excess of the requirements under our master indenture . on a periodic basis , our board will determine whether to retire any patronage capital , and in what amounts , to our members . to date , we have retired approximately $ 335.5 million of patronage capital to our members . rates and regulation our electric sales revenues are derived from electric power sales to our members and non‑member purchasers . rates for electric power sales to our members consist of two billing components : an energy rate and a demand rate ( s ) . over the past five years , the average member revenue/kwh , which is our total member electric sales revenue divided by 40 the kwhs sold has increased at an average of 1.5 percent per year .
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in august 2018 , the fasb issued asu 2018-15 , intangibles - goodwill and other - internal-use software ( topic 350 ) : customer 's story_separator_special_tag you should read the following discussion and analysis in conjunction with “ selected financial data ” included in this report , as well as our consolidated financial statements and related notes thereto appearing elsewhere in this report . forward-looking statements statements in this report and the annual report to stockholders that are not purely historical facts , including , without limitation , statements about our expected future financial position , results of operations or cash flows , as well as other statements including , without limitation , words such as “ anticipate , ” “ forecast ” , “ explore , ” “ believe , ” “ plan , ” “ estimate , ” “ expect , ” “ intend , ” “ should , ” `` potentially , '' “ could , ” “ goal , ” “ may , ” “ target , ” “ designed ” and other similar expressions , constitute forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the exchange act . because forward-looking statements relate to the future , they are subject to inherent uncertainties , risks and changes in circumstances that are difficult to predict and many of which are outside of our control . actual results , our financial condition , and the timing of some events could differ materially from those projected in or contemplated by the forward-looking statements . therefore you should not rely on any of these forward-looking statements . important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include , among others : the composition and market value of our aum ; our ability to maintain our fee structure in light of competitive fee pressures ; inclusion of foreign company investments in our aum ; regulations adversely affecting the financial services industry ; litigation risks ; our ability to develop and market new investment strategies successfully ; our reputation and our relationships with current and potential customers ; our ability to attract and retain qualified personnel ; our ability to perform operational tasks ; our ability to select and oversee third-party vendors ; our dependence on the operations and funds of our subsidiaries ; our ability to maintain effective cyber security ; our ability to maintain effective information systems ; our ability to prevent misuse of assets and information in the possession of our employees and third-party vendors , which could damage our reputation and result in costly litigation and liability for our clients and us ; our stock is thinly traded and may be subject to volatility ; our organizational documents contain provisions that may prevent or deter another group from paying a premium over the market price to our stockholders to acquire our stock ; competition in the investment management industry ; our ability to avoid termination of client agreements and the related investment redemptions ; the significant concentration of our revenues in a small number of customers ; our relationships with investment consulting firms ; the impact of the covid-19 pandemic ; our ability to identify and execute on our strategic initiatives ; our ability to declare and pay dividends ; our ability to fund future capital requirements on favorable terms ; our ability to properly address conflicts of interest ; our ability to maintain adequate insurance coverage ; and our ability to maintain an effective system of internal controls . 20 additional factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements are discussed under the section entitled “ item 1a . risk factors ” and elsewhere in this report . the forward-looking statements are based only on currently available information and speak only as of the date of this report . we are not obligated and do not undertake an obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances occurring after the date of this report or to reflect the occurrence of unanticipated events or otherwise . overview we manage investment assets and provide services for our clients through our subsidiaries , westwood management corp. and westwood advisors , l.l.c . ( each of which is an sec-registered investment advisor and referred to hereinafter together as “ westwood management ” ) and westwood trust . westwood management provides investment advisory services to institutional investors , a family of mutual funds called the westwood funds® , other mutual funds , individuals and clients of westwood trust . on july 27 , 2020 , westwood 's board of directors approved the closure of westwood international advisors inc. ( “ westwood international advisors ” ) and westwood 's office in toronto , canada . as a result of this closure , we incurred $ 0.5 million of severance expense , $ 0.3 million of lease impairment expense and $ 0.1 million of vendor contract related costs , offset by $ 1.3 million of restricted stock forfeitures . the severance expense and restricted stock forfeitures were recognized within `` employee compensation and benefits , '' the lease impairment expense was recognized in `` general and administrative , '' and the vendor contract costs were recognized within `` information technology '' on the consolidated statements of comprehensive income ( loss ) . additionally , we repatriated previously undistributed income to the united states from canada and incurred $ 1.1 million of canadian withholding taxes ( net of u.s. federal tax deduction ) . the withholding taxes were recognized in `` income tax expense '' on the consolidated statements of comprehensive income ( loss ) . westwood trust provides trust and custodial services and participation in common trust funds to institutions and high net worth individuals . our revenues are generally derived from fees based on a percentage of aum . story_separator_special_tag westwood trust also provides trust services to a small number of clients on a fixed fee basis . trust fees are primarily calculated quarterly in arrears based on a daily average of aum for the quarter . since billing periods for most of westwood trust 's clients coincide with the calendar quarter , revenue is fully recognized within the quarter , and our consolidated financial statements contain no deferred advisory fee revenues . our other revenues primarily consist of investment income from our seed money investments into new investment strategies and contract revenues . employee compensation and benefits employee compensation and benefits costs generally consist of salaries , incentive compensation , equity-based compensation expense and benefits . sales and marketing sales and marketing costs relate to our marketing efforts , including travel and entertainment , direct marketing and advertising costs . westwood mutual funds westwood mutual funds expenses relate to our marketing , distribution and administration of the westwood funds ® . information technology information technology expenses are generally costs associated with proprietary investment research tools , maintenance and support , computing hardware , software licenses , telecommunications and other related costs . professional services 22 professional services expenses generally consist of costs associated with sub-advisory fees , audit , legal and other professional services . general and administrative general and administrative expenses generally consist of costs associated with the lease of office space , amortization , depreciation , insurance , custody expense , board of directors fees , investor relations , licenses and fees , office supplies and other miscellaneous expenses . impairment expense impairment expense consists of long-lived asset impairments , generally goodwill or intangible assets . gain ( loss ) on foreign currency transactions gain ( loss ) on foreign currency transactions consist of foreign currency transactions primarily related to westwood international advisors . gain on sale of operations gain on sale of operations includes the gain on the sale of our omaha-based component of our wealth management business . unrealized gains ( losses ) on private investments unrealized gains ( losses ) on private investments includes changes in the value of our private equity investments . investment income investment income primarily includes interest and dividend income on fixed income securities and money market funds . other income other income primarily consists of income from the sublease of a portion of our corporate office . foreign currency translation adjustments to net income ( loss ) upon liquidation of a foreign subsidiary foreign currency translation adjustments to net income ( loss ) upon liquidation of a foreign subsidiary includes a cumulative adjustment following the liquidation of a foreign subsidiary , westwood international advisors . assets under management aum decreased $ 2.2 billion , or 14 % , to $ 13.0 billion at december 31 , 2020 compared to $ 15.2 billion at december 31 , 2019. quarterly average aum decreased $ 3.4 billion , down 21 % , to $ 12.4 billion for 2020 compared with $ 15.8 billion for 2019. the decrease in average aum was primarily due to institutional and mututal funds net outflows , partially offset by $ 0.5 billion of market appreciation in 2020. aum decreased $ 1.4 billion , or 8 % , to $ 15.2 billion at december 31 , 2019 compared to $ 16.6 billion at december 31 , 2018. quarterly average aum decreased $ 5.6 billion , down 26 % , to $ 15.8 billion for 2019 compared with $ 21.4 billion for 2018. the decrease in average aum was primarily due to institutional and mutual funds net outflows , partially offset by $ 3.0 billion of market appreciation in 2019. the following table presents our aum ( in millions , except percentages ) : replace_table_token_5_th ( 1 ) institutional includes ( i ) separate accounts of corporate pension and profit sharing plans , public employee retirement funds , taft-hartley plans , endowments , foundations and individuals ; ( ii ) sub-advisory relationships where westwood provides investment management services for funds offered by other financial institutions ; ( iii ) pooled investment vehicles , including the ucits fund and collective investment trusts ; and ( iv ) managed account relationships with brokerage firms and other registered investment advisors that offer westwood products to their customers . the ucits fund was liquidated in june 2020 . 23 ( 2 ) wealth management includes assets for which westwood trust provides trust and custodial services and participation in common trust funds that it sponsors to institutions and high net worth individuals pursuant to trust or agency agreements and assets for which westwood advisors , l.l.c . provides advisory services to high net worth individuals . investment sub-advisory services are provided for the common trust funds by westwood management , westwood international advisors ( prior to its closure , effective september 30 , 2020 ) and external unaffiliated sub-advisors . for certain assets in this category westwood trust currently provides limited custody services for a minimal or no fee , viewing these assets as potentially converting to fee-generating managed assets in the future . ( 3 ) mutual funds include the westwood funds® , a family of mutual funds for which westwood management serves as advisor . these funds are available to individual investors , as well as offered as part of our investment strategies for institutional and wealth management accounts . ( 4 ) aum for 2020 , 2019 and 2018 excludes approximately $ 267 million , $ 283 million and $ 228 million of assets under advisement ( `` aua '' ) , respectively , related to our model portfolios for which we provide consulting advice but do not have discretionary investment authority . roll-forward of assets under management replace_table_token_6_th the decrease in aum for the year ended december 31 , 2020 was due to net outflows of $ 2.7 billion , partially offset by market appreciation of $ 0.5 billion . net client flows were primarily related to our emerging markets , smidcap and largecap value strategies .
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results of operations the following table and discussion of our results of operations is based upon data derived from our consolidated statements of comprehensive income ( loss ) contained in our consolidated financial statements and should be read in conjunction with these statements included elsewhere in this report . replace_table_token_9_th year ended december 31 , 2020 compared to year ended december 31 , 2019 total revenues . total revenues decreased $ 19.0 million , or 23 % , to $ 65.1 million compared with $ 84.1 million for 2019. the decrease was attributable to a $ 19.0 million decrease in asset-based advisory fees and a $ 1.9 million decrease in trust fees , both primarily due to lower average aum compared to 2019 , partially offset by a $ 2.0 million increase in performance-based advisory fees , primarily due to higher realization of performance fees in 2020 . employee compensation and benefits . employee compensation and benefit costs decreased $ 8.0 million , or 16.0 % , to $ 42.1 million compared with $ 50.2 million in 2019. the decrease was primarily due to reductions in compensation relating to short- and long-term incentive compensation as a result of lower asset-based revenues as compared to the prior year , and lower headcount . 26 sales and marketing . sales and marketing expenses decreased $ 0.9 million , or 42 % , to $ 1.2 million compared with $ 2.1 million for 2019. the decrease was primarily due to lower travel costs as a result of covid-19 . westwood mutual funds . westwood mutual funds expenses decreased 46 % to $ 1.7 million compared to $ 3.1 million for 2019 primarily due to lower service fees following declines in market values for the westwood funds . impairment expense . following a sustained decline in the company 's market capitalization , we determined that the entire goodwill related to our advisory segment was impaired , and we recorded impairment charges of $ 3.4 million in 2020 .
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obligations associated with monitoring 73 republic story_separator_special_tag for a discussion of other items that impacted our earnings during the years ended december 31 , 2020 and 2019. for comparative purposes , prior year amounts have been reclassified to conform to current year presentation . replace_table_token_6_th ( 1 ) the aggregate impact to adjusted diluted earnings per share totals to less than $ 0.01 for the year ended december 31 , 2019. we believe that presenting adjusted pre-tax income , adjusted net income – republic , and adjusted diluted earnings per share , which are not measures determined in accordance with u.s. gaap , provide an understanding of operational activities before the financial impact of certain items . we use these measures , and believe investors will find them helpful , in understanding the ongoing performance of our operations separate from items that have a disproportionate impact on our results for a particular period . we have incurred comparable charges and costs in prior periods , and similar types of adjustments can reasonably be expected to be recorded in future periods . our definitions of adjusted pre-tax income , adjusted net income – republic , and adjusted diluted earnings per share may not be comparable to similarly titled measures presented by other companies . further information on each of these adjustments is included below . loss on extinguishment of debt and other related costs . during 2020 , we incurred a loss on the early extinguishment of debt and other related costs related to the early extinguishment of our $ 600.0 million 5.250 % senior notes due november 2021 ( the 2021 notes ) and our $ 850.0 million 3.550 % senior notes due june 2022 ( the 2022 notes ) , and to redeem $ 250.0 million of the $ 550.0 million outstanding 4.750 % senior notes due may 2023 ( the 2023 notes ) . we paid total cash premiums of $ 99.1 million and incurred non-cash charges related to the proportional share of unamortized discounts and deferred issuance costs of $ 2.8 million . the unamortized proportional share of certain cash flow hedges reclassified to earnings as non-cash interest expense was $ 1.8 million , and the proportional share of our fair value hedges ( related to the 2023 notes ) that were dedesignated and recognized in earnings as a reduction to non-cash interest expense was $ 4.7 million . during 2019 , we did not incur any losses on the early extinguishment of certain financing arrangements . restructuring charges . in 2019 , we incurred costs related to the redesign of certain back-office software systems , which continued into 2020. in addition , in july 2020 , we eliminated certain back-office support positions in response to a decline in the underlying demand for services resulting from the covid-19 pandemic . during 2020 , we incurred restructuring charges of $ 20.0 million which primarily related to these restructuring efforts . during 2019 , we incurred restructuring charges of $ 14.2 million , which primarily related to the redesign of certain of our back-office software systems . we paid $ 15.5 million and $ 10.6 million during 2020 and 2019 , respectively , related to these restructuring efforts . in 2021 , we expect to incur additional restructuring charges of approximately $ 15 million to $ 20 million primarily related to the redesign of certain of our back-office software systems . substantially all of these restructuring charges will be recorded in our corporate segment . loss ( gain ) on business divestitures and impairments , net . during 2020 , we recorded a net loss on business divestitures and impairments of $ 77.7 million which was due to business divestitures and asset impairments in certain markets , including $ 42.6 million resulting from management 's decision to exit certain product offerings and geographic basins in our upstream environmental solutions business . during 2019 , we recorded a net gain on business divestitures and impairments of $ ( 14.7 ) million . 34 table of contents withdrawal costs - multiemployer pension funds . during 2020 , we recorded charges to earnings of $ 34.5 million for withdrawal events at multiemployer pension funds to which we contribute . as we obtain updated information regarding multiemployer pension funds , the factors used in deriving our estimated withdrawal liabilities will be subject to change , which may adversely impact our reserves for withdrawal costs . fire-damage related costs . during the three months ended december 31 , 2019 , certain of our owned and operated facilities in our group 1 segment were impacted by separate fire-related events . although our business may incur fire-related damage to our leased or owned property , plant and equipment from time to time , we specifically identify in the table above fire-damage related costs of $ 7.7 million incurred during 2019 , due to its magnitude . bridgeton insurance recovery . during 2020 and 2019 , we recognized insurance recoveries of $ 10.8 million and $ 24.0 million , respectively , related to our closed bridgeton landfill in missouri , which we recognized as a reduction of remediation expenses in our cost of operations . incremental contract start-up costs - large municipal contract . although our business regularly incurs startup costs under municipal contracts , we specifically identify in the table above the startup costs with respect to an individual municipal contract ( and do not adjust for other startup costs under other contracts in 2020 or 2019 ) . we do this because of the magnitude of the costs involved with this particular municipal contract and the unusual nature for the time period in which they were incurred . during 2019 , we incurred costs of $ 0.7 million related to the implementation of this large municipal contract . these costs did not meet the capitalization criteria prescribed by accounting standards update 2014-09 , revenue from contracts with customers ( topic 606 ) and other assets and deferred costs-contracts with customers ( subtopic 340-40 ) . story_separator_special_tag management costs , which include insurance premiums and claims ; cost of goods sold , which includes material costs paid to suppliers ; and other , which includes expenses such as facility operating costs , equipment rent and gains or losses on sale of assets used in our operations . the following table summarizes the major components of our cost of operations for the years ended december 31 , 2020 and 2019 ( in millions of dollars and as a percentage of revenue ) : replace_table_token_9_th ( 1 ) during the three months and year ended december 31 , 2019 , we incurred an additional $ 0.1 million of fire-damage related costs , which are reflected in other selling , general , and administrative expense . these cost categories may change from time to time and may not be comparable to similarly titled categories presented by other companies . as such , you should take care when comparing our cost of operations by component to that of other companies and of ours for prior periods . 37 table of contents our cost of operations decreased for the year ended december 31 , 2020 compared to the same period in 2019 as a result of the following : labor and related benefits decreased due to a decline in service levels attributable to the covid-19 pandemic , partially offset by higher hourly and salaried wages as a result of annual merit increases , and one additional workday during 2020 as compared to 2019. transfer and disposal costs decreased as a result of lower collection volumes , partially offset by an increase in third party disposal rates . during both 2020 and 2019 , approximately 68 % of the total solid waste volume we collected was disposed at landfill sites that we own or operate ( internalization ) . maintenance and repairs expense decreased due to a decrease in service levels attributable to the covid-19 pandemic . transportation and subcontract costs decreased slightly primarily due to a decline in demand for our environmental solutions business as well as a decrease in transfer station volumes , partially offset by increases due to acquisition-related activity along with one additional workday during 2020 as compared to 2019. fuel costs decreased due to a decline in fuel prices and service levels attributable to the covid-19 pandemic . the national average cost per gallon for diesel fuel in 2020 was $ 2.55 compared to $ 3.06 for 2019. at current consumption levels , we believe a twenty-cent per gallon change in the price of diesel fuel would change our fuel costs by approximately $ 25 million per year . offsetting these changes in fuel expense would be changes in our fuel recovery fee charged to our customers . at current participation rates , we believe a twenty-cent per gallon change in the price of diesel fuel would change our fuel recovery fee by approximately $ 25 million per year . disposal fees and taxes decreased due to a decrease in service levels attributable to the covid-19 pandemic . landfill operating expenses increased due to the recognition of certain favorable remediation adjustments in 2019 that did not recur in 2020. risk management expenses decreased primarily due to favorable actuarial development in our auto liability and workers compensation prior year programs , coupled with a decline in exposure in our current year program . other costs of operations increased during 2020 as a result of incremental costs incurred related to the covid-19 pandemic , including costs for additional safety equipment and hygiene products , increased facility and equipment cleaning , and costs associated with our committed to serve initiative , partially offset by a decline in necessary facility repairs as well as decreased third party equipment rentals as a result of a decline in service levels attributable to the covid-19 pandemic . during 2019 , we incurred $ 7.6 million of fire-related damage costs in our cost of operations that resulted from damage to our leased or owned property , plant and equipment in our group 1 segment . during 2020 and 2019 , we recognized favorable insurance recoveries of $ 10.8 million and $ 24.0 million , respectively , related to our closed bridgeton landfill as a reduction of remediation expenses in our consolidated statement of income for the applicable period . depreciation , amortization and depletion of property and equipment the following table summarizes depreciation , amortization and depletion of property and equipment for the years ended december 31 , 2020 and 2019 ( in millions of dollars and as a percentage of revenue ) : replace_table_token_10_th depreciation and amortization of property and equipment increased primarily due to additional assets acquired with our acquisitions . landfill depletion and amortization decreased in aggregate dollars due to lower landfill disposal volumes primarily driven by decreased special waste volumes , partially offset by an increase in our overall average depletion rate . amortization of other intangible assets expenses for amortization of other intangible assets were $ 21.2 million and $ 20.4 million for the years ended december 31 , 2020 and 2019 , respectively , or 0.2 % of revenue for both 2020 and 2019. our other intangible assets primarily relate to 38 table of contents customer relationships and , to a lesser extent , non-compete agreements . amortization expense increased due to additional assets acquired with our acquisitions . amortization of other assets expenses for amortization of other assets were $ 38.8 million , or 0.4 % of revenue , for the year ended december 31 , 2020 , compared to $ 34.3 million , or 0.3 % of revenue , for 2019. our other assets primarily relate to the prepayment of fees and capitalized implementation costs associated with cloud-based hosting arrangements . accretion expense accretion expense was $ 82.9 million and $ 81.9 million , or 0.8 % of revenue , for the years ended december 31 , 2020 and 2019 , respectively . accretion expense has remained relatively unchanged as our asset retirement obligations remained relatively consistent period over period .
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summary of cash flow activity the major components of changes in cash flows for 2020 and 2019 are discussed in the following paragraphs . the following table summarizes our cash flow from operating activities , investing activities and financing activities for the years ended december 31 , 2020 and 2019 ( in millions of dollars ) : replace_table_token_25_th cash flows provided by operating activities the most significant items affecting the comparison of our operating cash flows for 2020 and 2019 are summarized below . changes in assets and liabilities , net of effects from business acquisitions and divestitures , decreased our cash flow from operations by $ 129.9 million in 2020 , compared to a decrease of $ 213.4 million in 2019 , primarily as a result of the following : our accounts receivable , exclusive of the change in allowance for doubtful accounts and customer credits , decreased $ 13.8 million during 2020 , compared to a $ 38.3 million increase in 2019. as of december 31 , 2020 , our days sales outstanding were 38.6 , or 26.4 days net of deferred revenue , compared to 39.8 , or 27.9 days net of deferred revenue , as of december 31 , 2019. our prepaid expenses and other assets decreased $ 6.5 million in 2020 compared to an increase of $ 109.7 million in 2019 , primarily due to the receipt of the bridgeton landfill settlement in the first quarter of 2020 , and an increase in alternative fuel tax credit receipts during 2020 compared to 2019 , partially offset by an increase of prepaid taxes due to the timing of our estimated tax payments . our accounts payable decreased $ 46.7 million during 2020 compared to an increase of $ 6.4 million during 2019 , due to the timing of payments .
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we are a leading global exchange group that delivers trading , clearing , exchange technology , regulatory , securities listing , and public company services across six continents . our global offerings are diverse and include trading and clearing across multiple asset classes , market data products , financial indexes , capital formation solutions , financial services , corporate solutions and market technology products and services . our technology powers markets across the globe , supporting derivatives trading , clearing and settlement , cash equity trading , fixed income trading and many other functions . we completed the following acquisitions during 2010 , 2011 , 2012 and 2013 : the assets of north american energy credit and clearing corp. , march 2010 ; a derivatives trading market through the purchase of the remaining business of nord pool , may 2010 ; smarts , august 2010 ; ften , december 2010 ; zvm , december 2010 ; glide technologies , october 2011 ; the business of rapidata , december 2011 ; nos clearing , july 2012 ; the index business of mergent , inc. , including indxis , december 2012 ; the tr corporate solutions businesses , may 2013 ; and espeed , june 2013. these acquisitions have been treated as purchases for accounting purposes , with nasdaq omx treated as the acquirer . we also purchased a 2 2 % equity interest in t he european multilateral clearing facility n.v. , or emcf , in january 2009 . in december 2013 , emcf merge d with euroccp , creating euroccp n.v. , a new combined clearinghouse . nasdaq omx currently has a 25 % equity interest in euroccp n.v. additionally , we purchased a 72 % ownership interest in bwise in may 2012 and a 25 % equity interest in the order machine , or tom , in april 2013 . i n march 2013 , we formed a joint venture with sharespost creating npm . the financial results of these transactions are included in the consolidated financial results beginning on the date of each acquisition or strategic initiative . business environment we serve listed companies , market participants and investors by providing derivative , commodities , cash equity , and fixed income markets , thereby facilitating economic growth and corporate entrepreneurship . we provide market technology to exchanges , clearing organizations and central securities depositories around the world . we also offer companies and other organizations access to innovative products and software solutions and services that increase transparency , mitigate risk , improve board efficiency and facilitate better corporate governance . in broad terms , our business performance is impacted by a number of drivers including macroeconomic events affecting the risk and return of financial assets , investor sentiment , government and private sector demands for capital , the regulatory environment for capital markets , and changing technology particularly in the financial services industry . our future revenues and net income will continue to be influenced by a number of domestic and international economic trends including : trading volumes , particularly in u.s. and european derivative and c ash equity securities , which are driven primarily by overall macroeconomic conditions ; the number of companies seeking equity financing , which is affected by factors such as investor demand , the global economy , availability of diverse sources of financing as well as tax and regulatory policies ; the demand for information about , or access to , our markets , which is dependent on the products we trade , our importance as a liquidity center , and the quality and pricing of our data and access services ; the demand by companies and other organizations for the products sold by our corporate solutions business , which is largely driven by the overall state of the economy and the attractiveness of our offerings ; 35 the demand for licensed exchange traded products and other financial products based on our indices as well as changes to the underlying assets associated with existing licensed financial products ; the challenges created by the automation of market data consumption , including competition and the quickly evolving nature of the market data business ; the outlook of our technology customers for capital market activity ; continuing pressure in transaction fee pricing due to intense competition in the u.s. and europe ; competition for listings and trading related to pricing , product features and service offerings ; regulatory changes imposed upon certain types of instruments , transactions , or capital market participants ; and technological advancements and customers ' demand for speed , efficiency , and reliability . currently our business drivers are defined by investors ' and companies ' cautiously optimistic outlook about the pace of global economic recovery . although some major market indices reached record levels in 2013 , european equity markets have not performed as well and remain below their pre-financial crisis highs . as the global economy continues to avoid the intermittent crisis environments of 2010 through 2012 , we are experiencing modest growth in many of our non-transactional businesses . since a number of significant structural issues continue to confront the global economy , instability could return at any time , resulting in an increased level of market volatility , oscillating trading volumes , and a return of market uncertainty . in contrast , many of the largest customers of our transactional businesses continue to adapt their business models as they address the implementation of regulatory changes initiated following the global financial crisis , leading to lower trading volumes . in 2013 , the u.s. and european cash equity trading businesses and the european derivative trading and clearing business experienced a decrease in volumes due to lower overall industry trading volumes . steady performances by major stock market indices and consistently low volatility throughout 2013 helped to boost the u.s. ipo market . additional impacts on our business drivers included the international enactment and implementation of new legislative and regulatory initiatives , and the continued rapid evolution and deployment of new technology in the financial services industry . story_separator_special_tag we expect global markets to continue to be marked by significant change in 2014 , driven primarily by regulatory initiatives in the u.s. and europe . these policy changes could result in the continued fragmentation of cash equity markets into additional venues , and trading could continue to migrate from exchanges to otc systems , particularly in the u.s. conversely , trading in otc derivatives could begin to move onto exchanges and other execution facilities . any further expansion of the global economy in the year ahead may be positive for our business drivers and our operations . we believe that our aggressive steps in meeting our cost , revenue , and technology objectives over the last three years will enable us to benefit from any improving economic conditions in 2014. we will continue to look for opportunities to further diversify our business with enhanced product offerings and or acquisitions that are complementary to our existing businesses . business segments since january 1 , 2013 , we manage , operate and provide our products and services in four business segments : market services , listing services , information services and technology solutions . all prior period segment disclosures have been recast to reflect our change in reportable segments . certain other prior year amounts have been reclassified to conform to the current year presentation . prior to january 1 , 2013 , we managed , operated and provided our products and services in three business segments : market services , issuer services and market technology . our reportable segments are as follows . market services our market services segment includes our derivative trading and clearing , cash equity trading , fixed income trading , and access and broker services businesses . we offer trading on multiple exchanges and facilities across several asset classes , including derivatives , cash equities , debt , commodities , structured products and etfs . in addition , in some of the countries where we operate exchanges , we also provide investment firm , clearing , settlement and central depository services . in addition , espeed 's electronic benchmark u.s. treasury brokerage and co-location service businesses are part of our market services segment . see “ acquisition of espeed for trading of u.s. treasuries , ” of note 4 , “ acquisitions and divestiture , ” to the consolidated financial statements for further discussion . listing services our listing services segment includes our u.s. and european listing services businesses . we offer capital raising solutions to over 3,300 companies around the globe representing over $ 8 . 0 trillion in total market value as of december 31 , 2013. we operate a variety of listing platforms around the world to provide multiple global capital raising solutions for private and public companies . our main listing markets are the nasdaq stock market and the exchanges that comprise nasdaq omx nordic and nasdaq omx baltic . we offer a consolidated global listing application to companies to enable them to apply for listing on the nasdaq stock market and the exchanges that comprise nasdaq omx nordic and nasdaq omx baltic , as well as nasdaq dubai . information services our information services segment includes our market data products and our index licensing and services businesses . our market data products business delivers historical and real-time market data to 2.5 million financial professionals and individual investors globally . in addition , espeed 's market data business is part of our information services segment . see “ acquisition of espeed for trading of u.s. treasuries , ” of note 4 , “ acquisitions and divestiture , ” to the consolidated financial statements for further discussion . 39 our index licensing and services business has been creating innovative and transparent indexes since 1971. as of december 31 , 2013 , there are over 9,000 structured products based on nasdaq omx indexes , spanning different geographies and asset classes with almost $ 1.5 trillion of notional value . technology solutions our technology solutions segment includes our corporate solutions and market technology businesses . our corporate solutions business provides customer support services , products and programs to customers , including companies listed on our exchanges . through corporate solutions offerings , companies gain access to innovative products and software solutions and services that ease transparency , mitigate risk , improve board efficiency and facilitate better corporate governance . in may 2013 , we acquired the tr corporate solutions businesses . see “ acquisition of the investor relations , public relations and multimedia solutions businesses of thomson reuters , ” of note 4 , “ acquisitions and divestiture , ” to the consolidated financial statements for further discussion . with the acquisition of the tr corporate solutions businesses , corporate solutions revenues primarily include subscription and transaction-based income from products in the following key areas : governance , investor relations , multimedia solutions and public relations businesses . our market technology business is a leading global technology solutions provider and partner to exchanges , clearing organizations and central securities depositories . our technology business is also the sales channel for our complete global offering to other marketplaces . market technology provides technology solutions for trading , clearing , settlement , surveillance and information dissemination to markets with wide-ranging requirements , from the leading markets in the u.s. , europe and asia to smaller african markets . our solutions can handle a wide array of assets including cash equities , currencies , various interest-bearing securities , commodities , energy products and derivatives . market technology also provides governance , risk and compliance software solutions . our management allocates resources , assesses performance and manages these businesses as four separate segments . see note 19 , “ business segments , ” to the consolidated financial statements for further discussion . sources of revenues and cost of revenues market services revenues derivative trading and clearing revenues u.s. derivative trading and clearing u.s. derivative trading and clearing revenues are variable , based on traded and cleared volumes , and recognized when executed or when contacts are cleared .
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financial summary the following table summarizes our financial performance for the year ended december 31 , 2013 when compared with the same period in 2012. the comparability of our results of operations between reported periods is impacted by the acquisitions of espeed on june 28 , 2013 and the tr corporate solutions businesses on may 31 , 2013. see “ acquisition of espeed for trading of u.s. treasuries ” and “ acquisition of the investor relations , public relations and multimedia solutions businesses of thomson reuters , ” of note 4 , “ acquisitions and divestiture , ” to the consolidated financial statements for further discussion . replace_table_token_4_th # denotes a variance greater than 100.0 % . in countries with currencies other than the u.s. dollar , revenues and expenses are translated using monthly average exchange rates . the following discussion of results of operations isolates the impact of year-over-year foreign currency fluctuations to better measure the comparability of operating results between periods . operating results excluding the impact of foreign currency fluctuations are calculated by translating the current period 's results by the prior period 's exchange rates . impacts associated with fluctuations in foreign currency are discussed in more detail under “ item 7a . quantitative and qualitative disclosures about market risk. ” for the year ended december 31 , 2013 , approximately 34.8 % of our revenues less transaction rebates , brokerage , clearance and exchange fees and 29.0 % of our operating income were derived in currencies other than the u.s. dollar , primarily the swedish krona , euro , norwegian krone , danish krone and british pound .
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this information is accumulated to allow our management to make timely decisions regarding required disclosure . our president , who serves as our principal executive officer and principal financial officer , has evaluated the effectiveness of our disclosure controls and procedures ( as defined in rule 13a-15 ( e ) and rule 15d-15 ( e ) of the exchange act ) as of the end of the period covered by this report . the disclosure controls and procedures ensure that all information required to be disclosed by us in the reports that we file or submit under the exchange act is : ( i ) recorded , processed , summarized and reported , within the time periods specified in the sec 's rule and forms ; and ( ii ) accumulated and communicated to our president as appropriate to allow timely decisions regarding required disclosure . based on that evaluation , our president concluded that as of december 31 , 2017 , our disclosure controls and procedures were not effective . notwithstanding this finding of ineffective disclosure controls and procedures , we concluded that the consolidated financial statements included in this form 10-k present fairly , in all material respects , our financial position , results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the united states . management 's annual report on internal control over financial reporting our management is responsible to establish and maintain adequate internal control over financial reporting . our principal executive officer is responsible to design or supervise a process that provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles . the policies and procedures include : maintenance of records in reasonable detail to accurately and fairly reflect the transactions and dispositions of assets , provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles , and that receipts and expenditures are being made only in accordance with authorizations of management and directors , and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition , use or disposition of assets that could have a material effect on our financial statements . for the year ended december 31 , 2017 , management has relied on the committee of sponsoring organizations of the treadway commission ( coso ) , “ internal control - integrated framework , ” to evaluate the effectiveness of our internal control over financial reporting . based upon that framework , our president has determined that our internal control over financial reporting for the year ended december 31 , 2017 , was not effective . the material weaknesses relate to the limited number of persons responsible for the recording and reporting of financial information , the lack of separation of financial reporting duties , and the limited size of our management team in general . we are in the process of evaluating methods of improving our internal control over financial reporting , including the possible addition of financial reporting staff and the increased separation of financial reporting responsibility , and intend to implement such steps as are necessary and possible to correct these material weaknesses . our management determined that there were no changes made in our internal controls over financial reporting during the fourth quarter of 2017 that have materially affected , or are reasonably likely to materially affect our internal control over financial reporting . item 9b . other information none . 36 part iii item 10. directors , executive officers and corporate governance directors and executive officers for fiscal 2017 during the year ended december 31 , 2017 , pct ltd 's ( known during 2017 as bingham canyon corporation ) structure was different than it currently is as the result of the january 19 , 2018 majority consent of stockholders in lieu of an annual meeting , which became effective march 23 , 2018. during 2017 , bingham 's directors and executive officers and their respective ages , positions , term of office and biographical information are set forth below . during 2017 , the company 's bylaws required at least two directors to serve for a term of one year or until they were replaced by a qualified director . at the time , the company 's executive officers were chosen by our board of directors and served at its discretion . there are no existing family relationships between or among any of our executive officers or directors . name age position held gary j. grieco 76 director and president gregory w. albers 68 director and secretary/treasurer current directors and executive officers pursuant to the january 19 , 2018 majority consent of stockholders in lieu of an annual meeting , effective march 23 , 2018 , bingham canyon corporation changed its name to pct ltd and appointed three new members to its board of directors . in addition , the stockholders consented to designating three classes of directors . the current board of directors and their terms are as follows : name age position ( s ) held class of director director term gary j. grieco 76 existing director and president class i three years gregory w. albers 68 existing director and secretary/treasurer class ii two years paul branagan 74 newly appointed director class ii two years francis j. read 52 newly appointed story_separator_special_tag executive overview on august 31 , 2016 , pct ltd entered into a securities exchange agreement ( the “ exchange agreement ” ) with paradigm convergence technologies corporation , a nevada corporation ( “ paradigm ” ) . story_separator_special_tag pursuant to the terms of the exchange agreement , paradigm became the wholly-owned subsidiary of pct ltd after the exchange transaction . pct ltd is a holding company , which through paradigm is engaged in the business of marketing new products and technologies through licensing and joint ventures . pct ltd had not recorded revenues for the two fiscal years prior to its acquisition of paradigm and was dependent upon financing to continue basic operations . paradigm has recorded revenue since it initiated operations in 2012 ; however , those revenues have not been sufficient to finance operations , recording annual net losses of $ 2,721,536 and $ 2,249,653 for the years ended december 31 , 2017 and 2016. pct ltd remains dependent upon additional financing to continue operations . the company intends to raise additional financing through private placements of its common stock and note payable issuances . we expect that we would issue such stock pursuant to exemptions to the registration requirements provided by federal and state securities laws . the purchasers and manner of issuance will be determined according to our financial needs , as discussed below , and the available exemptions to the registration requirements of the securities act of 1933. we also note that if we issue more shares of our common stock , then our stockholders may experience dilution in the value per share of their common stock . the expected costs for the next twelve months include : continuation of commercial launch of non-toxic sanitizing , disinfecting and sterilizing products and technologies with a strong emphasis on health care facilities , including hospitals , nursing homes , assisted living facilities , clinics and medical , dental and veterinarian offices ; continued research and development on product generation units including those designed for on-site deployment at customers ' facilities ; accelerated research and development and initial commercialization on applications of the products in the agricultural sector , most specifically with respect to abatement of a specific crop disease crisis caused by a bacterium in the u.s. and elsewhere ; acquiring available complementary technology rights ; payment of short-term debt ; hiring of additional personnel in 2018 ; and general and administrative operating costs . management projects these costs to total approximately $ 2,500,000. to minimize these costs , the company intends to maintain its practice of controlling operating overheads with efficient facilities commitments , generally below market salaries and consulting fees , and rigorous prioritization of expenditure requirements . based on its understanding of the commercial readiness of its products and technologies , the capabilities of its personnel ( current and being hired ) , established business relationships and the general market conditions , management believes that the company expects to be at or close to profitability by the end of the third quarter of 2018 . 18 liquidity and capital resources replace_table_token_2_th the company recorded a net loss of $ 2,721,536 and had a working deficit of $ 1,415,877 for the year ended december 31 , 2017. we have recorded a relatively small amount of revenues from operations since inception and we have not established an ongoing source of revenue sufficient to cover our operating costs . during 2017 and 2016 the company has relied on raising equity capital and borrowing from stockholders and third parties to fund its ongoing day-to-day operations and its corporate overhead . as december 31 , 2017 we had $ 7,838 in cash compared to $ 21,078 in cash at december 31 , 2016. we had total liabilities of $ 1,456,198 at december 31 , 2017 compared to $ 555,838 at december 31 , 2016. total assets increased by $ 4,475,327 at december 31 , 2017 compared to december 31 , 2016. this increase is primarily from new intangible assets of approximately $ 4,282,250 ( net of amortization ) and property and equipment of approximately $ 305,004 ( net of depreciation ) acquired during the year ended december 31 , 2017. total liabilities increased by $ 900,360 at december 31 , 2017 compared to december 31 , 2016. this increase is primarily additions to related party notes payable of approximately $ 474,198 , notes payable ( net of discount ) of approximately $ 171,766 and to accounts payable and accrued liabilities of approximately $ 254,396 related to administrative and professional services during the year ended december 31 , 2017. our current cash flow is not sufficient to meet our monthly expenses of approximately $ 210,000 and to fund future research and development . we intend to rely on additional debt financing , loans from existing shareholders and private placements of common stock for additional funding ; however , there is no assurance that additional funding will be available . we do not have material commitments for future capital expenditures . however , we can not assure that we will be able to obtain short-term financing , or that sources of such financing , if any , will continue to be available , and if available , that they will be on favorable terms . during the next 12 months we anticipate incurring additional costs related to the filing of exchange act periodic reports . we believe we will be able to meet these costs through funds provided by management , significant stockholders and or third parties . we may also rely on the issuance of our common stock in lieu of cash to convert debt or pay for expenses . the table below presents information regarding cash flows : replace_table_token_3_th commitments and obligations at december 31 , 2017 the company recorded notes payable totaling approximately $ 1,134,217 ( net of debt discount ) compared to notes payable totaling $ 488,253 ( net of debt discount ) at december 31 , 2016. these notes payable represent cash advances received and expenses paid from third parties and related parties . all of the notes payable are non-collateralized , carry interest from 0 % to 13 % and are due ranging
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results of operations replace_table_token_4_th revenues increased to $ 123,105 for the year ended december 31 , 2017 compared to $ 113,387 for the year ended december 31 , 2016. the revenue increases for 2017 were due to the increased volume of fluids sold , the sale of a piece of fluid producing equipment , licensing revenue from epa sub registration , and placing equipment under the company 's 2-year systems service agreement ( “ lease ” ) in december , 2017. total operating expenses increased to $ 2,392,007 for the 2017 year compared to $ 1,059,052 for the 2016 year . the total operating expense increases for 2017 were due to an increase in operations from a result of increased revenue , hiring four new employees ( one of which with a hiring bonus ) , opening a larger production and office location , revenue costs , research and development , and increased stock-based compensation . general and administrative expenses increased to $ 1,745,792 for the 2017 year compared to $ 774,476 for the 2016 year . general and administrative expense increases for 2017 were due to an increase in operations from a result of increased revenue , hiring new employees , and opening a larger production , office location and increased stock-based compensation . research and development expenses increased to $ 315,385 for the 2017 year compared to $ 147,917 for the 2016 year . research and development expenses increased for 2017 due to testing of the application of the hydrolyte® technology in the oil and gas industry ; as a biocide in institutional facilities , such as , hospitals , jails and medical facilities ; and in agriculture and food processing . depreciation and amortization expenses increased to $ 291,590 for the 2017 year compared to $ 37,996 for the 2016 year .
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at investment inception , the company records a liability story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this annual report on form 10-k. in addition to historical data , this discussion contains forward-looking statements about our business , results of operations , cash flows , financial condition and prospects based on current expectations that involve risks , uncertainties and assumptions . our actual results may differ materially from those in this discussion as a result of various factors , including , but not limited to , those discussed under part i , item 1a , `` risk factors ” appearing elsewhere in this annual report on form 10-k. overview we are a bank holding company , and our principal subsidiary , eastern bank , is a massachusetts-chartered bank that has served the banking needs of our customers since 1818. our business philosophy is to operate as a diversified financial services enterprise providing a broad array of banking and other financial services primarily to retail , commercial and small business customers . we had total assets of $ 16.0 billion and $ 11.6 billion at december 31 , 2020 and 2019 , respectively . we are subject to comprehensive regulation and examination by the massachusetts commissioner of banks , the federal deposit insurance corporation ( “ fdic ” ) , the federal reserve board and the consumer financial protection bureau . we manage our business under two business segments : our banking business , which contributed $ 495.0 million , which is 83.7 % , of our total income for the year ended december 31 , 2020 , and our insurance agency business , which contributed $ 96.7 million , which is 16.3 % , of our total income for the year ended december 31 , 2020. our banking business consists of a full range of banking , lending ( commercial , residential and consumer ) , savings and small business offerings , including our wealth management and trust operations that we conduct through our eastern wealth management division . our insurance agency business consists of insurance-related activities , acting as an independent agent in offering commercial , personal and employee benefits insurance products to individual and commercial clients . see the section of this annual report on form 10-k titled “ business ” for further discussion of our banking business and insurance agency business . net income for the year ended december 31 , 2020 computed in accordance with gaap was $ 22.7 million , as compared to $ 135.1 million for the year ended december 31 , 2019. net income for years ended december 31 , 2020 and 2019 included items that our management considers noncore , which are excluded for purposes of assessing operating earnings . net operating earnings , a non-gaap financial measure , for year ended december 31 , 2020 was $ 102.1 million compared to net operating earnings of $ 129.7 million for year ended december 31 , 2019 , representing a 21.3 % decrease . this decrease was largely driven by an increase in the provision for credit losses and a decrease in net interest income , both of which are attributed to the impact of the covid-19 pandemic . see “ non-gaap financial measures ” below for a reconciliation of net operating earnings to gaap net income . outlook and trends covid-19 pandemic the covid-19 pandemic has had and continues to have an adverse effect on our business and the markets in which we operate . we expect the short-term and long-term economic consequences of the covid-19 pandemic to our customers will continue to be significant , and that the continuing health and safety concerns relating to the ongoing pandemic will change the way we conduct our business and interact with our customers . consistent with our philosophy of seeking to be a source of economic strength to our communities , we have taken a broad range of steps intended to help our colleagues , our borrowers and our communities during the covid-19 pandemic . our borrowers . in light of the covid-19 pandemic , we temporarily modified our practices with respect to the collection of delinquent loans to assist our customers during this difficult economic time , and during the year ended december 31 , 2020 we originated $ 1.2 billion of paycheck protection program ( `` ppp '' ) loans , $ 1.0 billion of which remained outstanding at december 31 , 2020. for our retail customers , we temporarily suspended all collection of overdue payments beginning march 16 , 2020 , including residential property foreclosure and related property sales . we resumed collection activities with respect to delinquent consumer loans beginning in late july 2020 . 60 through december 31 , 2020 , the balance of loans that had received a covid-19 modification was $ 1.0 billion , of which approximately 48 % were for full payment deferrals ( both interest and principal ) and 52 % were for deferral of only principal payments , and included $ 616.6 million of commercial real estate loans , including construction loans , $ 132.9 million of commercial and industrial loans , $ 133.4 million of business banking loans , $ 102.8 million of residential real estate loans and $ 28.7 million of consumer loans , including home equity loans . most of these deferrals ended in the third or fourth quarter of the year ended december 31 , 2020 , and $ 703.1 million of these loans have resumed payments and were not 30 days or more past due at december 31 , 2020. the loans remaining in a modified status as of december 31 , 2020 compared to total modifications executed through september 30 , 2020 are presented by portfolio below . these modifications met the criteria of either section 4013 of the cares act or the interagency statement on loan modifications and reporting for financial institutions working with customers affected by the coronavirus ( revised ) and therefore are not deemed troubled debt restructurings ( `` tdrs '' ) . story_separator_special_tag such items that we do not consider to be core to our business include ( i ) income and expenses from investments held in rabbi trusts , ( ii ) gains and losses on sales of securities available for sale , net , ( iii ) gains and losses on the sale of other assets , ( iv ) rabbi trust employee benefits , ( v ) impairment charges on tax credit investments and associated tax credit benefits , ( vi ) expenses indirectly associated with our ipo , ( vii ) other real estate owned gains , ( viii ) merger and acquisition expenses , and ( ix ) the stock donation to the eastern bank charitable foundation in connection with our mutual-to-stock conversion and ipo . we also present tangible shareholders ' equity , tangible assets , the ratio of tangible shareholders ' equity to tangible assets , and tangible book value per share , each of which excludes the impact of goodwill and other intangible assets , as we believe these financial measures provide investors with the ability to further assess our performance , identify trends in our core business and provide a comparison of our capital adequacy to other companies . we have included the tangible ratios because management believes that investors may find it useful to have access to the same analytical tools used by management to assess performance and identify trends . our non-gaap financial measures should not be considered as an alternative or substitute to gaap net income , or as an indication of our cash flows from operating activities , a measure of our liquidity or an indication of funds available for our cash needs . an item which we consider to be non-core and exclude when computing these non-gaap financial measures can be of substantial importance to our results for any particular period . in addition , our methodology for calculating non-gaap financial measures may differ from the methodologies employed by other companies to calculate the same or similar performance measures and , accordingly , our reported non-gaap financial measures may not be comparable to the same or similar performance measures reported by other companies . 63 the following table summarizes the impact of non-core items recorded for the time periods indicated below and reconciles them to the most directly comparable gaap financial measure . replace_table_token_10_th ( 1 ) reflects costs associated with the ipo that are indirectly related to the ipo and were not recorded as a reduction of capital . ( 2 ) the net tax ( expense ) benefit associated with these items is determined by assessing whether each item is included or excluded from net taxable income and applying our combined statutory tax rate only to those items included in net taxable income . 64 the following table summarizes the impact of non-core items with respect to our total income , noninterest income , noninterest expense and the efficiency ratio , which reconciles to the most directly comparable respective gaap financial measure , for the periods indicated : replace_table_token_11_th ( 1 ) reflects costs associated with the ipo that are indirectly related to the ipo and were not recorded as a reduction of capital . 65 the following table summarizes the calculation of our tangible shareholders ' equity , tangible assets , the ratio of tangible shareholders ' equity to tangible assets , and tangible book value per share , which reconciles to the most directly comparable respective gaap measure , as of the dates indicated : replace_table_token_12_th financial position summary of financial position replace_table_token_13_th cash and cash equivalents total cash and cash equivalents increased by $ 1.7 billion , or 466.5 % , to $ 2.1 billion at december 31 , 2020 from $ 362.6 million at december 31 , 2019. this increase was primarily due to proceeds received from investors in our ipo , as well as customer deposit growth , which exceeded our funding needs for new lending activities . 66 securities our current investment policy authorizes us to invest in various types of investment securities and liquid assets , including u.s. treasury obligations , securities of government-sponsored enterprises , mortgage-backed securities , collateralized mortgage obligations , corporate notes , asset-backed securities and municipal securities . we do not engage in any investment hedging activities or trading activities , nor do we purchase any high-risk investment products . we typically invest in the following types of securities : u.s. government securities : at december 31 , 2020 our u.s. government securities consisted of u.s. agency bonds and u.s. treasury securities . at december 31 , 2019 , our u.s. government securities consisted solely of u.s. treasury securities . we maintain these investments , to the extent appropriate , for liquidity purposes , at zero risk weighting for capital purposes , and as collateral for interest rate derivative positions . u.s. agency bonds include securities issued by fannie mae , freddie mac , the federal home loan bank , and the federal farm credit bureau . mortgage-backed securities : we invest in residential and commercial mortgage-backed securities insured or guaranteed by freddie mac or fannie mae . we have not purchased any privately-issued mortgage-backed securities . we invest in mortgage-backed securities to achieve a positive interest rate spread with minimal administrative expense , and to lower our credit risk as a result of the guarantees provided by freddie mac or fannie mae . investments in residential mortgage-backed securities involve a risk that actual payments will be greater or less than the prepayment rate estimated at the time of purchase , which may require adjustments to the amortization of any premium or acceleration of any discount relating to such interests , thereby affecting the net yield on our securities . we periodically review current prepayment speeds to determine whether prepayment estimates require modification that could cause amortization or accretion adjustments . there is also reinvestment risk associated with the cash flows from such securities . in addition , the market value of such securities may be adversely affected by changes in interest rates .
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summary of results of operations replace_table_token_36_th comparison of the years ended december 31 , 2020 and 2019 interest and dividend income our yields on loans and securities are generally presented on an fte basis where the embedded tax benefit on loans or securities are calculated and added to the yield . this presentation allows for better comparability between institutions with different tax structures . interest and dividend income decreased by $ 31.7 million , or 7.1 % , to $ 413.3 million during the year ended december 31 , 2020 from $ 445.0 million during the year ended december 31 , 2019. this decrease was a result of lower interest income on our loans , partially offset by net ppp fee accretion ( fee accretion less cost amortization ) . the fte yield on average interest-earning assets decreased 100 basis points to 3.3 % during the year ended december 31 , 2020. our average interest-earning assets increased by $ 2.2 billion , or 21.2 % , to $ 12.8 billion as of december 31 , 2020 compared to $ 10.5 billion as of december 31 , 2019. interest income on loans decreased by $ 29.9 million , or 7.4 % , to $ 372.2 million during the year ended december 31 , 2020 from $ 402.1 million during the year ended december 31 , 2019. the decrease in interest income on our loans was primarily due to the decrease in the yield on average loans . the decrease in the average yield on our loans was primarily due to the downward adjustment of the interest rates on our existing adjustable-rate loans as a result of the lowering interest rate environment , whereas the average balance of loans increased primarily due to the addition of ppp loans to the portfolio . on an average basis , ppp loans were $ 761.7 million for the year ended december 31 , 2020 , and had a contractual interest rate of 1 % .
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the compensation committee also considers individual performance , levels of responsibility , skills and experience . periodically , we engage a third-party consultant to provide the compensation committee of our general partner with market information for compensation levels at p eer companies in order to assist in the determination of compensation levels for executives , including the named executive officers . during 2019 , longnecker & associates ( “ longnecker ” ) , the independent compensation advisor to et was engaged to provide targeted market review and benchmarking for the identified members of the senior leadership team . in particular , the review by longnecker was designed to ( i ) evaluate the market competitiveness of total compensation levels for certain members of senior management , including our named executive officers ; ( ii ) assist in the determination of appropriate compensation levels for our senior management , including the named executive officers ; and ( iii ) confirm that our compensation programs were yielding compensation packages consistent with our overall compensation philosophy . the partnership was reviewed by longnecker through various metrics in order to recognize the partnership 's unique structure , including the facts story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and notes to audited consolidated financial statements included elsewhere in this report . adjusted ebitda is a non-gaap financial measure of performance that has limitations and should not be considered as a substitute for net income or cash provided by ( used in ) operating activities . please see “ key measures used to evaluate and assess our business ” below for a discussion of our use of adjusted ebitda in this “ management 's discussion and analysis of financial condition and results of operations ” and a reconciliation to net income ( loss ) for the periods presented . overview as used in this management 's discussion and analysis of financial condition and results of operations , the terms “ partnership , ” “ sun , ” “ we , ” “ us , ” or “ our ” should be understood to refer to sunoco lp and our consolidated subsidiaries , unless the context clearly indicates otherwise . we are a delaware master limited partnership primarily engaged in the distribution of motor fuels to independent dealers , distributors , and other customers and the distribution of motor fuels to end customers at retail sites operated by commission agents . in addition , we receive lease income through the leasing or subleasing of real estate used in the retail distribution of motor fuels . as of december 31 , 2020 , we also operated 78 retail stores located in hawaii and new jersey . we are managed by our general partner . as of february 12 , 2021 , energy transfer operating , l.p. ( “ eto ” ) , a consolidated subsidiary of energy transfer lp ( “ et ” ) . as of december 31 , 2020 , eto owned 100 % of the membership interests in our general partner , 28,463,967 of our common units , which constituted a 28.5 % limited partner interest in us , and all of our incentive distribution rights . we believe we are one of the largest independent motor fuel distributors by gallons in the united states and one of the largest distributors of chevron , exxon , and valero branded motor fuel in the united states . in addition to distributing motor fuel , we also distribute other petroleum products such as propane and lubricating oil . we purchase motor fuel primarily from independent refiners and major oil companies and distribute it across more than 30 states throughout the east coast , midwest , south central and southeast regions of the united states , as well as hawaii , to : 78 company-owned and operated retail stores ; 539 independently operated commission agent locations where we sell motor fuel to retail customers under commission agent arrangement with such operators ; 6,803 retail stores operated by independent operators , which we refer to as “ dealers ” or “ distributors , ” pursuant to long-term distribution agreements ; and 2,476 other commercial customers , including unbranded retail stores , other fuel distributors , school districts , municipalities and other industrial customers . on january 23 , 2018 , we sold a portfolio of 1,030 company-operated retail fuel outlets in 19 geographic regions to 7-eleven . our retail stores operate under several brands , including our proprietary brands aplus and aloha island mart , and offer a broad selection of food , beverages , snacks , grocery and non-food merchandise , motor fuels and other services . 36 recent developments and outlook the covid-19 pandemic has created significant volatility , uncertainty and economic disruption . as a provider of critical energy infrastructure , our business has been designated as a “ critical business ” and our employees as “ critical infrastructure workers ” pursuant to the department of homeland security guidance on essential critical infrastructure workforce ( s ) . as an essential business providing motor fuels , the safety of our employees and the continued operation of our assets are our top priorities and we will continue to operate in accordance with federal and state health guidelines and safety protocols . we have implemented several new policies and provided employee training to help maintain the health and safety of our workforce . the future impact of the outbreak is highly uncertain and we can not predict the impact on our volume demand , gross profit or collections from customers . we can not assure you that covid-19 will not have other material adverse impacts on the partnership 's future results . see part i . `` item 1a . risk factors '' for further discussion . on january 15 , 2021 , we repurchased the remaining outstanding portion of our 2023 notes , discussed in the below paragraph . story_separator_special_tag adjusted ebitda related to unconsolidated affiliate excludes the same items with respect to the unconsolidated affiliate as those excluded from the calculation of adjusted ebitda , such as interest , taxes , depreciation , depletion , amortization and other non-cash items . although these amounts are excluded from adjusted ebitda related to unconsolidated affiliate , such exclusion should not be understood to imply that we have control over the operations and resulting revenues and expenses of such affiliate . we do not control our unconsolidated affiliate ; therefore , we do not control the earnings or cash flows of such affiliate . the use of adjusted ebitda or adjusted ebitda related to unconsolidated affiliate as an analytical tool should be limited accordingly . key operating story_separator_special_tag ebitda . total adjusted ebitda for 2019 was $ 665 million , an increase of $ 27 million from 2018. the increase is primarily attributable to the following changes : a decrease in operating costs of $ 143 million , primarily as a result of the divestment of 1,030 company-operated fuel sites to 7-eleven on january 23 , 2018 , the conversion of 207 retail sites to commission agent sites during april 2018 and the may 2019 sale of our ethanol plant in fulton , new york . these expenses include other operating expense , general and administrative expense and lease expense ; and an increase in adjusted ebitda related to unconsolidated affiliate of $ 4 million , which was attributable to the joint venture on the j. c. nolan diesel fuel pipeline to west texas ; partially offset by a decrease in non motor fuel sales gross profit of $ 44 million , primarily related to lower merchandise gross profit as a result of the divestment of 1,030 company-operated fuel sites to 7-eleven on january 23 , 2018 and the conversion of 207 retail sites to commission agent sites during april 2018 ; and a decrease in the gross profit on motor fuel sales of $ 76 million , primarily due to lower fuel margins , a one-time benefit of approximately $ 25 million related to a cash settlement with a fuel supplier recorded for the year ended december 31 , 2018 and a $ 8 million one-time charge related to a reserve for an open contractual dispute recorded for the year ended december 31 , 2019 ; partially offset by a 4.2 % increase in gallons sold for the year ended december 31 , 2019 compared to the year ended december 31 , 2018. depreciation , amortization and accretion . depreciation , amortization and accretion was $ 183 million in 2019 , a slight increase of $ 1 million from 2018. interest expense . interest expense was $ 173 million in 2019 , an increase of $ 27 million from 2018. the increase is primarily attributable to an increase in total long-term debt . non-cash unit-based compensation expense . non-cash unit-based compensation expense was $ 13 million in 2019 , a slight increase of $ 1 million from 2018. loss on disposal of assets and impairment charges . loss on disposal of assets and impairment charges was $ 68 million in 2019 , a decrease of $ 12 million from 2018. the 2019 amount is primarily attributable to a $ 47 million write-down on assets held for sale and a $ 21 million loss on disposal of assets related to our ethanol plant in fulton , new york . the 2018 amount is primarily attributable to the loss on fixed assets driven by the 7-eleven transaction and the $ 30 million impairment on our contractual rights intangible asset . 42 unrealized gain ( loss ) on commodity derivatives . the unrealized gains and losses on our commodity derivatives represent the changes in fair value of our commodity derivatives . the change in unrealized gains and losses between periods is impacted by the notional amounts and commodity price changes on our commodity derivatives . additional information on commodity derivatives is included in “ item 7a . quantitative and qualitative disclosures about market risk ” below . inventory adjustments . inventory adjustments represent changes in lower of cost or market reserves on the partnership 's inventory . these amounts are unrealized valuation adjustments applied to fuel volumes remaining in inventory at the end of the period . for the year ended december 31 , 2019 , an increase in fuel prices reduced lower of cost or market reserve requirements for the period by $ 79 million , creating a favorable impact to net income . for the year ended december 31 , 2018 , a decline in fuel prices increased lower of cost or market reserve requirements for the period by $ 84 million , creating an adverse impact to net income . income tax expense/ ( benefit ) . income tax benefit for 2019 was $ 17 million , a change of $ 209 million from 2018. the change is primarily due to the taxable gain recognized on the sales of assets to 7-eleven in 2018. liquidity and capital resources liquidity our principal liquidity requirements are to finance current operations , to fund capital expenditures , including acquisitions from time to time , to service our debt and to make distributions . we expect our ongoing sources of liquidity to include cash generated from operations , borrowings under our revolving credit facility and the issuance of additional long-term debt or partnership units as appropriate given market conditions . we expect that these sources of funds will be adequate to provide for our short-term and long-term liquidity needs . our ability to meet our debt service obligations and other capital requirements , including capital expenditures and acquisitions , will depend on our future operating performance which , in turn , will be subject to general economic , financial , business , competitive , legislative , regulatory and other conditions , many of which are beyond our control .
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metrics and results of operations the following information is 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 . key operating metrics set forth below are presented for the years ended december 31 , 2020 , 2019 and 2018 , and have been derived from our historical consolidated financial statements . 38 replace_table_token_5_th _ ( 1 ) excludes depreciation , amortization and accretion . ( 2 ) we define adjusted ebitda , which is a non-gaap financial measure , as described above under “ key measures used to evaluate and assess our business. ” ( 3 ) excludes the impact of inventory adjustments consistent with the definition of adjusted ebitda . the partnership 's results of operations are discussed on a consolidated basis below . those results are primarily driven by the fuel distribution and marketing segment , which is the partnership 's only significant segment . to the extent that results of operations are significantly impacted by discrete items or activities within the all other segment , such impacts are specifically attributed to the all other segment in the discussion and analysis below . in the discussion below , the analysis of the partnership 's primary revenue generating activities are discussed in the analysis of adjusted ebitda , and other significant items impacting net income are analyzed separately . the following table presents a reconciliation of adjusted ebitda to net income for the years ended december 31 , 2020 and 2019 : 39 replace_table_token_6_th year ended december 31 , 2020 compared to year ended december 31 , 2019 the following discussion of results compares the operations for the years ended december 31 , 2020 and 2019. adjusted ebitda .
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in 2017 , we did no t impair the value of long-lived assets at any stores as a result of our annual store impairment story_separator_special_tag overview the discussion and analysis presented below should be read in conjunction with the accompanying consolidated financial statements and related notes . please refer to “ item 1a . risk factors ” of this form 10-k for a discussion of forward-looking statements and certain risk factors that may have a material adverse effect on our business , financial condition , results of operations , and or liquidity . our fiscal year ends on the saturday nearest to january 31 , which results in some fiscal years with 52 weeks and some with 53 weeks . fiscal year 2019 and 2018 were comprised of 52 weeks . fiscal year 2017 was comprised of 53 weeks . fiscal year 2020 will be comprised of 52 weeks . story_separator_special_tag areas of our business . those initiatives include : restructure our field and corporate headquarters teams to streamline our leadership structure , reduce overhead costs , and align our resources with operating north star objectives ; restructure our store management structure to better serve jennifer and optimize overall payroll hours ; and analyze our purchasing habits and vendor agreements for retail merchandise and other goods and services to ensure we are maximizing our buying power and making cost-effective decisions . additionally , we continue to evolve our supply chain capabilities and we have established several enablement workstreams to ensure we have the technology and processes in place to achieve our “ drive profitable long-term growth ” and “ fund the journey ” objectives . create long-term shareholder value the “ create long-term shareholder value ” objective is the culmination of our “ drive profitable long-term growth ” and “ fund the journey ” objectives . if we effectively execute the first two objectives of operation north star , we believe that we will deliver value to our shareholders through earnings growth over time . 21 merchandising we focus our merchandising strategy on being the authority on price and value to jennifer in all of our merchandise categories and by providing a merchandise assortment that surprises and delights her . under operation north star , our merchandising strategy is also focused on strengthening our home offerings . home is an area where we believe jennifer gives us the right to play and where we believe we can play to win . strengthening home begins with growth of our own brands , particularly the broyhill ® brand , an iconic brand that we acquired in 2018. we launched the broyhill ® brand of product offerings in late 2019 with initial product offerings in our furniture , seasonal , soft home , and hard home merchandise categories . available both in-store and online , we believe the broyhill ® assortment strengthens our home assortment with a high-quality product offering at a value-based price that jennifer finds attractive . we plan to launch an expanded assortment of broyhill ® products in 2020. we believe our merchandising strategies for furniture , seasonal , and soft home position us to surprise and delight jennifer with our home offerings : our furniture category primarily focuses on being a destination for our core customer 's home furnishing needs , such as upholstery , mattresses , case goods , and ready-to-assemble . in furniture , we believe our competitive advantage is attributable to our sourcing relationships , our in-store availability , and everyday value offerings . a significant majority of our offerings in this category consist of replenishable products sold under our own brands or sourced from recognized brand-name manufacturers . our long-standing relationships with certain brand-name manufacturers , most notably in our mattresses and upholstery departments , allow us to work directly with them to create product offerings specifically for us , which enables us to provide a high-quality product at a competitive price . additionally , we believe our “ buy today , take home today ” practice of carrying in-stock inventory of our core furniture offerings , which allows jennifer to take home her purchase at the end of her shopping experience , positively differentiates us from our competition . we encourage jennifer to shop and buy our products online anytime and anywhere , and we invite her into our stores to touch and feel the quality and comfort of our products . we believe that offering a focused assortment , which is displayed in furniture vignettes , provides jennifer a solution for decorating her home when combined with our home décor offerings . supplementing our merchandising and presentation strategies , we provide multiple third-party financing options for our customers who may be more challenged for approval in traditional credit channels . our financing partners are solely responsible for the credit approval decisions and carry the financial risk . our seasonal category strengthens home with our patio furniture , gazebos , and christmas trim departments . we believe we have a competitive advantage in this category by offering trend-right products with a strong value proposition in our own brands . we have a large selection of samples assembled and displayed throughout the seasonal section of our store and have packaged the box stock so that it is very easy for jennifer to purchase and take home . much of this merchandise is sourced on an import basis , which allows us to maintain our competitive pricing . additionally , our seasonal category offers a mix of departments and products that complement her outdoor experience and holiday decorating desires . we continue to work with our vendors to expand the product assortment in our seasonal category to respond to jennifer 's evolving wants and needs . our soft home category complements our furniture and seasonal categories in making our stores a destination for a broader range of home needs . over the past few years , we have enhanced our assortment in soft home by allocating more selling space to the category to support a wider range of replenishable , fashion-based products . story_separator_special_tag we believe that growing the membership base of the big rewards program will provide more opportunities to understand and leverage customer behavior through segmentation . at february 1 , 2020 , our big rewards program had over 19 million active members ( defined as having made a purchase in the last 12 months ) and we are focused on continuing to grow the membership base of our big rewards program in 2020. in addition to electronic , social and digital media , our marketing communication efforts involve a mix of television advertising , printed ad circulars , and in-store signage . the primary goals of our television advertising are to promote our brand and , from time to time , promote products or special discounts in our stores . we have also shifted towards using more digital streaming media in concentrated markets of our stores , which allows us to connect more deeply and frequently with jennifer . our printed advertising circulars and our in-store signage initiatives focus on promoting our value proposition on our unique merchandise offerings . 23 shopping experience one of the objectives of our operation north star growth strategy is to responsibly invest in our “ store of the future ” growth platform in markets and locations where we believe we will maximize our return on investment . in 2017 , we introduced a new in-store shopping experience called store of the future , which more deeply incorporates our brand identity and seeks to enhance the way jennifer shops our stores . we believe the store of the future concept provides a platform on which to continuously evolve our store presentation through implementation of new initiatives to drive sales growth . staple elements of the store of the future platform include : showcasing our most successful merchandise categories by moving our furniture department to the front center of the prototype store with seasonal and soft home on either side to improve the coordination of our home decorating solutions . we moved food and consumables to the back of the prototype store , while keeping them visible with clear sight lines from the entrance of the store . we have also added color coordinated way-finding signage to help jennifer navigate our stores . creating a warm and personalized tone throughout the store through improved lighting , new flooring , softening the colors on our walls , and greeting jennifer with a “ hello ” wall as she enters the store . additionally , we have added furniture vignettes and incorporated lifestyle photography to provide visual solutions for jennifer . highlighting our focus on the community and local events . the wall behind the check-out counter thanks jennifer for shopping us . we personalized the signage throughout the store and back room to reflect our friendly and community-oriented values . for 2020 , we plan to retrofit our existing fleet of store of the future layout stores to include the following new initiatives : in 2019 , we tested traffic driving cross-category presentation opportunities by displaying certain of our product offerings in a solution format we call “ the lot. ” we designed the lot to add incremental selling space to our store layout and display items from various merchandise categories placed in vignettes to promote life 's occasions , such as fall tailgating . the lot offers surprise and delight to jennifer by demonstrating the breadth and value of products that we offer in one convenient experience . our expectation is to re-introduce jennifer to the “ treasure ” that we offer , while removing the challenges of the “ hunt ” from the experience . following a successful test , we plan to expand this concept to our stores in the store of the future format during 2020. in 2019 , we also tested a new checkout experience featuring a reconfigured and streamlined queue designed to enhance customer experience , build a bigger basket supported by new and expanded convenience offerings , and create additional selling space for our furniture merchandise category . the new checkout experience was well-received in our testing and we plan to expand this concept to our stores in the store of the future format during 2020. see “ real estate ” below for the projected roll-out schedule for the store of the future concept . in addition to our efforts to improve the in-store shopping experience , operation north star is focused on improving our e-commerce platform . our integrated e-commerce platform had offered a narrowed assortment of our in-store offerings . in 2017 , we began offering expanded fabric and color options on select products on our e-commerce platform in our furniture and seasonal categories , including items only available online . in 2019 , we launched our bopis program nationwide , which has allowed for us to nearly double the available skus online . we expect to continue expanding our online offerings to provide a broader assortment of goods and a more complete shopping experience . we also expect to continue improving our online and in-store bopis experience during 2020 as our early bopis results support our belief that the investment in the program will allow us to capitalize on continued growth in our online traffic . lastly , we continue to offer a private label credit card and our easy leasing lease-to-own solutions for customer financing and a coverage/warranty program , focused on our furniture and seasonal merchandise categories , to round out jennifer 's experience . our private label credit card provides access to revolving credit , through a third party , for use on both larger ticket items and daily purchases . our easy leasing lease-to-own program provides a single use opportunity for access to third-party financing . our coverage/warranty program provides a method for obtaining multi-year warranty coverage for furniture purchases .
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operating results summary the following are the results from 2019 that we believe are key indicators of our financial condition and results of operations when compared to 2018 . net sales increased $ 85.1 million , or 1.6 % . comparable store sales for stores open at least fifteen months , including e-commerce , increased $ 17.3 million , or 0.3 % . gross margin dollars decreased $ 7.2 million , while gross margin rate declined 80 basis points to 39.7 % of net sales . selling and administrative expenses increased $ 45.0 million . as a percentage of net sales , selling and administrative expenses increased 30 basis points to 34.3 % of net sales . we recorded a gain on sale of distribution center of $ 178.5 million related to the sale of our distribution center located in rancho cucamonga , california , which increased our operating profit by $ 178.5 million and increased our diluted earnings per share by approximately $ 3.47 per share . operating profit rate increased 210 basis points to 6.3 % . diluted earnings per share increased 60.8 % to $ 6.16 per share , compared to $ 3.83 per share in 2018. our return on invested capital increased to 21.2 % from 16.3 % . inventory of $ 921.3 million represented a $ 48.3 million decrease , or 5.0 % , from 2018 . we acquired approximately 1.3 million of our outstanding common shares for $ 50.0 million , under our 2019 repurchase program ( as defined below in “ capital resources and liquidity ” ) . we declared and paid four quarterly cash dividends in the amount of $ 0.30 per common share , for a total paid amount of approximately $ 48.4 million .
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in late 2016 , we initiated a phase 3 registration trial , forward i , with mirvetuximab soravtansine for use as single-agent therapy to treat patients with platinum-resistant ovarian cancer whose tumors express medium or high levels of frα and who have received up to three prior treatment regimens . in june 2017 , we reported data on 113 ovarian cancer patients treated with mirvetuximab soravtansine from three phase 1 expansion cohorts . from this pooled analysis , in the subset of 36 patients meeting the key eligibility criteria for forward i , the confirmed overall response rate , or orr , was 47 percent ( 95 % ci 30 , 65 ) and median progression-free survival , or mpfs , was 6.7 months ( 95 % ci 4.1 , 8.3 ) . the safety profile of this pooled population was consistent with data previously reported ( asco 2016 ) , consisting of low grade , manageable adverse events . the phase 3 forward i trial is ongoing with sites enrolling in the u.s. , canada and europe and we expect the trial to enroll fully by mid-2018 . additionally , we are accruing patients in a companion study , forward ii , to evaluate mirvetuximab soravtansine in combination regimens to expand the number of patients with ovarian cancer eligible for treatment with the adc . forward ii consists of cohorts assessing mirvetuximab soravtansine in combination with , in separate doublets , avastin ® ( bevacizumab ) , pegylated liposomal doxorubicin , or pld , carboplatin , and keytruda ® ( pembrolizumab ) . based on the encouraging profile of these combinations , we have advanced expansion cohorts for the avastin and keytruda combinations in patients with platinum-resistant disease and have recently initiated a triplet combination evaluating mirvetuximab plus carboplatin and avastin in patients with recurrent platinum-sensitive ovarian cancer . we reported the first clinical data from forward ii in june 2017 demonstrating that mirvetuximab soravtansine may complement currently available therapies in a range of treatment settings , including earlier lines of therapy . we expect to report additional data from forward ii during 2018. we have built a productive platform that continues to generate innovative and proprietary adcs , including imgn779 , our cd33-targeting product candidate for aml . imgn779 combines a high-affinity , humanized anti-cd33 antibody with one of our novel indolino-benzodiazepine payloads , called igns , which alkylate dna without crosslinking , resulting in potent anti-leukemia activity with relative sparing of normal hematopoietic progenitor cells . we reported clinical data from this trial in december 2017 demonstrating imgn779 is well tolerated with no dose limiting toxicities and that imgn779 has dose-dependent biological and anti-leukemia activity . imgn779 is progressing through dose escalation in a phase 1 trial in aml . we also are advancing imgn632 , a cd123-targeting adc that uses an even more potent ign payload agent with a new engineered linker and novel antibody , which we are developing for hematological malignancies , including aml and bpdcn . in january 2018 , we announced that the first patient had been dosed in the phase 1 trial of imgn632 . in august 2017 , we announced a strategic collaboration and option agreement with jazz pharmaceuticals plc , or jazz , to develop and co-commercialize adcs . jazz has exclusive worldwide rights to opt into development and commercialization of imgn779 , imgn632 , and a third program to be named later from our early-stage pipeline . collaborating on adc development with other companies allows us to generate revenue , mitigate expenses , enhance our capabilities and extend the reach of our proprietary platform . the most advanced partner program is roche 's marketed product , kadcyla ( ado-trastuzumab emtansine ) , the first adc to demonstrate superiority over standard of care in a randomized pivotal trial , emilia , and gain fda approval . our adc platform is used in candidates in clinical development with amgen , bayer , biotest , cytomx , debiopharm , lilly , novartis , and sanofi . we also have a partnership with takeda , and expect they will advance their first candidate with our adc technology deploying our ign payload into clinical testing for solid tumors in the first half of 2018. we expect that substantially all of our revenue for the foreseeable future will result from payments under our collaborative arrangements . for more information concerning 41 these relationships , including their ongoing financial and accounting impact on our business , please read note c , significant collaborative agreements , to our consolidated financial statements included in this report . to date , we have not generated revenues from commercial sales of internal products and we expect to incur significant operating losses for the foreseeable future . as of december 31 , 2017 , we had $ 267.1 million in cash and cash equivalents compared to $ 160.0 million as of december 31 , 2016. change in fiscal year as previously reported , we changed our fiscal year end to december 31 from june 30 effective january 1 , 2017. this annual report on form 10-k is for the twelve months ended december 31 , 2017 , and we previously filed a transition report for the six-month period of july 1 , 2016 through december 31 , 2016 , which we refer to as the transition period . critical accounting policies we prepare our consolidated financial statements in accordance with accounting principles generally accepted in the u.s. the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues , and expenses and related disclosure of contingent assets and liabilities . on an on‑going basis , we evaluate our estimates , including those related to our collaborative agreements , clinical trial accruals , inventory , and stock‑based compensation . we base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances . actual results may differ from these estimates . story_separator_special_tag if we conclude that the license has stand‑alone value and therefore will be accounted for as a separate unit of accounting , we then determine the estimated selling prices of the license and all other units of accounting based on market conditions , similar arrangements entered 43 into by third parties , and entity‑specific factors such as the terms of our previous collaborative agreements , recent preclinical and clinical testing results of therapeutic products that use the our adc technology , our pricing practices and pricing objectives , the likelihood that technological improvements will be made , and , if made , will be used by the our collaborators and the nature of the research services to be performed on behalf of our collaborators and market rates for similar services . upfront payments on development and commercialization licenses may be recognized upon delivery of the license if facts and circumstances dictate that the license has stand‑alone value from the undelivered elements , which generally include rights to future technological improvements , research services , delivery of cytotoxic agents and the manufacture of preclinical and clinical materials . we recognize revenue related to research services that represent separate units of accounting as they are performed , as long as there is persuasive evidence of an arrangement , the fee is fixed or determinable , and collection of the related receivable is probable . we recognize revenue related to the rights to future technological improvements over the estimated term of the applicable license . we may also provide cytotoxic agents to our collaborators or produce preclinical and clinical materials at negotiated prices which are generally consistent with what other third parties would charge . we recognize revenue on cytotoxic agents and on preclinical and clinical materials when the materials have passed all quality testing required for collaborator acceptance and title and risk of loss have transferred to the collaborator . arrangement consideration allocated to the manufacture of preclinical and clinical materials in a multiple‑deliverable arrangement is below our full cost , and our full cost is not expected to ever be below its contract selling prices for our existing collaborations . during the twelve months ended december 31 , 2017 and 2016 , the six months ended december 31 , 2016 and 2015 , and the fiscal years ended june 30 , 2016 and 2015 , the difference between our full cost to manufacture preclinical and clinical materials on behalf of our collaborators as compared to total amounts received from collaborators for the manufacture of preclinical and clinical materials was $ 3.1 , $ 3.7 , $ 0.9 , $ 4.1 , $ 6.9 and $ 9.2 million , respectively . the majority of the costs to produce these preclinical and clinical materials are fixed and then allocated to each batch based on the number of batches produced during the period . therefore , our costs to produce these materials are significantly affected by the number of batches produced during the period . the volume of preclinical and clinical materials we produce is directly related to the scale and scope of preclinical activities and the number of clinical trials we and our collaborators are preparing for or currently have underway , the speed of enrollment in those trials , the dosage schedule of each clinical trial and the time period such trials last . accordingly , the volume of preclinical and clinical materials produced , and therefore our per‑batch costs to manufacture these preclinical and clinical materials , may vary significantly from period to period . we may also produce research material for potential collaborators under material transfer agreements . additionally , we perform research activities , including developing antibody specific conjugation processes , on behalf of our collaborators and potential collaborators during the early evaluation and preclinical testing stages of drug development . we record amounts received for research materials produced or services performed as a component of research and development support revenue . we also develop conjugation processes for materials for later stage testing and commercialization for certain collaborators . we are compensated at negotiated rates and may receive milestone payments for developing these processes which are recorded as a component of research and development support revenue . our development and commercialization license agreements have milestone payments which for reporting purposes are aggregated into three categories : ( i ) development milestones , ( ii ) regulatory milestones , and ( iii ) sales milestones . development milestones are typically payable when a product candidate initiates or advances into different clinical trial phases . regulatory milestones are typically payable upon submission for marketing approval with the u.s. food and drug administration , or fda , or other countries ' regulatory authorities or on receipt of actual marketing approvals for the compound or for additional indications . sales milestones are typically payable when annual sales reach certain levels . at the inception of each agreement that includes milestone payments , we evaluate whether each milestone is substantive and at risk to both parties on the basis of the contingent nature of the milestone . this evaluation includes an assessment of whether ( a ) the consideration is commensurate with either ( 1 ) the entity 's performance to achieve the milestone , or ( 2 ) the enhancement of the value of the delivered item ( s ) as a result of a specific outcome resulting from the entity 's performance to achieve the milestone , ( b ) the consideration relates solely to past performance and ( c ) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement . we evaluate 44 factors such as the scientific , regulatory , commercial and other risks that must be overcome to achieve the respective milestone , the level of effort and investment required to achieve the respective milestone and whether the milestone consideration is reasonable relative to all deliverables and payment terms in the arrangement in making this assessment .
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results of operations revenues our total revenues for the year ended december 31 , 2017 were $ 115.4 million compared with $ 48.6 million for the year ended december 31 , 2016. the $ 66.8 million increase in revenues in calendar year 2017 compared to 2016 is attributable to an increase in license and milestone fees , non-cash royalty revenue and clinical materials revenue , partially offset by a decrease in research and development support revenue . our total revenues for the six months ended december 31 , 2016 were $ 21.5 million compared with $ 32.9 million for the six months ended december 31 , 2015. the $ 11.4 million decrease in revenues in the six-month transition period is attributable to a decrease in license and milestone fees and clinical materials revenue , partially offset by an increase in non-cash royalty revenue and research and development support revenue . our total revenues for the fiscal year ended june 30 , 2016 were $ 60.0 million compared with $ 85.5 million for the year ended june 30 , 2015. the $ 25.5 million decrease in revenues in fiscal year 2016 compared to fiscal 2015 is attributable to a decrease in license and milestone fees , royalty revenue and clinical materials revenue , partially offset by an increase in non‑cash royalty revenue and research and development support revenue , all of which are discussed below . 47 license and milestone fees the amount of license and milestone fees we earn is directly related to the number of our collaborators , the collaborators ' advancement of the product candidates , and the overall success in the clinical trials of the product candidates . as such , the amount of license and milestone fees may vary widely from quarter to quarter and year to year .
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“ business ” and the consolidated financial statements , including the notes thereto , that are included elsewhere in this annual report on form 10-k. this discussion and analysis contains forward-looking statements based upon our current expectations 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 part i. item 1a . “ risk factors , ” “ forward-looking statements , ” or in other parts of this report for similar operating and financial data and discussion of our year ended december 31 , 2019 results compared to our year ended december 31 , 2018 results , refer to part ii . item 7 . “ management 's discussion and analysis of financial condition and results of operations ” of our annual report on form10 k which was filed with the sec on february 19 , 2020 ( the “ 2019 10-k ” ) . the sections entitled “ result of operations — year ended december 31 , 2019 compared to year ended december 31 , 2018 ” and “ cash flows — year ended december 31 , 2019 compared to year ended december 31 , 2018 ” in part ii . item 7 . “ management 's discussion and analysis of financial condition and result of operations ” of our 201 9 10-k are incorporated herein by reference . capitalized terms used without definition have the meaning provided elsewhere in this annual report on form 10-k. overview invitation homes is a leading owner and operator of single-family homes for lease , offering residents high-quality homes in sought-after neighborhoods across america . with over 80,000 homes for lease in 16 markets across the country as of december 31 , 2020 , invitation homes is meeting changing lifestyle demands by providing residents access to updated homes with features they value , such as close proximity to jobs and access to good schools . our mission statement , “ together with you , we make a house a home , ” reflects our commitment to high-touch service that continuously enhances residents ' living experiences and provides homes where individuals and families can thrive . we operate in markets with strong demand drivers , high barriers to entry , and high rent growth potential , primarily in the western united states , florida , and the southeast united states . through disciplined market and asset selection , as well as through strategic mergers and acquisitions , we designed our portfolio to capture the operating benefits of local density as well as economies of scale that we believe can not be readily replicated . since our founding in 2012 , we have built a proven , vertically integrated operating platform that enables us to effectively and efficiently acquire , renovate , lease , maintain , and manage our homes . we invest in markets that we expect will exhibit lower new supply , stronger job and household formation growth , and superior noi growth relative to the broader united states housing and rental markets . within our 16 markets , we target attractive neighborhoods in in-fill locations with multiple demand drivers , such as proximity to major employment centers , desirable schools , and transportation corridors . our homes average approximately 1,870 square feet with three bedrooms and two bathrooms , appealing to a resident base that we believe is less transitory than the typical multifamily resident . we invest in the upfront renovation of homes in our portfolio in order to address capital needs , reduce ongoing maintenance costs , and drive resident demand . the in-fill locations and high quality of our homes and service further differentiate our resident experience , which we continue to refine . covid-19 the ongoing covid-19 pandemic has had a significant adverse impact on global and united states economic activity and has contributed to significant volatility and disruption in financial markets . the ultimate impacts remain unknown , but could include the potential worsening of global and united states economic conditions and the continued disruptions to , and volatility in , the credit and financial markets , consumer spending , and the market for acquisition and disposition of single-family homes , as well as other unanticipated consequences . as such , we are closely monitoring the impact of the ongoing covid-19 pandemic on all aspects of our business , including operating , investment management , and capital markets activities . 55 with the safety and well-being of our residents and associates being our highest priority , we continue to follow protocols that enable teams to safely continue providing outstanding service to residents . the safety and service measures currently in place include : ( 1 ) creating and implementing a safety training program for all associates ; ( 2 ) maintaining a three-month supply of masks , gloves , shoe covers , and hand sanitizer for field teams ; ( 3 ) continuing to leverage self-show and virtual-tour technology as both safety measures and competitive advantages ; ( 4 ) adhering to strict safety protocols for maintenance service trips ; and ( 5 ) adapting to offer virtual options for resident move-in orientations and pre-move-out visits . neither these procedural adjustments nor the overall impact of the covid-19 pandemic created significant disruptions to our business model during the year ended december 31 , 2020. however , the pandemic did impact our business , including operating , investment management , and capital markets activities as more fully described below . story_separator_special_tag the joint venture will be capitalized with a total equity commitment of $ 375.0 million , of which $ 75.0 million ( 20 % ) has been committed by us and $ 300.0 million ( 80 % ) has been committed by rockpoint . a total of over $ 1.0 billion ( including debt ) is expected to be deployed by the joint venture to acquire and renovate single-family homes in attractive locations in markets within the western united states , southeast united states , florida , and texas , where we already own homes . the homes are expected to be of similarly high quality and similar characteristics to the homes in our existing portfolio . we will provide asset and property management services to the joint venture , for which we will earn asset management and property management fees , and we have the opportunity to earn a promoted interest subject to certain performance thresholds . the joint venture is anticipated to have a five to eight year term , with certain sale rights in favor of each member , but has the flexibility to continue owning homes for an unlimited period of time if neither member triggers a sale . upon trigger of a sale by rockpoint or us , the other member of the joint venture will have a right of first offer to acquire the homes proposed for sale . we also maintain the ability in all markets to continue deploying capital from our own balance sheet to acquire homes for our portfolio , concurrent with the joint venture 's deployment of capital . in markets where we and the joint venture are investing concurrently , our investment personnel will source acquisitions without knowledge of which entity will acquire the homes , and upon being approved for close , homes will be allocated on a rotational basis between us and the joint venture according to pre-determined ratios of investment between the two entities . in addition , we maintain the right to enter into portfolio acquisitions of ten or more homes outside of the joint venture . capital markets and financing to date , our access to capital markets has not been significantly impacted by the covid-19 pandemic . in june 2020 , we successfully issued and sold 16.7 million shares of our common stock for net proceeds of $ 447.5 million to provide capital primarily for acquisition opportunities . we also entered into an amended and restated revolving credit and term loan agreement that provides $ 3,500.0 million of borrowing capacity and consists of a $ 1,000.0 million revolving facility and a $ 2,500.0 million term loan facility ( see “ — liquidity and capital resources ” for additional information regarding the new credit facility , including significant changes in terms and provisions from our prior credit facility and a description of the use of proceeds ) . we continue to make scheduled debt service payments , including full repayment of the $ 270.0 million revolving credit facility balance that had been drawn in march and do not anticipate non-compliance with our key affirmative and negative debt covenants . as of december 31 , 2020 , we have $ 1,213.4 million in available liquidity through a combination of unrestricted cash and undrawn capacity on our revolving credit facility ( see “ — liquidity and capital resources ” for additional information ) . that said , a severe disruption of , and or instability in , the global financial markets or deteriorations in credit and financing conditions may affect our access to capital necessary to fund business operations , including acquisitions , or address maturing liabilities on a timely basis . 57 ongoing considerations the situation surrounding the ongoing covid-19 pandemic remains fluid , and the ensuing impact of the covid-19 pandemic on our rental revenues and other property income , in particular , can not be fully be determined at present due to an inability to estimate actual collection rates , occupancy levels , and expiration of temporary restrictions on evictions , collections , rent increases , and late fees . we will continue to actively manage our response in collaboration with our residents and business partners and to assess potential impacts to our financial position and operating results , as well as potential adverse developments in our business . in addition to the foregoing uncertainties , we are unable to predict the impact that the covid-19 pandemic will have on our future financial condition , results of operations , and cash flows due to numerous uncertainties regarding external factors . these uncertainties include the scope , severity , and duration of the pandemic , the extent and duration of actions taken to contain the pandemic or mitigate its impact , the availability of an effective vaccine and therapeutic drugs and the effectiveness of the distribution of any such vaccines and therapeutic drugs , and the direct and indirect economic effects of the pandemic , containment measures , monetary and or fiscal policies implemented to provide support or relief to businesses and or residents , and other government , regulatory , and or legislative changes precipitated by the covid-19 pandemic , among others . for further information regarding the impact of covid-19 on our company , see part i. item 1a . “ risk factors. ” 58 our portfolio the following table provides summary information regarding our total and same store portfolios as of and for the year ended december 31 , 2020 as noted below : replace_table_token_2_th ( 1 ) as of december 31 , 2020 . ( 2 ) represents average occupancy for the year ended december 31 , 2020 . ( 3 ) represents average monthly rent for the year ended december 31 , 2020 . ( 4 ) represents the percentage of rental revenues and other property income generated in each market for the year ended december 31 , 2020 . ( 5 ) in december 2019 , we announced a plan to fully exit the nashville market . as of december 31 , 2020 , we have 16 remaining homes in the market .
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results of operations year ended december 31 , 2020 compared to year ended december 31 , 2019 the following table sets forth a comparison of the results of operations for the years ended december 31 , 2020 , and 2019 : replace_table_token_3_th portfolio information as of december 31 , 2020 and 2019 , we owned 80,177 and 79,505 single-family rental homes , respectively , in our total portfolio . during the years ended december 31 , 2020 , and 2019 , we acquired 2,252 and 2,153 homes , respectively , and sold 1,580 and 3,455 homes , respectively . during the years ended december 31 , 2020 , and 2019 , we owned an average of 79,530 and 80,372 single-family rental homes , respectively . we believe presenting information about the portion of our total portfolio that has been fully operational for the entirety of both a given reporting period and its prior year comparison period provides investors with meaningful information about the performance of our comparable homes across periods , and about trends in our organic business . to do so , we provide information regarding the performance of our same store portfolio . as of december 31 , 2020 , our same store portfolio consisted of 71,433 single-family rental homes . rental revenues and other property income for the years ended december 31 , 2020 , and 2019 , total portfolio rental revenues and other property income totaled $ 1,822.8 million and $ 1,764.7 million , respectively , an increase of 3.3 % , driven by an increase in average occupancy , average monthly rent per occupied home , and utilities reimbursements , partially offset by an increase in bad debt , reduced fee income , and a 842 home decrease between periods in the average number of homes owned . average occupancy for the years ended december 31 , 2020 , and 2019 for the total portfolio was 96.1 % and 94.2 % , respectively .
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asu 2016-09 identifies areas for simplification involving several aspects of accounting for share-based payment transactions , including the income tax consequences , classification of awards as equity or liabilities , an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur , as well as certain classifications on the statement of cash flows . the new standard was effective for annual reporting periods beginning after december 15 , 2016 , including interim periods within those years ( i.e . a january 1 , 2017 effective date ) . we adopted this standard prospectively beginning in 2017. the adoption impacted our recognition of story_separator_special_tag overview we are a diversified chemical company serving agricultural , consumer and industrial markets globally with innovative solutions , applications and market-leading products . we operate in two distinct business segments : fmc agricultural solutions and fmc lithium . our fmc agricultural solutions segment develops , markets and sells all three major classes of crop protection chemicals : insecticides , herbicides and fungicides . these products are used in agriculture to enhance crop yield and quality by controlling a broad spectrum of insects , weeds and disease , as well as in non-agricultural markets for pest control . our fmc lithium segment manufactures lithium for use in a wide range of lithium products , which are used primarily in energy storage , specialty polymers and chemical synthesis application . 2017 highlights the following are the more significant developments in our businesses during the year ended december 31 , 2017 : on november 1 , 2017 , we successfully completed the acquisition of the dupont crop protection business which was a significant milestone and transformed fmc into a tier-one leader and the fifth largest global provider in the agricultural chemicals market . this acquisition brought greater scale and regional balance to our business , improved our market access and expanded our product portfolio and technology pipeline significantly . on november 1 , 2017 , we completed the previously disclosed sale of our fmc health and nutrition business to dupont . the sale resulted in a gain of approximately $ 918 million ( $ 727 million , net of tax ) . revenue of $ 2,878.6 million in 2017 increased $ 339.7 million or approximately 13 percent versus last year . a more detailed review of revenues by segment is included under the section entitled “ results of operations ” . on a regional basis , sales in north america increased 14 percent , sales in asia increased 21 percent and sales in europe , middle east and africa ( emea ) increased by 5 percent and sales in latin america increased by 14 percent . our gross margin , excluding acquisition-related charges , of $ 1,121.5 million increased approximately $ 190.3 million or approximately 20 percent versus last year . gross margin as a percent of revenue is approximately 39 percent versus 37 percent in 2016 . the increase in gross margin was primarily driven by improved pricing and mix in our fmc lithium business as well as the sale of higher margin products from the acquired dupont crop protection business . selling , general and administrative expenses increased 35 percent from $ 458.5 million to $ 618.6 million . the change is primarily due to acquisition-related charges incurred in 2017 related to the dupont crop protection business acquisition which was $ 130.2 million of the increase . selling , general and administrative expenses , excluding non-operating pension and postretirement charges and acquisition-related charges , of $ 470.2 million increased $ 58.5 million or approximately 14 percent . non-operating pension and postretirement charges and acquisition-related charges are presented in our adjusted earnings non-gaap financial measurement below under the section titled “ results of operations ” . research and development expenses of $ 141.5 million increased $ 7.0 million or 5 percent . the increase was due to investments in discovery and product development from the newly acquired state of the art facilities from the dupont crop protection business acquisition . net income attributable to fmc stockholders of $ 535.8 million increased approximately $ 326.7 million from $ 209.1 million in the prior year period primarily due to the gain on sale of our discontinued fmc health and nutrition of approximately $ 727 million , net of tax . the increase was partially offset by a provisional income tax charge of $ 315.9 million related to the recently enacted tax cuts and jobs act ( the `` act '' ) . adjusted after-tax earnings from continuing operations attributable to fmc stockholders of $ 368.3 million increased approximately $ 110.6 million or 43 percent due to higher results in fmc agricultural solutions and fmc lithium . see the disclosure of our adjusted earnings non-gaap financial measurement below under the section titled “ results of operations ” . other 2017 highlights in fmc lithium , we are seeing the benefits of our strategy to grow our business in the technology-driven specialty end markets , where demand continues to accelerate and pricing trends across our portfolio remain favorable . in march , we announced our intention to separate fmc lithium into a publicly traded company during 2018. in june , we started commercial sales from our new lithium hydroxide facility in china . we expanded production of lithium carbonate at our argentina site through debottlenecking projects , and we also announced plans to more than double lithium carbonate production at that same site to at least 40,000 metric tons by 2022 . 18 on august 1 , 2017 , we completed the sale of the omega-3 business to pelagia as for $ 38 million . in may 2017 , we entered into a new $ 1.5 billion term loan facility to fund the transaction agreement with dupont.we also entered into an amended and restated $ 1.5 billion revolving credit facility and amended the existing term loan facility at that time . story_separator_special_tag the gaap tax provision includes certain discrete tax items including , but not limited to : income tax expenses or benefits that are not related to current year ongoing business operations ; tax adjustments associated with fluctuations in foreign currency remeasurement of certain foreign operations ; certain changes in estimates of tax matters related to prior fiscal years ; certain changes in the realizability of deferred tax assets ; and changes in tax law which includes the impact of the act enacted on december 22 , 2017. management believes excluding these discrete tax items assists investors and securities analysts in understanding the tax provision and the effective tax rate related to ongoing operations thereby providing investors with useful supplemental information about fmc 's operational performance . 21 in the discussion below , please refer to our chart titled `` segment results reconciliation '' within the results of operations section . all comparisons are between the periods unless otherwise noted . story_separator_special_tag style= '' line-height:120 % ; padding-top:6px ; text-align : left ; font-size:10pt ; '' > actual results for 2016 vs. pro forma combined results for 2015 ( 6 ) decrease in the twelve months ended december 31 , 2016 was driven by unfavorable weather in both central and western europe . additionally , the shift in the timing of sales as a result of our change to a direct market access model across europe and product rationalization each contributed to the decline in revenue . ( 7 ) decrease in the twelve months ended december 31 , 2016 was driven by elevated channel inventory levels and lower demand due to the deterioration in farm incomes which resulted in more cautious purchasing decisions . ( 8 ) lower sales volumes in brazil contributed to the reduction in revenue for the twelve months ended december 31 , 2016. continued product rationalization resulted in lower revenues as well as the decision to allow the existing channel inventory to reduce . the volumes were also impacted by our disciplined approach to reduce our credit exposure in brazil . additionally , foreign exchange headwinds from the mexican peso contributed to the revenue decrease . ( 9 ) decline in the twelve months ended december 31 , 2016 was driven by softer demand in china as well as our actions to reduce channel inventories in india , following two years of drought . fmc lithium replace_table_token_13_th 2017 vs. 2016 revenue of $ 347.4 million increased by approximately 32 percent versus the prior-year period driven by improved pricing and mix , which accounted for a 23 percent increase . additionally , higher volumes impacted revenue by 9 percent . foreign currency had a minimal impact on the change in revenue . segment operating profit of $ 126.7 million increased approximately $ 57 million versus the year ago period . the improved pricing and mix noted above impacted operating profit by approximately $ 60 million while volume contributed to the change by $ 11 million . these increases were offset by higher raw material prices and energy prices as well as expansion related costs by approximately $ 13 million . foreign currency had a negative impact of less than $ 1 million on the change in operating profit . full year segment revenue is expected to be approximately $ 420 million to $ 460 million for 2018 and full-year segment ebitda is expected to be approximately $ 180 million to $ 200 million . full-year depreciation and amortization is expected to be approximately $ 20 million . 2016 vs. 2015 revenue of $ 264.1 million increased by approximately 11 percent versus the prior-year period driven by favorable pricing of carbonate , chloride , and hydroxide , which accounted for 14 percent of the change . this was offset by lower volumes due to increased demand from downstream products , which impacted revenues by 3 percent . segment operating profit of $ 70.2 million increased approximately $ 47 million versus the year ago period . the favorable pricing noted above impacted operating profit by approximately $ 33 million while volume had a negative impact on operating profit of $ 3 million . favorable foreign currency impacts increased operating profit by approximately $ 3 million . additionally , lower raw material prices , lower energy prices and increased manufacturing efficiencies improved operating profit by approximately $ 14 million . 24 corporate and other corporate expenses are included as a component of the line item “ selling , general and administrative expenses ” except for last in , first-out ( lifo ) related charges that are included as a component of `` cost of sales and other services '' on our consolidated statements of income ( loss ) . 2017 vs. 2016 corporate and other expenses of $ 102.4 million increased by $ 17.8 million from $ 84.6 million in 2016 . the increase was driven by approximately $ 6 million of corporate incentives due to higher business results and share-based compensation . additionally , the prior period included approximately $ 7 million of lifo income that did not recur in 2017. the remaining increase was due to other corporate items including corporate facility costs , foreign exchange losses and other shared corporate costs . 2016 vs. 2015 corporate and other expenses of $ 84.6 million increased by $ 21.6 million from $ 63.0 million in the same period in 2015 . approximately $ 10 million of the increase is driven by the higher incentive compensation due to improved business performance as well as costs associated with the relocation of our corporate headquarters which totaled approximately $ 2 million . the remaining $ 9 million increase was primarily the result of other project initiatives . interest expense , net 2017 vs. 2016 interest expense , net of $ 79.1 million increased by approximately 26 percent compared to $ 62.9 million in 2016 .
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segment results for management purposes , segment operating profit is defined as segment revenue less segment operating expenses ( segment operating expenses consist of costs of sales and services , selling , general and administrative expenses ( `` sg & a '' ) and research and development expenses ( `` r & d '' ) . we have excluded the following items from segment operating profit : corporate staff expense , interest income and expense associated with corporate debt facilities and investments , income taxes , gains ( or losses ) on divestitures of businesses , restructuring and other charges ( income ) , non-operating pension and postretirement charges , investment gains and losses , loss on extinguishment of debt , asset impairments , last-in , first-out ( “ lifo ” ) inventory adjustments , acquisition/divestiture related charges , business separation costs and other income and expense items . information about how each of these items relates to our businesses at the segment level and results by segment are discussed below and in note 19 to our consolidated financial statements included in this form 10-k. beginning in 2018 we will present earnings before interest , taxes , and depreciation and amortization ( `` ebitda '' ) by operating segment , which is a non-gaap financial measure . we define segment ebitda as segment operating profit excluding depreciation and amortization expense . we believe that this non-gaap financial measure provides a useful metric for management and investors to better assess operating performance and enables transparency to investors and analysts for period-to-period comparability of financial performance . due to the recent dupont crop protection business acquisition , we acquired a large number of intangible assets and property , plant , and equipment . the depreciation and amortization on the intangible assets is expected to significantly increase our depreciation and amortization expense . fmc agricultural solutions replace_table_token_10_th 2017 vs. 2016 revenue of $ 2,531.2 million increased approximately 11 percent versus the prior year period .
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possible sources of taxable income include taxable income in story_separator_special_tag management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) is designed to provide information that is supplemental to , and shall be read together with , the consolidated financial statements and the accompanying notes contained in this form 10-k. information in md & a is intended to assist the reader in obtaining an understanding of ( i ) the consolidated financial statements , ( ii ) the company 's business segments and how the results of those segments impact the company 's results of operations and financial condition as a whole and ( iii ) how certain accounting principles affect the company 's consolidated financial statements . executive summary the company is a leading global manufacturer and supplier of ( i ) sewer cleaners , vacuum trucks , street sweepers and other environmental vehicles and equipment and ( ii ) safety , security and communication equipment . we also are a designer and supplier of technology-based products and services for the public safety market . in addition , we sell parts and provide service , repair , equipment rentals and training as part of a comprehensive offering to our customer base . we operate nine manufacturing facilities in four countries around the world and provide products and integrated solutions to municipal , governmental , industrial and commercial customers in all regions of the world . as described in item 1 of part i of this form 10-k , the company 's business units are organized and managed in two operating segments : the environmental solutions group and the safety and security systems group . in 2015 , the company continued to focus on executing against its business strategy , which resulted in strong improvement in operating earnings . the company continued to execute against a number of key long-term objectives , including the following : creating disciplined growth ; improving manufacturing efficiencies and costs ; leveraging invested capital ; and diversifying our customer base . the company assessed achievement against these objectives in 2015 as follows : creating disciplined growth despite challenging conditions , including direct and indirect effects associated with reduced demand for our products in oil and gas markets , we improved operating income to $ 103.2 million for the year . this was an increase of $ 14.5 million , or 16 % , on net sales that were 1 % lower than prior-year levels . we demonstrated our commitment to returning value to stockholders by doubling our quarterly dividend in the first quarter of 2015 and increasing it further in the fourth quarter of 2015 . during the year , we paid dividends of $ 15.6 million . under our authorized share repurchase programs , we repurchased approximately 725,000 shares in 2015 for a total of $ 10.6 million . the remaining aggregate authorization under these programs of $ 69.1 million at december 31 , 2015 represents approximately 8 % of our market capitalization . subsequent to december 31 , 2015 , we completed the sale of our bronto skylift business , initially receiving proceeds of approximately $ 83 million , with the remaining purchase price of approximately $ 4 million expected to be paid , in connection with the payment of the working capital and net debt adjustments , by the end of the second quarter of 2016. the sale will facilitate our focus on more profitable growth opportunities . in addition , in january 2016 , we executed a new five-year $ 325 million revolving credit facility , to replace our existing $ 225 million credit facility . with our current capital structure , our strong balance sheet , the proceeds received from the sale of bronto , and the liquidity available under our new credit agreement , we have greater financial flexibility to invest in internal growth initiatives , pursue strategic acquisitions and to consider ways to return value to stockholders . we continue to apply a disciplined approach in considering potential acquisitions . in january 2016 , we completed the acquisition of westech vac systems , ltd. , a canadian manufacturer of high-quality , rugged vacuum trucks . although not significant in size , the acquisition provides access to new product offerings and new markets . we expect it to be the first in a series of acquisitions , and it fits our strategy of acquiring capabilities that our core businesses can build upon . improving manufacturing efficiencies and costs operating margin improved to 13.4 % in 2015 from 11.4 % in 2014 - a significant achievement on lower net sales . 16 we continue to focus on reducing product costs and improving manufacturing efficiencies across all of our businesses . we started our “ 80/20 ” efficiency initiatives in 2010 , and they have been a critical part of the steady improvement in our margins . our 80/20 initiatives have also helped us to focus on delivering the right products and services at the right prices to better capture the value-add that we create . leveraging invested capital we remain focused on return on invested capital ( “ roic ” ) in 2015 and we continue to use an roic metric in our long-term incentive compensation programs . this increased focus contributed to a significant year-over-year improvement in roic , which we define as net operating profit after taxes divided by average invested capital . we continue to adapt our flexible manufacturing model which allows us to shift production among facilities to optimize capacity and capabilities . the sale of our bronto skylift business removed a low-margin operation that required a disproportionate amount of invested capital . we continue to generate strong cash flow from our improved operating performance , with cash flow provided by continuing operations for the year ended december 31 , 2015 of $ 91.1 million , up 12 % compared to 2014 . the cash generated from operations has helped us to significantly increase our cash position , return value to shareholders and reduce our total debt . story_separator_special_tag interest expense compared with the prior year , interest expense for the year ended december 31 , 2014 decreased by $ 5.3 million , or 60 % , primarily due to significant reductions in debt levels . for the year ended december 31 , 2014 , interest expense further benefited from lower interest rates on borrowings that resulted from our march 2013 debt refinancing . debt settlement charges there were no debt settlement charges in 2014. in the first quarter of 2013 , the company recorded $ 8.7 million of charges related to the termination of our prior debt facilities . the expenses included the write-off of deferred financing fees of $ 4.5 million and a prepayment penalty of $ 4.2 million . other expense , net other expense , net totaled $ 1.7 million for the year ended december 31 , 2014 , as compared to $ 0.1 million in the prior year . the increase was largely driven by higher realized losses from foreign currency transactions . income tax ( expense ) benefit the company recognized income tax expense of $ 23.7 million for the year ended december 31 , 2014 , compared to an income tax benefit of $ 108.6 million in the prior year . the company 's effective tax rate for the year ended december 31 , 2014 was 28.4 % , compared to ( 247.4 ) % in 2013. in the second quarter of 2013 , it was determined that $ 102.4 million of valuation allowance previously recorded against u.s. deferred tax assets could be released . this evaluation was based on a qualitative and quantitative analysis of current and expected domestic earnings , industry and market trends , tax planning strategies and general business risks , that resulted in a more likely than not conclusion of being able to realize a significant portion of our u.s. deferred tax assets . upon releasing the significant portion of our valuation allowance on u.s. deferred tax assets in the second quarter of 2013 , a valuation allowance of $ 10.4 million was maintained in accordance with the guidance provided in accounting standards codification ( “ asc ” ) 740-270-25-4 and was released through the effective tax rate as domestic income was recognized throughout the course of the year ended december 31 , 2013. an additional $ 3.4 million reduction in deferred tax valuation allowances was recorded as a discrete item in the year ended december 31 , 2013. in the fourth quarter of 2013 , the company also executed a tax planning strategy that resulted in the release of $ 6.7 million of valuation allowance that was previously recorded against the company 's foreign tax credits , which would have begun to expire in 2015. as the company no longer maintains a valuation allowance against most domestic tax assets , tax expense has been recognized on domestic earnings , as well as non-u.s. earnings , in the year ended december 31 , 2014. the company 's effective tax rate for the year ended december 31 , 2014 was also favorably impacted by a $ 1.0 million net reduction in unrecognized tax benefits , that primarily related to the completion of an irs audit , a $ 3.5 million release of valuation allowance that was previously recorded against the company 's spanish deferred tax assets and a $ 0.4 million benefit attributable to a change in the enacted tax rate in spain . income from continuing operations income from continuing operations was $ 59.7 million for the year ended december 31 , 2014 , compared with $ 152.5 million in the prior year . the lower income is largely due to increased income tax expense , partially offset by improved operating income and reduced interest expense , as further explained above . income from continuing operations for the year ended december 31 , 2014 , was also positively impacted by the absence of $ 8.7 million of debt settlement charges incurred in connection with our prior year debt refinancing . 21 gain from discontinued operations and disposal , net of tax for the year ended december 31 , 2014 , the company recorded a net gain from discontinued operations and disposal of $ 4.0 million , which included $ 3.3 million of net income generated by the fire rescue group , which was discontinued in 2015 , as well as adjustments of estimated product liability obligations of previously discontinued businesses , resulting from updated actuarial valuations . for the year ended december 31 , 2013 , the company recorded a net gain from discontinued operations and disposal of $ 7.5 million , which included $ 7.7 million of net income generated by the fire rescue group . partially offsetting this income was a charge related to special termination benefits provided to certain fstech employees that were retained by the company in order to assist with transitional operations through the end of the third quarter of 2013 , as well as certain adjustments relating to assets of other previously discontinued operations . orders & backlog replace_table_token_5_th year ended december 31 , 2015 vs. year ended december 31 , 2014 for the year ended december 31 , 2015 , total orders of $ 686.1 million decreased by $ 121.3 million , or 15 % , compared to the prior year , largely due to lower demand for vacuum trucks , street sweepers and sewer cleaners , which led to an $ 106.4 million decrease in orders within our environmental solutions group . our safety and security systems group also reported decreased orders of $ 14.9 million . u.s. municipal and governmental orders decreased by 11 % , primarily due to a decline in orders of street sweepers and sewer cleaners of $ 26.3 million and $ 12.9 million , respectively . street sweeper and sewer cleaner orders from our municipal markets decreased largely due to fewer fleet orders as compared with the prior year .
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results of operations the following table summarizes our consolidated statements of operations and illustrates the key financial indicators used to assess our consolidated financial results : replace_table_token_4_th year ended december 31 , 2015 vs. year ended december 31 , 2014 net sales net sales decreased by $ 11.1 million , or 1 % , for the year ended december 31 , 2015 compared to the prior year . net sales in the environmental solutions group decreased by $ 2.5 million , with lower sales of vacuum trucks and sewer cleaners being partially offset by improved sales of street sweepers . in the safety and security systems group , net sales were down $ 8.6 million , largely due to an $ 11.4 million reduction in sales of industrial products associated with lower demand within oil and gas markets , as well as an unfavorable foreign currency impact of $ 8.2 million , partially offset by a $ 10.9 million improvement in sales into european public safety markets . cost of sales for the year ended december 31 , 2015 , cost of sales decreased by $ 28.0 million , or 5 % , compared to the prior year , largely driven by a decrease of $ 18.0 million within the environmental solutions group , principally associated with favorable product mix , as well as productivity and capacity improvements at our manufacturing facilities . the safety and security systems group also reported a $ 10.0 million cost of sales reduction , primarily due to a favorable foreign currency impact of $ 6.2 million , as well as favorable sales mix effects . gross profit for the year ended december 31 , 2015 , gross profit increased by $ 16.9 million , or 8 % , compared to the prior year . gross margin for the year ended december 31 , 2015 was 29.4 % , up from 26.8 % in the prior year .
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you should read the risk factors and special note regarding forward-looking statements sections of this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are developing next-generation medicines to improve the lives of patients with inflammatory diseases . our lead product candidate , reproxalap , is a first-in-class treatment in late-stage development for dry eye disease and other forms of ocular inflammation . we are leveraging our experience in ocular inflammation to develop other product candidates for systemic inflammatory disease . we intend to commercialize our products directly and through collaborations that expand global reach . our program in dry eye disease has begun phase 2b clinical testing . our program in noninfectious anterior uveitis has begun phase 3 clinical testing , and our programs in allergic conjunctivitis and sls are expected to begin phase 3 clinical testing in the second quarter of 2018. our systemic inflammation programs are expected to begin clinical testing in 2019. a novel product candidate is in pre-clinical development for retinal disease . all of our development timelines may be subject to adjustment depending on recruitment rate , regulatory review , preclinical and clinical results , and other factors that could delay the initiation , completion , or reporting of clinical trials . since our incorporation , we have devoted substantially all of our resources to the preclinical and clinical development of our product candidates . our ability to generate revenues largely depends upon our ability , alone or with others , to complete development of our product candidates to obtain regulatory approvals for and to manufacture , market , and sell our product candidates . the results of our operations will vary significantly from year-to-year and quarter-to-quarter , and depend on a number of factors , including risks related to our business and industry , risks relating to intellectual property and other legal matters , risks related to our common stock , and other risks that are detailed in the section of this annual report on form 10-k entitled risk factors. in june 2016 , we closed an underwritten public offering in which we sold an aggregate of 2,760,000 shares of common stock , including 360,000 shares sold in connection with the exercise in full by the underwriter of its option to purchase additional shares . the net proceeds of the offering , including the full exercise of the option , were approximately $ 12.6 million , after deducting the underwriting discounts and commissions and the other offering expenses payable by us . in february 2017 , we closed an underwritten public offering in which we sold 2,555,555 shares of its common stock , including 333,333 shares sold in connection with the exercise in full by the underwriters of their option to purchase additional shares . the net proceeds of the offering , including the full exercise of the option , were approximately $ 10.6 million , after deducting the underwriting discounts and commissions and the other estimated offering expenses payable by us . in june 2017 , we entered into a controlled equity offering sm sales agreement ( sales agreement ) with cantor fitzgerald & co. ( cantor ) , as sales agent , pursuant to which we may offer and sell , from time to time through cantor , shares of our common stock , par value $ 0.001 per share , providing for aggregate sales proceeds of up to $ 20,000,000. under the sales agreement , cantor may sell such shares of common stock in sales deemed to be an at the market offering ( atm ) as defined in rule 415 ( a ) ( 4 ) promulgated under the securities act of 1933 , as amended , with us setting the parameters for the sale of shares thereunder , including the number of shares to be issued , the time period during which sales are requested to be made , any limits on the number of shares that may be sold in any one trading day , 63 and any minimum price below which sales may not be made . the sales agreement provides that cantor will be entitled to compensation for its services equal to 3.0 % of the gross proceeds from the sale of shares sold pursuant to the sales agreement . we have no obligation to sell any shares under the sales agreement , and may at any time suspend solicitations and offers under the sales agreement . from january 1 , 2018 through march 29 , 2018 , we sold an aggregate of 527,000 shares of our common stock and received $ 4.1 million after deducting commissions related to the sales agreement . in september 2017 , we closed an underwritten public offering in which we sold an aggregate of 3,967,500 shares of common stock , including 517,500 shares sold in connection with the exercise in full by the underwriters of their option to purchase additional shares . the net proceeds of the offering , including the full exercise of the option , were approximately $ 26.9 million , after deducting underwriting discounts , commissions , and other offering expenses payable by us . we will need to raise additional capital in the form of debt or equity or through partnerships to fund additional development of our product candidates , and we may in-license , acquire , or invest in complementary businesses or products . in addition , as capital resources permit , we may augment or otherwise modify the clinical development plans described herein . research and development expenses we expense all of our research and development expenses as they are incurred . research and development costs that are paid in advance of performance are capitalized as a prepaid expense until incurred . story_separator_special_tag we base our expense accruals related to non-clinical development , preclinical studies , and clinical trials on our estimates of the services received and efforts expended pursuant to contracts with organizations/consultants that conduct and manage clinical studies on our behalf . the financial terms of these agreements vary from contract to contract and may result in uneven payment flows . payments under some of these contracts may depend on many factors , such as the successful enrollment of patients , site initiation , and the completion of clinical study milestones . our service providers invoice us monthly in arrears for services performed . in accruing service fees , we estimate the time period over which services will be performed and the level of effort to be expended in each period . if we do not identify costs that we have begun to incur , or if we underestimate or overestimate the level of services performed or the costs of these services , our actual expenses could differ from our estimates . to date , we have not experienced significant changes in our estimates of accrued research and development expenses after a reporting period . however , due to the nature of estimates , we can not assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical trials and other research activities . stock-based compensation stock-based compensation expense represents the grant date fair value of restricted stock awards and stock option grants , which are being recognized over the requisite service period of the awards ( usually the vesting period ) on a straight-line basis , net of estimated forfeitures . for stock option grants with performance-based milestones , the expense is recorded over the remaining service period after the point when the achievement of the milestone is probable or the performance condition has been achieved . we generally estimate the fair value of stock option grants using the black-scholes option pricing model . if vesting is based on market-based milestones , we perform monte carlo simulations to estimate the timing and number of shares that are most likely to vest and record the expense on a straight-line basis over the estimated period the milestone will be achieved . we account for stock options to non-employees using the fair value approach . stock options to non-employees are subject to periodic revaluation over their vesting terms . the black-scholes option pricing model requires the input of highly subjective assumptions , including the risk-free interest rate , the expected volatility of our stock , the expected term of the award , and the expected dividend yield . we have computed the historical volatility of our own stock price and have determined that a volatility estimate of 77 % is reasonable . we have estimated the expected life of our employee stock options using the simplified method , whereby the expected life equals the average of the vesting term and the original contractual term of the option for service-based awards . the risk-free interest rates for periods within the expected life of the option are based on the yields of zero-coupon united states treasury securities . the assumptions used in the black-scholes option pricing model to determine the fair value of employee stock option grants in 2017 and 2016 were as follows : replace_table_token_2_th 66 other information net operating loss carryforwards as of december 31 , 2017 , we have federal and state income tax net operating loss ( nol ) carryovers of approximately $ 62.8 million and $ 59.4 million , respectively , which will expire at various dates through 2037. as of december 31 , 2017 , we have federal and state tax carryovers of credits for increasing research activities ( r & d tax credits ) of approximately $ 1.8 million and $ 299,000 , respectively , which will expire at various dates through 2037. in general , under section 382 of the internal revenue code of 1986 , as amended ( code ) , a corporation that undergoes an ownership change is subject to limitations on its ability to utilize its pre-change nols and certain other tax assets ( tax attributes ) to offset future taxable income . in general , an ownership change occurs if the aggregate stock ownership of certain stockholders increases by more than 50 percentage points over such stockholders ' lowest percentage ownership during the testing period ( generally three years ) . transactions involving our common stock , even those outside our control , such as purchases or sales by investors , within the testing period could result in an ownership change . a limitation on our ability to utilize some or all of our nols or credits could have a material adverse effect on our results of operations and cash flows . prior to 2016 , we had undergone two ownership changes and it is possible that additional ownership changes have occurred since . however , our management believes that we had sufficient built-in-gain to offset the section 382 limitation generated by such ownership changes . any future ownership changes , including those resulting from our recent or future financing activities , may cause our existing tax attributes to have additional limitations . in addition , we may not be able to have sufficient future taxable income prior to their expiration because net operating losses have carryforward periods . as a result of the passage of the tax cuts and job act , corporate tax rates in the united states will decrease in 2018 , resulted in the remeasurement of our deferred tax assets at the new statutory rate and a reduction in the value of our deferred tax assets in 2017. however , subject to annual limitations , net operating losses generated in years 2018 and beyond will have an indefinite carryforward period and will not expire .
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results of operations we anticipate that our results of operations will fluctuate for the foreseeable future due to several factors , including the progress of our research and development efforts , the timing and outcome of clinical trials , and regulatory requirements . our limited operating history makes predictions of future operations difficult or impossible . since our inception , we have incurred significant losses . comparison of years ended december 31 , 2017 and 2016 net loss . net loss for the years ended december 31 , 2017 and 2016 was approximately $ 22.3 million and $ 18.7 million , respectively . as of december 31 , 2017 , we had total stockholders ' equity of $ 39.6 million . losses have resulted principally from costs incurred in our clinical trials and other research and development programs , as well as from our general and administrative expenses . research and development expenses . research and development expenses were $ 16.3 million for the year ended december 31 , 2017 compared to $ 13.2 million for the same period in 2016. the increase of $ 3.1 million is primarily related to the increase in our external research and development expenditures , including clinical and manufacturing costs , and a decrease in personnel and preclinical costs . general and administrative expenses . general and administrative expenses were $ 6.2 million for the year ended december 31 , 2017 , compared to $ 5.5 million for the year ended 2016. the increase of approximately $ 0.7 million is primarily related to an increase in personnel , legal , and professional service costs . other income ( expense ) . total other income ( expense ) was approximately $ 148,000 for the year ended december 31 , 2017 compared to $ ( 3,000 ) for the year ended december 31 , 2015 , and consisted of interest income partially offset by interest expense related to our credit facility .
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our operating performance is driven by the growth of our fleet , the terms of our leases , the interest rates on our debt , and the aggregate amount of our indebtedness , supplemented by the gains of our aircraft sales and trading activities and our management fees . during the year ended december 31 , 2018 , we purchased and took delivery of 37 aircraft from our new order pipeline , purchased nine incremental aircraft and sold 15 aircraft , ending the period with a total of 275 aircraft with a net book value of $ 15.7 billion . the weighted average lease term remaining on our operating lease portfolio was 6.8 years and the weighted average age of our fleet was 3.8 years as of december 31 , 2018. our fleet grew by 18.3 % based on net book value of $ 15.7 billion as of december 31 , 2018 compared to $ 13.3 billion as of december 31 , 2017. in addition , we had a managed fleet of 61 aircraft as of december 31 , 2018 , compared to a managed fleet of 50 aircraft as of december 31 , 2017. we have a globally diversified customer base comprised of 94 airlines in 56 countries . as of february 21 , 2019 , all aircraft in our operating lease portfolio , except for one aircraft , were subject to lease agreements . during 2018 , we increased our total commitments with boeing and airbus by a net 41 aircraft and added 45 option orders to acquire aircraft . as of december 31 , 2018 , we had commitments to purchase 372 aircraft from boeing and airbus for delivery through 2024 , with an estimated aggregate commitment of $ 26.3 billion . we ended 2018 with $ 25.7 billion in committed minimum future rental payments and placed 72 % of our order book on long-term leases for aircraft delivering through 2021. this includes $ 11.8 billion in contracted minimum rental payments on the aircraft in our existing fleet and $ 13.9 billion in minimum future rental payments related to aircraft which will deliver between 2019 and 2022. during the year ended december 31 , 2018 , we sold a total of 15 aircraft for proceeds of $ 407.8 million . in august 2018 , we entered into an agreement to sell 18 aircraft to thunderbolt aircraft lease limited ii ( “ thunderbolt ii ” ) , an asset-backed securities platform which facilitates the sale and continued management of aircraft assets to investors . during the year ended december 31 , 2018 , we completed the sales of 12 of these aircraft from our operating lease portfolio to thunderbolt ii . our non-controlling interest in thunderbolt ii is 5.1 % . all of the aircraft in thunderbolt ii 's portfolio will be managed by us . as of december 31 , 2018 , we had six aircraft , with a carrying value of $ 241.6 million , which were classified as held for sale and included in flight equipment subject to operating leases on our consolidated balance sheets . we expect the sale of the remaining six aircraft to be completed in 2019. we finance the purchase of aircraft and our business with available cash balances , internally generated funds , including aircraft sales and trading activities and debt financings . our debt financing strategy is focused on raising unsecured debt in the global bank and debt capital markets , with a limited utilization of export credit or other forms of secured financing . in 2018 , we issued a total of $ 3.03 billion in senior unsecured notes bearing interest at fixed rates ranging from 2.50 % to 4.625 % with one note bearing interest at a floating rate of libor plus 1.125 % , with maturities ranging from 2021 to 2028. in addition , we increased our unsecured revolving credit facility capacity to approximately $ 4.6 billion , representing a 21.7 % increase from 2017 and extended the final maturity to may 5 , 2022 with an interest of libor plus 1.05 % . we ended 2018 with total debt outstanding , net of discounts and issuance costs , of $ 11.5 billion , of which 86.4 % was at a fixed rate and 96.5 % of which was unsecured . as of december 31 , 2018 , our composite cost of funds was 3.46 % . 46 in 2018 , total revenues increased by 10.8 % to $ 1.7 billion , compared to 2017. the increase in our total revenues is primarily due to the $ 2.4 billion increase in the net book value of our operating lease portfolio . income before taxes increased 5.0 % to $ 640.1 million for the year ended december 31 , 2018 as compared to $ 609.5 million for the year ended december 31 , 2017. the increase in our income before taxes was principally driven by the continued growth of our fleet , partially offset by a reduction of our aircraft sales and trading activity . our pre-tax profit margin for the year ended december 31 , 2018 was 38.1 % as compared to 40.2 % for the year ended december 31 , 2017. during the year ended december 31 , 2018 , our net income was $ 510.8 million , or $ 4.60 per diluted share compared to $ 756.2 million , or $ 6.82 per diluted share for the year ended december 31 , 2017. the decrease was primarily due to the enactment of the u.s. tax cuts and jobs act ( the “ tax reform act ” ) , which was effective beginning january 1 , 2018 , which resulted in a tax benefit of $ 354.1 million , or $ 3.17 per diluted share during the year ended december 31 , 2017. this decrease in net income was partially offset by the continued growth in our fleet . story_separator_special_tag the success of the commercial airline industry is linked to the strength of global economic development , which may be negatively impacted by macroeconomic conditions , geopolitical and policy risks . from time to time , our airline customers may face financial difficulties which , in some instances , may include bankruptcy . nevertheless , across a variety of global economic conditions , the leasing industry has remained resilient over time . we remain optimistic about the long-term growth prospects for air transportation . we see a growing demand for aircraft leasing in the broader industry and a role for us in helping airlines modernize their fleets to support the growth of the airline industry . however , with the growth in aircraft leasing and aircraft investments worldwide , we are witnessing an increase in competition among aircraft lessors resulting in more variation in lease rates . liquidity and capital resources overview we finance the purchase of aircraft and our business with available cash balances , internally generated funds , including aircraft sales and trading activity and debt financings . we have structured ourselves with the goal to maintain investment grade credit metrics and our debt financing strategy has focused on funding our business on an unsecured basis . unsecured financing provides us with operational flexibility when selling or transitioning aircraft from one airline to another . we have in the past , and we may in the future , utilize export credit financing in support of our new aircraft deliveries , to a limited extent . we ended 2018 with total debt outstanding , net of discounts and issuance costs , of $ 11.5 billion compared to $ 9.7 billion in 2017. our unsecured debt outstanding increased to $ 11.3 billion as of december 31 , 2018 from $ 9.3 billion as of december 31 , 2017. our unsecured debt as a percentage of total debt increased to 96.5 % as of december 31 , 2018 from 94.6 % as of december 31 , 2017. we increased our cash flows from operations by 18.3 % or $ 194.4 million to $ 1.3 billion in 2018 , as compared to $ 1.1 billion in 2017. our cash flows from operations increased primarily because of the continued growth of our fleet . our cash flow used in investing activities was $ 3.4 billion for the year ended december 31 , 2018 , which increased 50 primarily from the purchase of aircraft , partially offset by proceeds on the sale of aircraft . our cash flow provided by financing activities was $ 2.1 billion for the year ended december 31 , 2018 , which resulted primarily from the net proceeds received from the issuance of our unsecured notes in 2018 , partially offset by the repayment of outstanding debt . we ended 2018 with available liquidity of $ 4.3 billion which is comprised of unrestricted cash of $ 300.1 million and undrawn balances under our unsecured revolving credit facility of $ 4.0 billion . we believe that we have sufficient liquidity to satisfy the operating requirements of our business through the next twelve months . our financing plan for 2019 is focused on funding the purchase of aircraft and our business with available cash balances , internally generated funds , including aircraft sales and trading activities , and debt financings . our debt financing plan will remain focused on continuing to raise unsecured debt in the global bank and investment grade capital markets . in addition , we have in the past , and we may in the future , utilize export credit financing in support of our new aircraft deliveries , to a limited extent . we believe that , as of december 31 , 2018 , we were in compliance with all covenants contained in our debt agreements . while a ratings downgrade would not result in a default under any of our debt agreements , it could adversely affect our ability to issue debt and obtain new financings , or renew existing financings , and it would increase the cost of certain financings . our liquidity plans are subject to a number of risks and uncertainties , including those described in “ item 1a . risk factors ” of this annual report on form 10-k. 51 debt our debt financing was comprised of the following at december 31 , 2018 and 2017 : replace_table_token_18_th ( 1 ) this rate does not include the effect of upfront fees , undrawn fees or issuance cost amortization . senior unsecured notes ( including medium-term note program ) we issued $ 2.95 billion in aggregate principal amount of senior unsecured notes during 2018 , comprised of ( i ) $ 700.0 million in aggregate principal amount of 3.500 % notes due 2022 ; ( ii ) $ 500.0 million in aggregate principal amount of 4.625 % notes due 2028 ; ( iii ) $ 500.0 million in aggregate principal amount of 3.875 % notes due 2023 ; ( iv ) $ 550.0 million in aggregate principal amount of 2.50 % notes due 2021 ; and ( v ) $ 700.0 million in aggregate principal amount of 3.250 % notes due 2025. in november 2018 , we also issued $ 75.0 million aggregate principal amount of senior unsecured notes due 2022 in a private placement that was not registered with the securities and exchange commission , bearing interest at libor plus a margin of 1.125 % per year . furthermore , on november 20 , 2018 , we established a medium-term note program , under which we may issue , from time to time , up to $ 15.0 billion of debt securities designated as our medium-term notes , series a. in january 2019 , we issued $ 700.0 million in aggregate principal amount of 4.250 % medium-term notes , series a , due february 1 , 2024 under our medium-term note program .
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results of operations replace_table_token_19_th ( 1 ) on december 22 , 2017 , the u.s. tax cuts and jobs act ( the “ tax reform act ” ) was signed into law . the tax reform act significantly revised the u.s. corporate income tax law by , among other things , lowering the u.s. corporate tax rate from 35 % to 21 % , effective january 1 , 2018. accounting standards codification ( “ asc ” ) 740 requires that the impact of tax legislation be recognized in the period in which the law was enacted . as a result of the tax reform act , we recorded a tax benefit of $ 354.1 million due to the remeasurement of deferred tax assets and liabilities in the year ended december 31 , 2017 . ( 2 ) adjusted net income before income taxes ( defined as net income excluding the effects of certain non-cash items , one-time or non-recurring items , such as settlement expense , net of recoveries , that are not expected to continue in the future and certain other items ) , adjusted margin before income taxes ( defined as adjusted net income before income taxes divided by total revenues , excluding insurance recoveries ) , adjusted pre-tax return on equity ( defined as adjusted net income before income taxes divided by average shareholders ' equity ) and adjusted diluted earnings per share before income taxes ( defined as adjusted net income before income taxes plus assumed conversions divided by the weighted average diluted common shares outstanding ) are measures of operating performance that are not defined by gaap and should not be considered as an alternative to net income , pre-tax profit margin , earnings per share , pre-tax return on equity and diluted earnings per share , or any other performance measures 57 derived in accordance with gaap .
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the following table sets forth a reconciliation of total shareholders ' equity to tangible shareholder 's equity for the periods presented . reconciliation to tangible common shareholders ' equity : replace_table_token_4_th net interest margin and efficiency ratio ( non-gaap financial measures ) in accordance with industry standards , certain designated net interest income amounts are presented on a taxable equivalent basis , including the calculation of net interest margin and the efficiency ratio . the company believes the presentation of net interest margin on a taxable equivalent basis using a 21 % effective tax rate allows comparability of net interest margin with industry peers by eliminating the effect of the differences in portfolios attributable to the proportion represented by both taxable and tax-exempt loans and investments . the efficiency ratio is a measure of a banking company 's overhead as a percentage of its revenue . the company derives this ratio by dividing total noninterest expense by the sum of the taxable equivalent net interest income and the total noninterest income . reconciliation of annualized net interest margin , fully tax equivalent ( non-gaap ) replace_table_token_5_th 37 reconciliation of non-gaap measure – efficiency ratio replace_table_token_6_th critical accounting policies general the company 's financial statements are prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . the financial information contained within our statements is , to a significant extent , financial information that is based on measures of the financial effects of transactions and events that have already occurred . we use historical loss data and the economic environment as factors , among others , in determining the inherent loss that may be present in our loan portfolio . actual losses could differ significantly from the factors that we use . in addition , gaap itself may change from one previously acceptable method to another method . although the economics of our transactions would be the same , the timing of events that would impact our transactions could change . allowance for loan losses the allowance for loan losses is an estimate of probable credit losses inherent in the company 's credit portfolio that have been incurred as of the balance-sheet date . the allowance is based on two basic principles of accounting : ( 1 ) “ accounting for contingencies , ” which requires that losses be accrued when it is probable that a loss has occurred at the balance sheet date and such loss can be reasonably estimated ; and ( 2 ) the “ receivables ” topic , which requires that losses be accrued on impaired loans based on the differences between the value of collateral , present value of future cash flows or values that are observable in the secondary market and the loan balance . the allowance for loan losses is determined based upon estimates that can and do change when the actual risk , loss events , or changes in other factors , occur . the analysis of the allowance uses a historical loss view as an indicator of future losses and as a result could differ from the actual losses incurred in the future . although management believes the allowance to be adequate , ultimate losses may vary from its estimates . at least quarterly , the board of directors reviews the adequacy of the allowance , including consideration of the relative risks in the portfolio , current economic conditions and other factors . if the board of directors and management determine that changes are warranted based on those reviews , the allowance is adjusted . for further information regarding our allowance for loan losses , see “ allowance for loan losses activity. ” overview the company recorded net income in 2020 of $ 7,055,000 , an increase of $ 1,555,000 ( 28.3 % ) from $ 5,500,000 in 2019. diluted earnings per share were $ 1.20 for 2020 and $ 0.94 for 2019. for 2020 , the company realized a return on average equity of 7.94 % and a return on average assets of 0.86 % , compared to 6.92 % and 0.78 % , respectively , in 2019. net income for 2019 increased $ 600,000 ( 12.2 % ) from $ 4,900,000 in 2018. diluted earnings per share for 2018 were $ 0.83. for 2018 , the company realized a return on average equity of 6.77 % and return on average assets of 0.72 % . table one below provides a summary of the components of net income for the years indicated ( dollars in thousands ) : 38 table one : components of net income replace_table_token_7_th * fully taxable equivalent basis ( fte ) during 2020 , total assets of the company increased $ 148,638,000 ( 20.6 % ) from $ 720,353,000 at december 31 , 2019 to $ 868,991,000 at december 31 , 2020. at december 31 , 2020 , loans totaled $ 480,278,000 , an increase of $ 80,617,000 ( 20.2 % ) from the ending balance of $ 399,661,000 at december 31 , 2019. deposits increased $ 139,340,000 or 23.0 % from $ 604,837,000 at december 31 , 2019 to $ 744,177,000 at december 31 , 2020. shareholders ' equity increased $ 10,186,000 or 12.3 % from $ 82,909,000 at december 31 , 2019 to $ 93,095,000 at december 31 , 2020. the company ended 2020 with a leverage capital ratio of 8.3 % and a total risk-based capital ratio of 16.2 % compared to a leverage capital ratio of 9.2 % and a total risk-based capital ratio of 15.9 % at the end of 2019. story_separator_special_tag -- > 40 replace_table_token_8_th ( 1 ) loan interest includes loan fees of $ 1,578,000 , $ 257,000 and $ 533,000 in 2020 , 2019 and 2018 , respectively . includes $ 1,269,000 in net fees from ppp loans in 2020 . ( 2 ) includes taxable-equivalent adjustments that primarily relate to income on certain loans and securities that is exempt from federal income taxes . the effective federal statutory tax rate was 21 % in 2020 , 2019 and 2018 . story_separator_special_tag at december 31 , 2019 , the company held one property with a book value of $ 846,000. occupancy , furniture and equipment occupancy expense increased $ 8,000 ( 0.8 % ) during 2020 to $ 1,031,000 , compared to $ 1,023,000 in 2019. furniture and equipment expense increased $ 16,000 ( 3.0 % ) during 2020 to $ 558,000 compared to $ 542,000 in 2019. the increase in occupancy and furniture and equipment expense decrease resulted from higher rental and maintenance expense on premises and equipment leased or owned by the company . occupancy expense decreased $ 27,000 ( 2.6 % ) during 2019 to $ 1,023,000 , compared to $ 1,050,000 in 2018. furniture and equipment expense decreased $ 11,000 ( 2.0 % ) during 2019 to $ 542,000 compared to $ 553,000 in 2018. the decrease in occupancy and furniture and equipment expense decrease resulted from lower depreciation expense on premises and equipment leased or owned by the company . regulatory assessments regulatory assessments include fees paid to the california department of financial protection and innovation ( the “ dfpi ” ) and the federal deposit insurance corporation ( the “ fdic ” ) . fdic assessments increased $ 160,000 ( 333.3 % ) during 2020 to $ 208,000 , compared to $ 48,000 in 2019. the assessments paid to the dfpi in 2020 were $ 79,000 , compared to an expense of $ 78,000 in 2019. the increase in fdic assessments in 2020 is due to a lower amounts of credits received from the fdic 's small bank assessment credits in 2020 compared to 2019 and an overall increase in the assessment base in 2020 due to growth in the bank 's assets during 2020. the bank received the fdic 's small bank assessment credits during 2019 and 2020 as the deposit insurance fund reserve ratio exceeded 1.35 % . the credits applied in 2020 were $ 22,000 , a reduction of $ 122,000 , compared to the credit of $ 144,000 received in 2019. fdic assessments decreased $ 154,000 ( 76.2 % ) during 2019 to $ 48,000 , compared to $ 202,000 in 2018. the assessments paid to the dfpi in 2019 and 2018 were $ 78,000 in each year . the decrease in fdic assessments in 2019 is due to the receipt of the fdic 's small bank assessment credits during the year as the deposit insurance fund reserve ratio exceeded 1.35 % . other expenses table five below provides a summary of the components of the other noninterest expenses for the periods indicated ( dollars in thousands ) : replace_table_token_12_th other expenses were $ 3,554,000 ( down $ 151,000 or 4.1 % ) for 2020 , compared to $ 3,705,000 for 2019. the decrease in other expenses occurred primarily in the advertising and promotion . advertising and promotion , which also includes business development , decreased $ 264,000 ( 44.1 % ) from $ 599,000 in 2019 to $ 335,000 in 2020. much of this decrease is related to the shelter-in-place order within our markets reducing the number of business development opportunities and events . partially offsetting the decreases in advertising and promotion was an increase in internet processing expenses which increased $ 90,000 ( 39.3 % ) from $ 229,000 in 2019 to $ 319,000 in 2020 and primarily relates to several new digital banking services launched in early 2020 , including the company 's conversion to new internet banking portal . the overhead efficiency ratio on a taxable equivalent basis for 2020 was 59.5 % compared to 67.1 % in 2019 . 44 other expenses were $ 3,705,000 ( up $ 301,000 or 8.8 % ) for 2019 , compared to $ 3,404,000 for 2018. the increase in other expenses occurred primarily in the professional fees ( up $ 68,000 ) and bank charges ( up $ 233,000 ) ( which is included in the other operating expenses line item ) . the increase in professional expenses is related to more services being provided by the company 's network administrator . the higher bank charges relate to lower average balances maintained by the company in these accounts in 2019 resulting in higher service charges and the interest earned on these balances began to increase in 2018 due to the higher interest rate environment and continued into 2019 , as a result , in 2019 the company began being recording this as interest income on deposits held in other banks . partially offsetting these increases was a reduction in telephone expense which decreased $ 91,000 ( 26.6 % ) from $ 342,000 in 2018 to $ 251,000 in 2019 and relates to the company converted to a more cost-effective telephone system . the overhead efficiency ratio on a taxable equivalent basis for 2019 was 67.1 % compared to 69.4 % in 2018. provision for income taxes the effective tax rate on income was 26.6 % , 25.6 % , and 24.3 % in 2020 , 2019 and 2018 , respectively . the effective tax rate differs from the federal statutory tax rate due to state tax expense ( net of federal tax effect ) of $ 805,000 , $ 610,000 , and $ 523,000 in these years . tax-exempt income of $ 1,413,000 , $ 1,361,000 , and $ 1,315,000 from investment securities , loans , and bank-owned life insurance in these years helped to reduce the effective tax rate . the higher effective tax rate in 2020 compared 2019 is related to the tax treatment of equity based compensation under accounting standards update 2016-09 ( “ asu 2016-09 ” ) . under asu 2016-09 , if the market value of the company 's stock price on the date restricted stock vests is higher than the company 's stock price on the date the restricted stock was awarded the company receives a tax credit for the difference in values and if the market price on the vesting date is lower than the stock price on the award date the company recognizes additional tax expense .
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results of operations net interest income and net interest margin net interest income represents the excess of interest and fees earned on interest earning assets ( loans , securities , federal funds sold and interest-bearing deposits in other banks ) over the interest paid on deposits and borrowed funds . net interest margin is net interest income expressed as a percentage of average earning assets . the company 's fully taxable equivalent net interest margin was 3.52 % in 2020 , 3.60 % in 2019 , and 3.41 % in 2018. the fully taxable equivalent net interest income increased $ 3,121,000 ( 13.3 % ) , from $ 23,423,000 in 2019 to $ 26,544,000 in 2020. the fully taxable equivalent net interest income increased $ 2,570,000 ( 12.3 % ) , from $ 20,853,000 in 2018 to $ 23,423,000 in 2019. the fully taxable equivalent interest income component increased $ 2,242,000 ( 8.7 % ) from $ 25,884,000 in 2019 to $ 28,126,000 in 2020. the increase in the fully taxable equivalent interest income for 2020 compared to the same period in 2019 is comprised of two components - rate ( down $ 2,312,000 ) and volume ( up $ 4,554,000 ) . the primary driver in this rate decrease was a decrease in the yields on loans which decreased from 4.95 % in 2019 to 4.80 % in 2020 , on the investment portfolio which decreased from 2.81 % in 2019 to 2.46 % in 2020 , and a decrease in the yields on interest-bearing balances in banks which decreased from 2.04 % in 2019 to 0.22 % in 2020. the decreased yield in 2020 compared to 2019 was due to the overall lower interest rate environment .
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per share , net of income tax expense , related to insurance recoveries , recognized mainly in the second quarter , income of $ .07 per share , net of income tax expense , related to a gain from a sale of excess property , recognized in the third quarter , income of $ .05 per share , net of income tax expense , related to a gain from the sale of our insurance and risk management business , recognized in the fourth quarter , a loss of $ .03 per share related to kronos ' fourth quarter recognition of a non-cash deferred income tax expense primarily related to the revaluation of kronos ' net deferred income tax asset in germany as a result of a decrease in the german trade tax rate , income of $ .01 per share related to kronos ' fourth quarter recognition of an income tax benefit related to the favorable settlement of a prior year tax matter in germany , and income of $ .01 per share related to kronos ' insurance settlement gain recognized in the fourth quarter . our 2018 net loss per share attributable to nl stockholders includes : a loss of $ 1.01 per share related to the litigation settlement expense , recognized in the second quarter , a loss of $ .02 per share related to kronos ' tax on global intangible low-tax income , recognized in the fourth quarter , and a loss of $ .01 per share related to kronos ' reserve for uncertain tax positions , recognized in the first and fourth quarters . outlook we currently expect our net income attributable to nl stockholders in 2021 to be higher than 2020 primarily due to higher expected equity in earnings from kronos partially offset by higher litigation fees and related costs and higher environmental remediation and related costs . - 34 - income ( loss ) from operations the following table shows the components of our income ( loss ) from operations . replace_table_token_5_th n.m. not meaningful . the following table shows the components of our income ( loss ) before income taxes exclusive of our income ( loss ) from operations . replace_table_token_6_th n.m. not meaningful compx international inc. replace_table_token_7_th net sales - net sales decreased approximately $ 9.7 million in 2020 compared to 2019 primarily due to lower security products sales across a variety of markets due to reduced demand resulting from the covid-19 pandemic , offset slightly by higher marine component sales to the towboat market . relative changes in selling prices did not have a material impact on net sales comparisons . - 35 - net sales increased approximately $ 6.0 million in 2019 compared to 2018 primarily due to higher marine components sales to the towboat market . relative changes in selling prices did not have a material impact on net sales comparisons . cost of sales and gross margin - cost of sales decreased in 2020 compared to 2019 primarily due to the effects of lower sales for compx 's security products business slightly offset by the higher compx marine component sales discussed above . gross margin as a percentage of sales decreased over the same period primarily as a result of the lower gross margin percentage at security products . cost of sales increased in 2019 compared to 2018 due to the effects of increased sales for both compx 's security products and marine components businesses and increased labor costs at security products . as a result , gross margin as a percentage of sales decreased over the same period . the decrease in gross margin percentage is the result of the decline in security products gross margin percentage in 2019 as compared to 2018. operating costs and expenses - operating costs and expenses consist primarily of sales and administrative-related personnel costs , sales commissions and advertising expenses directly related to product sales and administrative costs relating to compx 's businesses and its corporate management activities , as well as gains and losses on property and equipment . operating costs and expenses as a percentage of sales increased in 2020 compared to 2019 due to the effect of lower sales . operating costs and expenses as a percentage of sales in 2019 were comparable to 2018. income from operations - as a percentage of net sales , operating income decreased from 2019 to 2020 and decreased from 2018 to 2019. operating margins were primarily impacted by the factors impacting net sales , cost of sales , gross margin and operating costs discussed above . general - compx 's profitability primarily depends on its ability to utilize production capacity effectively , which is affected by , among other things , the demand for its products and its ability to control manufacturing costs , primarily comprised of labor costs and materials . the materials used in its products consist of purchased components and raw materials some of which are subject to fluctuations in the commodity markets such as zinc , brass and stainless steel . total material costs represented approximately 43 % of compx 's cost of sales in 2020 , with commodity-related raw materials accounting for approximately 12 % of cost of sales . during 2019 and 2020 , markets for the primary commodity-related raw materials used in the manufacture of its locking mechanisms , primarily zinc and brass , remained relatively stable . over those same periods , the market for stainless steel , the primary raw material used for the manufacture of marine exhaust headers and pipes and wake enhancement systems , also remained relatively stable . while compx expects the markets for its primary commodity-related raw materials to remain stable during 2021 , it recognizes that economic conditions could introduce renewed volatility on these and other manufacturing materials . compx occasionally enters into short-term commodity-related raw material supply arrangements to mitigate the impact of future increases in commodity related raw material costs . see item 1 - “ business- raw materials. story_separator_special_tag as a result , compx expects u.s. and worldwide gross domestic product to be significantly impacted for an indeterminate period . based on current conditions , compx expects to report increased revenue and operating income in 2021 compared to 2020 but compx does not expect compx 's security products reporting unit to return to pre-pandemic levels experienced in 2019. as noted above , compx 's security products production volumes remain below 2019 levels . as a result , compx expects to continue to experience the negative impact of higher fixed costs per unit of production during 2021 which will continue to challenge gross margins in this reporting unit . the severity of the impact of covid-19 on 2021 will depend on customer demand for compx 's products , including the timing and extent to which its customers ' operations continue to be impacted , on compx customers ' perception as to when consumer demand for their products will return to pre-pandemic levels and on any future disruptions in compx 's operations or its suppliers ' operations , all of which are difficult to predict . compx 's operations teams meet frequently to ensure it is taking appropriate actions to maintain a safe working environment for all compx 's employees , minimize operational disruptions , manage inventory levels and improve operating margins . it is possible compx may temporarily close one or more of its facilities for the health and safety of its employees before the covid-19 pandemic is over . - 38 - general corporate items , interest and dividend income , interest expense , provision for income taxes , noncontrolling interest and related party transactions insurance recoveries - we have agreements with certain insurance carriers pursuant to which the carriers reimburse us for a portion of our past lead pigment and asbestos litigation defense costs . insurance recoveries include amounts we received from these insurance carriers . we recognized $ 5.1 million in insurance recoveries in 2019 primarily related to a single settlement we reached with one of our insurance carriers in which they agreed to reimburse us for a portion of our past and future litigation defense costs . the agreements with certain of our insurance carriers also include reimbursement for a portion of our future litigation defense costs . we are not able to determine how much we will ultimately recover from these carriers for defense costs incurred by us because of certain issues that arise regarding which defense costs qualify for reimbursement . accordingly , these insurance recoveries are recognized when receipt is probable and the amount is determinable . see note 17 to our consolidated financial statements . other income , net - other income , net in 2019 includes a gain of $ 4.4 million related to a sale of excess property in the third quarter and a gain of $ 3.0 million related to the sale of our insurance and risk management business in the fourth quarter . see note 13 to our consolidated financial statements . litigation settlement expense - we recognized a pre-tax $ 62.0 million and $ 19.3 million litigation settlement expense net of expected insurance recoveries in 2018 and 2019 , respectively , related to the lead pigment litigation in california . see note 17 to our consolidated financial statements . corporate expense - corporate expenses were $ 9.5 million in 2020 , $ 3.0 million or 24 % lower than in 2019 primarily due to lower litigation fees and related costs and lower administrative expenses partially offset by higher environmental remediation and related costs . included in corporate expenses are : litigation fees and related costs of $ 1.9 million in 2020 compared to $ 4.0 million in 2019 , and environmental remediation and related costs of $ .1 million in 2020 compared to a benefit of $ .6 million in 2019. corporate expenses were $ 12.5 million in 2019 , $ 5.9 million or 32 % lower than in 2018 primarily due to lower litigation fees and related costs and lower environmental remediation and related costs . included in corporate expenses are : litigation fees and related costs of $ 4.0 million in 2019 compared to $ 6.2 million in 2018 , and environmental remediation and related benefit of $ .6 million in 2019 compared to costs of $ 2.7 million in 2018. overall , we currently expect that our general corporate expenses in 2021 will be higher than in 2020 primarily due to higher expected litigation fees and related costs and higher environmental remediation and related costs . the level of our litigation fees and related costs varies from period to period depending upon , among other things , the number of cases in which we are currently involved , the nature of such cases and the current stage of such cases ( e.g . discovery , pre-trial motions , trial or appeal , if applicable ) . see note 17 to our consolidated financial statements . if our current expectations regarding the number of cases in which we expect to be involved during 2021 or the nature of such cases were to change , our corporate expenses could be higher than we currently estimate . obligations for environmental remediation and related costs are difficult to assess and estimate and it is possible that actual costs for environmental remediation will exceed accrued amounts or that costs will be incurred in the future for sites in which we can not currently estimate our liability . if these events were to occur in 2021 , our corporate expenses would be higher than we currently estimate . in addition , we adjust our environmental accruals - 39 - as further information becomes available to us or as circumstances change . such further information or changed circumstances could result in an increase in our accrued environmental costs . see note 1 7 to our consolidated financial statements .
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results of operations business overview we are primarily a holding company . we operate in the component products industry through our majority-owned subsidiary , compx international inc. we also own a noncontrolling interest in kronos worldwide , inc. both compx ( nyse american : cix ) and kronos ( nyse : kro ) file periodic reports with the sec . compx is a leading manufacturer of engineered components utilized in a variety of applications and industries . through its security products operations , compx manufactures mechanical and electronic cabinet locks and other locking mechanisms used in recreational transportation , postal , office and institutional furniture , cabinetry , tool storage and healthcare applications . compx also manufactures stainless steel exhaust systems , gauges , throttle controls , wake enhancement systems , trim tabs and related hardware and accessories for the recreational marine and other industries through its marine components operations . we account for our 30 % non-controlling interest in kronos by the equity method . kronos is a leading global producer and marketer of value-added titanium dioxide pigments . tio 2 is used for a variety of manufacturing applications including coatings , plastics , paper and other industrial products .
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obligation and funded status following are the details of the obligation and funded status of the pension and postretirement benefit plans : replace_table_token_47_th replace_table_token_48_th amounts recognized in the consolidated balance sheets at december 31 , 2012 and 2011 consist of : replace_table_token_49_th 59 following are the details of the pre-tax amounts recognized in accumulated other comprehensive loss at december 31 , 2012 : replace_table_token_50_th the amounts in accumulated other comprehensive loss that are story_separator_special_tag forward looking statements the following “ management 's discussion and analysis of financial condition and results of operations ” contains forward-looking statements which relate to future events or future financial performance and involve known and unknown risks , uncertainties and other factors that may cause actual results , levels of activity , performance or achievements to be materially different from those expressed or implied by these forward-looking statements . you are urged to carefully consider these risks and factors , including those listed under item 1a , “ risk factors. ” in some cases , you can identify forward-looking statements by terminology such as “ may , ” “ anticipates , ” “ believes , ” “ estimates , ” “ predicts , ” or the negative of these terms or other comparable terminology . these statements are only predictions . actual events or results may differ materially . these forward-looking statements relate only to events as of the date on which the statements are made and the company undertakes no obligation , other than any imposed by law , to publicly update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . although we believe that the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity , performance or achievements . executive overview our operations are organized , managed and classified into six reportable business segments : grain , ethanol , plant nutrient , rail , turf & specialty and retail . each of these segments is based on the nature of products and services offered . the agricultural commodity-based business is one in which changes in selling prices generally move in relationship to changes in purchase prices . therefore , increases or decreases in prices of the agricultural commodities that the business deals in will have a relatively equal impact on sales and cost of sales and a much less significant impact on gross profit . as a result , changes in sales for the period may not necessarily be indicative of the overall performance of the business and more focus should be placed on changes to merchandising revenues and service income . grain group our grain group operates grain elevators in various states in the u.s. corn belt . in addition to storage , merchandising and grain trading , grain performs marketing , risk management , and corn origination services to its customers and affiliated ethanol production facilities . grain is a significant investor in lansing trade group , llc ( “ ltg ” ) , an established commodity trading , grain handling and merchandising business with operations throughout the country and with global trading/merchandising offices . this year has been significant for the grain group in terms of growth . on december 3 , 2012 our grain group completed the purchase of a majority of the grain and agronomy locations of green plains grain company , a subsidiary of green plains renewable energy , inc. the purchase includes seven facilities in iowa and five in tennessee , with a combined grain storage capacity of about 32 million bushels . included in the acquisition was also 30,000 tons of fertilizer storage in iowa . during 2012 , grain increased its storage capacity by approximately 30 % through construction of a grain shuttle loader facility in anselmo , nebraska and a business acquisition . the total storage capacity is approximately 142 million bushels as of december 31 , 2012 compared to 109 million bushels at december 31 , 2011. in addition , it is reasonably possible that within the next 12 months , the company may make additional investments in the agriculture industry . grain inventories on hand at december 31 , 2012 were 98 million bushels , of which 22.9 million bushels were stored for others . this compares to 77.5 million bushels on hand at december 31 , 2011 , of which 0.4 million bushels were stored for others . with early planting and the anticipation of a record corn crop , 2012 started out with high expectations for u.s. growers . however , the drought conditions encountered during the growing season resulted in significantly decreased corn yields . for this reason , the drought had an unfavorable impact on space income for the grain business for the fourth quarter of 2012 and will likely impact space income into the first half of 2013 as well . looking ahead , planted corn acreage is anticipated to be as high as 100 million acres which should benefit our grain and other agricultural businesses . 21 ethanol group our ethanol business holds investments in four ethanol production facilities organized as separate limited liability companies , three of which are accounted for under the equity method ( the `` unconsolidated ethanol llcs '' ) and one that is consolidated ( `` the andersons denison ethanol llc '' or `` tade '' ) . the business purchases and sells ethanol , offers facility operations , risk management , and ethanol , corn oil and distillers dried grains ( “ ddg ” ) marketing to the ethanol plants in which it invests in and operates , as well as third parties . on may 1 , 2012 , the company and its subsidiary , tade completed the purchase of certain assets of an ethanol production facility in denison , iowa for a purchase price of $ 77.4 million . the company holds a majority interest of 85 % . story_separator_special_tag it also operates a sales and service facility for outdoor power equipment . the retail concept is more for your home ® and the conventional retail stores focus on providing significant product breadth with offerings in home improvement and other mass merchandise categories , as well as specialty foods , wine and indoor and outdoor garden centers . the retail business is highly competitive . our stores compete with a variety of retail merchandisers , including home centers , department and hardware stores , as well as local and national grocers . the retail group continues to work on new departments and products to maximize the profitability . in the fourth quarter of 2012 , the group announced that it will be closing its woodville , ohio retail store in early 2013 ( see operating results discussion for more information ) . other our “ other ” business segment represents corporate functions that provide support and services to the operating segments . the results contained within this segment include expenses and benefits not allocated back to the operating segments , including our erp project . in 2011 , the ohio tax credit authority approved job retention tax credits and job creation tax credits for the company in relation to in process capital projects . to earn these credits , the company has committed to invest a minimum amount in new machinery and equipment and property renovations/improvements in the city of maumee and surrounding areas . in addition to the capital investment , the company will retain 636 and create a minimum of 20 full-time equivalent positions . 23 story_separator_special_tag contents rail group replace_table_token_13_th operating results for the rail group increased $ 33.1 million over 2011. revenues related to car sales increased $ 30.4 million , repairs and fabrication increased $ 7.2 million and leasing revenues increased $ 11.4 million . the increase in revenues is attributable to having more cars in service , higher volume of transactions , and favorable lease rates . cost of sales and merchandising revenues increased $ 17.0 million as a result of higher volume of car sales . rail gross profit increased $ 32.0 million compared to prior year primarily due to higher gross profit on car sales from increase in volume of transactions and in the leasing business which is attributed to favorable lease rates and decreased lease expense driven by a lower average number of cars in leases compared to the same period last year . operating expenses increased by $ 4.1 million from prior year mainly due to higher labor and benefits related to growth and higher performance incentives . interest expense decreased $ 0.9 million due to repayment of rail financing debt in the fourth quarter of 2011. other income was higher in 2012 due to settlements received from customers for railcars returned at the end of a lease that were not in the required operating condition , as well as higher dividend income from the short-line investment . turf & specialty group replace_table_token_14_th operating results for the turf & specialty group increased $ 0.2 million compared to its 2011 results . sales increased $ 1.3 million and is due to an increase in sales within the cob business year over year , $ 1.0 million of which is attributable to the acquisition of mt . pulaski in the fourth quarter of 2012. for the total group , the average price per ton sold increased approximately 3.2 % and was partially offset by a 2.1 % decline in volume . cost of sales and merchandising revenues increased $ 0.5 million due to an increase in the average cost per ton due to higher cost of materials purchased . gross profit increased $ 0.8 million due to higher margins from price increases . operating expenses increased $ 0.6 million over the prior year due to costs related to the new cob location acquired in the fourth quarter , severance charges incurred in the third quarter as well as a variety of other variable expenses including a workers compensation medical claim , depreciation and maintenance expenses . there were no significant fluctuations in interest expense or other income . 26 retail group replace_table_token_15_th the operating loss for the retail group increased $ 2.4 million compared to its 2011 results . sales decreased $ 6.7 million from 2011 due to a decline in both the average sale per customer and customer count . cost of sales decreased $ 4.8 million due to lower sales volume . as a result , gross profit decreased $ 1.9 million . operating expenses for the group increased $ 0.6 million and is attributable to $ 1.1 million of severance costs which have been accrued in relation to the announcement to close the group 's woodville , ohio retail store in the first quarter of 2013. there were no significant changes in interest expense or other income . other replace_table_token_16_th the corporate operating loss ( costs not allocated back to the business units ) increased $ 3.2 million over 2011 and relates primarily to an increase in labor and benefits and professional services related to implementation of an enterprise resource planning system . as a result of the operating performances noted above , income attributable to the andersons , inc. of $ 79.5 million for 2012 was 16 % lower than the income attributable to the andersons , inc. of $ 95.1 million in 2011. income tax expense of $ 44.6 million was provided at 37.1 % . in 2011 , income tax expense of $ 51.1 million was provided at 34.5 % . the increase in the effective tax rate was due primarily to lower benefits related to domestic production activities and the 2012 loss and the 2011 income attributable to the noncontrolling interests that did not impact income tax expense .
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operating results the following discussion focuses on the operating results as shown in the consolidated statements of income with a separate discussion by segment . additional segment information is included in note 7 to the company 's consolidated financial statements in item 8. replace_table_token_9_th comparison of 2012 with 2011 grain group replace_table_token_10_th operating results for the grain group decreased $ 23.7 million compared to full year 2011 results . sales and merchandising revenues increased $ 444.3 million over 2011 as a result of higher grain prices ( corn and soybeans ) and an increase in bushels shipped ( soybeans and wheat ) . cost of sales and merchandising revenues increased $ 470.7 million due to higher cost of grain as compared to prior year . gross profit decreased $ 26.4 million primarily as a result of significantly lower space income , and more specifically lower basis appreciation . basis is the difference between the cash price of a commodity in one of the company 's facilities and the nearest exchange traded futures price . the impact of the green plains grain acquisition was not material to the grain group 's results for 2012 given the timing of the transaction . operating expenses were $ 3.8 million higher than 2011. a large portion of the increase is higher labor and benefits related to organizational growth as well as acquisition costs incurred in the fourth quarter . interest expense decreased $ 1.1 million due to fewer ownership bushels in beans and wheat at the end of 2012 versus 2011 upon which short-term interest is calculated . equity in earnings of affiliates increased $ 5.3 million due to the strong performance of ltg . other income did not fluctuate significantly from prior year . 24 ethanol group replace_table_token_11_th operating results for the ethanol group decreased $ 27.1 million from full year 2011 results to a loss of $ 3.7 million .
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the company does not maintain any financial instruments that are considered to be level 1 , level 2 or level 3 instruments as of december 31 , 2017. liability classified warrants are within level 3 of the fair value hierarchy because they story_separator_special_tag f financial condition and results of operations the following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the notes to those statements appearing elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this report include the identification of certain trends and other statements that may predict or anticipate future business or financial results that are subject to important factors that could cause our actual results to differ materially from those indicated . see “ item 1a risk factors ” included elsewhere in this annual report on form 10-k. overview we are a medical technology company focused on the design , development , and advancement of products for better surgical treatment of spinal disorders . our mission is to become the most respected , fastest growing u.s. spine company , by providing innovative , spine surgery solutions through our relentless pursuit of superior outcomes . we have a broad product portfolio capable of addressing the majority of u.s. market for fusion-based spinal disorder solutions . we intend to drive growth by exploiting our unmatched collective spine experience and investing in the research and development to continually differentiate our solutions and improve spine surgery . we believe our future success will be fueled by introducing market-shifting innovation to the spine market , and we believe that we are exceptionally well-positioned to capitalize on current spine market dynamics . we market and sell our products in the u.s. through a network of independent distributors and direct sales representatives . an objective of our new leadership team is to deliver increasingly consistent , predictable growth . to accomplish this , we are partnering more closely with our distributors to create a more dedicated and loyal sales channel for the future . we are eliminating stocking distributors and transitioning preexisting distributor relationships to more dedicated , non-competitive partnerships . we are also adding new , high-quality dedicated distributors to expand future growth . we believe this will allow us to reach an untapped market of surgeons , hospitals , and national accounts across the u.s. , as well as better penetrate existing accounts and territories . we made significant progress in the transition of our distribution channel in 2017 , driving the percent of sales contributed by dedicated agents and distributors from less than 10 % in the fourth quarter of 2016 to over 40 % in the fourth quarter of 2017. going forward , we intend to continue to relentlessly drive toward a fully exclusive network of independent and direct sales agents . recent consolidation in the industry is facilitating the process , as large , seasoned distributors are seeking opportunities to re-enter the spine market by partnering with spine-focused companies that have broad , growing product portfolios . between late 2016 and today , we have assembled a spine-experienced team that we believe can execute our vision for long-term growth , including the recent appointments of patrick miles as our chairman and chief executive officer ; dr. luiz pimenta as our chief medical officer ; lance denardin as area vice president , west ; michael dendinger as vice president of operations ; scott lish as vice president of development ; dr. richard o'brien as chief medical officer , safeop surgical ; robert snow as chief marketing officer , safeop surgical ; chris brown as vice president , sales , safeop surgical . collectively , the alphatec executive leadership team has over 150 years of combined spine-experience . we have also reconstituted our board of directors since late 2016 , adding significant spine industry and capital markets expertise . recent developments on march 8 , 2018 , we announced the acquisition of safeop surgical , inc. , or safeop . safeop was a privately-held provider of neuromonitoring technology designed to enable effective intra-operative nerve health assessment . with the full integration of safeop 's technology , we expect to be able to introduce an unprecedented level of neuromonitoring and intraoperative nerve safety to the spine market in early 2019. safeop 's patented technology has been designed to enable both nerve avoidance and nerve health assessment to prevent the risk of nerve injury that is widely associated with direct lateral spine fusion surgery . on march 8 , 2018 , we completed a $ 39.7 million first close of a $ 45.2 million private placement of our securities to certain institutional and accredited investors , including certain directors and executive officers of the company . the second close of the private placement is expected to occur within five business days . the private placement was led by l-5 healthcare partners , an institutional investor , and provides for the sale by the company of approximately 14.3 shares of newly created series b convertible preferred stock , which are automatically convertible into approximately 14.3 million shares of common stock ( representing a purchase price of $ 3.15 per common share ) , upon approval by alphatec 's stockholders , as required in accordance with the nasdaq global select market rules . purchasers also received warrants to purchase up to approximately 12.2 million shares of common stock at an exercise price of $ 3.50 per share . in addition , the company entered into an agreement with armistice capital , an existing investor , to exercise 2.4 million warrants to purchase common shares for gross proceeds of $ 4.8 million in exchange for warrants to purchase up to 1,800,000 shares of common stock at an exercise price of $ 3.50 per share . the new warrants will be exercisable following approval by alphatec stockholders , and will expire 5 years from the date of such stockholder approval . story_separator_special_tag story_separator_special_tag roman ; font-size:10pt ; font-weight : normal ; text-transform : none ; font-variant : normal ; '' > general and administrative . general and administrative expense was $ 23.2 million for the year ended december 31 , 2017 compared to $ 26.3 million for the year ended december 31 , 2016 , representing a decrease of $ 3.1 million , or 11.8 % . the decrease was primarily due to a reduction in legal , accounting and professional services fees ( $ 3.7 million ) , a reduction in personnel and related expenses due to headcount reduction ( $ 2.5 million ) , partially offset by an increase in share based compensation ( $ 2.6 million ) , and an increase in regulatory and facility expanse ( $ 0.5 million ) . amortization of acquired intangible assets . amortization of intangible assets was $ 0.7 million for the year ended december 31 , 2017 as compared to $ 0.9 million for the year ended december 31 , 2016. this expense represents amortization in the period for intangible assets associated with general business assets , intellectual property , licenses and other assets obtained in acquisitions and licensing agreements . impairment of intangible assets . intangible assets impairment charge of $ 1.7 million for the year ended december 31 , 2016 was related to the globus transaction . restructuring expenses . restructuring expenses were $ 2.2 million for the year ended december 31 , 2017 compared to $ 2.3 million for the year ended december 31 , 2016. beginning in late 2016 with the sale of our international business to globus and continuing in 2017 , we began a corporate initiative to rationalize our cost structure in line with our reduced operations and implemented a strategic repositioning of the company , including the changeover of our senior leadership team . as a result of these initiatives , we reduced headcount from 163 employees as of december 31 , 2016 to 141 employees at december 31 , 2017 , and have incurred related restructuring costs consisting primarily of severance and other personnel charges . gain on sale of assets . during the year ended december 31 , 2017 , we recorded a net gain of $ 0.9 million pursuant to a sale of certain inventory and intellectual property to a third party for $ 1.0 million in consideration , payable via a credit to future minimum royalties owed to the third party under an existing exclusive license agreement . interest expense , net . interest expense , net , was $ 7.5 million for year ended december 31 , 2017 compared to $ 5.4 million for the year ended december 31 , 2016 representing an increase of $ 2.1 million , primarily due to increased interest expenses related to the globus credit facility which was outstanding for twelve months in 2017 compared with four months in 2016 ( from september to december 2016 ) . loss on debt extinguishment : loss on debt extinguishment expenses of $ 9.5 million in 2016 were related to early retirement of deerfield debt with proceeds from the globus transaction as described above . gain ( loss ) on change in fair value of warrants . gain on change in fair value of warrants of $ 12.0 million in 2017 represented the reduction of the fair value of the warrants issued to certain investors during the period when such warrants were temporarily classified as a liability in the fourth quarter of 2017. based on the terms of the warrants issued in the march 2017 private placement , the company may be required to settle the warrants with cash upon a fundamental transaction . as of the issuance date and up until october 19 , 2017 , the warrant holders did not have control of the company 's board of directors and as a result , the warrants were classified in equity . from october 19 , 2017 to december 29 , 2017 , the warrant holders temporarily represented the majority of the board of directions and thus had control over any vote on a fundamental transaction . as a result , we were potentially required to settle the warrants with cash and the warrants were classified as a liability . on december 29 , 2017 , two board members who are warrant holders entered into recusal agreements , pursuant to which they agreed to abstain from voting on any fundamental transaction so long as their warrants are outstanding . accordingly , the warrants were re-classified to equity on december 29 , 2017 . 44 the loss of $ 0.7 million in 2016 represented a change in fair value of warrants iss ued related to deerfield facility . income tax benefit . the income tax provision in continuing operations was a benefit of $ 34,000 for the year ended december 31 , 2017 compared to a benefit of ( $ 4.6 ) million for the year ended december 31 , 2016. the 2017 income tax benefit from continuing operations primarily consists of the reversal of an uncertain tax position and the recognition of refundable federal minimum tax credits , partially offset by state taxes . the 2016 income tax benefit from continuing operations consists of income tax benefits related to domestic losses partially offset by state income taxes . asc 740-20 requires total income tax expense or benefit to be allocated among continuing operations , discontinued operations , extraordinary items , other comprehensive income and items charged directly to shareholders ' equity . this allocation is referred to as intra-period tax allocation . accordingly , we are required to allocate the provision or benefit for income taxes between continuing operations and discontinued operations . for the year ended for december 31 , 2017 , we recorded a tax benefit of $ 2.5 million in discontinued operations related to reversal of reserves of uncertain tax positions .
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results of operations the first table below sets forth our statements of operations data for the periods presented . our historical results are not necessarily indicative of the operating results that may be expected in the future . replace_table_token_3_th 42 replace_table_token_4_th year ended december 31 , 2017 compared to the year ended december 31 , 2016 revenues . revenues were $ 101.7 million for the year ended december 31 , 2017 compared to $ 120.2 million for the year ended december 31 , 2016 , representing a decrease of $ 18.5 million , or 15.4 % . u.s. commercial revenues were $ 86.9 million for the year ended december 31 , 2017 compared to $ 106.9 million for the year ended december 31 , 2016 , representing a decrease of $ 20.0 million or 18.7 % . the decreases in revenue were attributed to a combination of volume , product mix , and pricing as a result of lost distributors and customers and related overall change in revenue composition associated with the financial and operational challenges the company faced in 2016 , which led to the sale of the company 's international business in order to sustain operations . revenue was also significantly impacted by the company 's decision to exit the stocking distributor model and terminate distributor relationships that are not representative of the company 's long-term business and rebranding strategy , and transition to dedicated d istribution partners .
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all amounts and percentages are approximate due to rounding . overview our company we design , manufacture and market a broad array of products that power , protect and connect electronic circuits . these products are primarily used in the networking , telecommunications , computing , military , aerospace , transportation and broadcasting industries . bel 's portfolio of products also finds application in the automotive , medical and consumer electronics markets . we operate through three geographic segments : north america , asia and europe . in 2017 , 50 % of the company 's revenues were derived from north america , 34 % from asia and 16 % from its europe operating segment . by product group , 35 % of 2017 sales related to the company 's connectivity solutions products , 33 % in magnetic solutions products and 32 % in power solutions and protection products . our operating expenses are driven principally by the cost of labor where the factories that bel uses are located , the cost of the materials that we use and our ability to effectively and efficiently manage overhead costs . as labor and material costs vary by product line and region , any significant shift in product mix can have an associated impact on our costs of sales . costs are recorded as incurred for all products manufactured . such amounts are determined based upon the estimated stage of production and include labor cost and fringes and related allocations of factory overhead . our products are manufactured at various facilities in the u.s. , mexico , dominican republic , england , czech republic , slovakia and the prc . we have little visibility into the ordering habits of our customers and we can be subjected to large and unpredictable variations in demand for our products . accordingly , we must continually recruit and train new workers to replace those lost to attrition and be able to address peaks in demand that may occur from time to time . these recruiting and training efforts and related inefficiencies , and overtime required in order to meet any increase in demand , can add volatility to the labor costs incurred by us . key factors affecting our business the company believes the key factors affecting bel 's 2017 and or future results include the following : · revenues –the company 's revenues declined by $ 8.5 million ( or 1.7 % ) in 2017 as compared to 2016. the year-over-year decline in sales was primarily due to $ 10.1 million of lower sales related to the previously-divested nps business within the power solutions group . this was offset in part by increased sales of connector products to our military customers and higher demand for our integrated connector modules ( icms ) during 2017 . · product mix – material and labor costs vary by product line and any significant shift in product mix between higher- and lower-margin product lines will have a corresponding impact on the company 's gross margin percentage . in general , our connectivity products have the highest contribution margins , our magnetic products are more labor intensive and are therefore less profitable than the connectivity products and our power products are on the lower end of our profit margin range , due to their high material content . fluctuations in sales volume among our product groups will have a corresponding impact on bel 's profit margins . · pricing and availability of materials – there have been recent supply constraints related to components that constitute raw materials in our manufacturing processes , particularly with resistors , capacitors and discrete semiconductors . lead times have been extended and the reduction in supply has also caused an increase in prices for certain of these components . while we currently anticipate this impact on pricing and availability to be temporary during the first half of 2018 , any increase in material pricing will have an unfavorable impact on bel 's profit margins . · labor costs – labor costs in 2017 increased slightly both in dollar amount and as a percentage of sales , in spite of decreased sales in comparison to 2016. approximately one-third of bel 's total sales are generated from labor intensive magnetic products , which are primarily manufactured in the prc . wage rates in the prc , which are mandated by the government , now have higher minimum wage and overtime requirements . effective february 1 , 2018 , the prc issued an increase to the minimum wage in a region where one of bel 's factories is located . we anticipate this increase in minimum wage to result in higher labor costs of approximately $ 1.0 million - $ 1.4 million per year at this facility going forward . this and any future increases in minimum wage rates will have an unfavorable impact on bel 's profit margins . 19 return to index · restructuring – the company continues to implement restructuring programs to increase operational efficiencies . the company incurred $ 0.3 million of restructuring charges during 2017 , primarily related to the closure of its manufacturing facility in shanghai , prc and transition of those operations to other existing bel facilities which began in late 2016. additional restructuring efforts are expected to continue throughout 2018 as we realign our r & d resources dedicated to our power solutions and protection group . we are also in the process of transitioning our bcm product line from a third party factory in malaysia to an existing bel facility in the prc . we anticipate completing these two initiatives by the end of the third quarter of 2018 , with minimal restructuring costs incurred . annual savings of approximately $ 1.4 million are expected from these initiatives once fully implemented ( primarily within cost of sales ) . · impact of foreign currency – during 2017 , the company incurred foreign exchange losses of $ 2.8 million . since we are a u.s. domiciled company , we translate our foreign currency-denominated financial results into u.s. dollars . story_separator_special_tag foreign exchange losses of $ 2.8 million in 2017 compared with foreign exchange gains of $ 3.1 million in 2016 resulted in an unfavorable year-over-year variance of $ 5.9 million . the company 's erp implementation was ongoing throughout the full year of 2017 , and as a result , consulting costs were $ 2.2 million higher than 2016. during 2016 , sg & a benefited from a reversal of certain value-added and business tax items recorded in connection with the acquisition of power solutions of $ 5.2 million . 2016 as compared to 2015 sg & a expenses declined by $ 6.9 million in 2016 as compared to 2015. during 2016 , sg & a benefited from a reversal of certain value-added and business tax items recorded in connection with the acquisition of power solutions of $ 5.2 million . sg & a in 2016 also benefited from cost savings initiatives in north america and europe implemented during the latter part of 2015 and earlier part of 2016 , and lower sales commissions of $ 1.2 million due to the decline in sales . these factors were offset in part by a decrease in net foreign currency exchange gains of $ 2.0 million and an increase in incentive compensation in 2016 of $ 1.2 million as compared with 2015. restructuring charges the company recorded restructuring charges of $ 0.3 million in 2017 , $ 2.1 million in 2016 and $ 2.1 million in 2015 in connection with its restructuring programs . see note 3 , `` restructuring activities '' for a discussion of restructuring charges incurred in 2016 and 2017. in 2015 , the company incurred severance costs associated with headcount reductions as well as the consolidation and relocation of certain facilities and offices in north america , asia and europe following the 2014 acquisitions . interest expense the company incurred interest expense of $ 6.8 million in 2017 , $ 6.7 million in 2016 and $ 7.6 million in 2015 primarily due to our outstanding borrowings under the company 's credit and security agreement used to fund the 2014 acquisitions . the increase in interest expense during 2017 related to the acceleration of $ 1.0 million of deferred financing costs in connection with the refinancing of our credit facility in the fourth quarter of 2017 , partially offset by a reduction in interest expense due to a lower debt balance throughout 2017 as compared to 2016. the decline in interest expense in 2016 compared to 2015 was due to mandatory and voluntary repayments made in 2016. see `` liquidity and capital resources '' and note 10 , `` debt , '' for further information on the company 's outstanding debt . income taxes the company 's effective tax rate will fluctuate based on the geographic segment in which the pretax profits are earned . of the geographic segments in which the company operates , the u.s. has the highest tax rates ; europe 's tax rates are generally lower than u.s. tax rates ; and asia has the lowest tax rates of the company 's three geographical segments . see note 9 , `` income taxes '' and the `` tax reform '' discussion below . tax reform on december 22 , 2017 , the u.s. government enacted comprehensive tax legislation commonly referred to as the tax cuts and jobs act ( the `` tax act '' ) . the tax act significantly revises the u.s. corporate income tax law by , among other things , lowering the corporate income tax rate from 35 % to 21 % and imposing a one-time deemed repatriation tax on untaxed accumulated foreign earnings . 23 return to index the one-time deemed repatriation imposes a u.s. tax liability on untaxed accumulated foreign earnings ( `` transition tax '' ) . the company has done a preliminary calculation of the transition tax which resulted in approximately $ 17.5 million of u.s. incremental tax expense for the year ended december 31 , 2017 , of which approximately $ 16.0 million is payable after tax credits . this is based on preliminary calculations which estimate the post 1986 untaxed accumulated earnings at $ 199.9 million which is subject to u.s. income tax of 8 % on illiquid assets and 15.5 % on liquid assets . the company will elect to pay the transition tax , interest free , over 8 years , which is payable at 8 % for each of the first 5 years , 15 % in year 6 , 20 % in year 7 and 25 % in year 8. the tax act reduces the corporate tax rate to 21 % effective january 1 , 2018. consequently , the company has recorded a decrease related to deferred tax assets and deferred tax liabilities of $ 6.3 million and $ 4.2 million , respectively , with a corresponding net adjustment to deferred income tax expense of $ 2.1 million for the year ended december 31 , 2017. the company 's estimates of the tax act were calculated using currently available information ; however , the company is continuing to evaluate the underlying documentation and revisions to the current calculations may occur . 2017 as compared to 2016 the provision ( benefit ) for income taxes for the year ended december 31 , 2017 and 2016 was $ 21.5 million and ( $ 17.7 ) million , respectively . the company 's loss before benefit for income taxes for the year ended december 31 , 2016 , was primarily attributable to the $ 106.0 million impairment of goodwill and intangible assets recognized in the first half of 2016. the company 's effective tax rate was 223.4 % and 21.5 % for the year ended december 31 , 2017 and 2016 , respectively .
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summary by operating segment net sales to external customers by reportable operating segment for the years ended december 31 , 2017 , 2016 and 2015 were as follows ( dollars in thousands ) : replace_table_token_5_th net sales and income ( loss ) from operations by operating segment for the years ended december 31 , 2017 , 2016 and 2015 were as set forth in the following table ( dollars in thousands ) . segment net sales are attributed to individual segments based on the geographic source of the billing for such customer sales . 20 return to index replace_table_token_6_th the decline in north america sales in 2017 was primarily attributable to a $ 13.7 million reduction in sales of power solutions and protection products , of which $ 10.1 million related to lower sales from the previously-divested nps product line . north america segment sales were also impacted by a decline in sales of our modular plugs and cable assemblies within our stewart connector business where two major customers merged and in-sourced much of these products . this resulted in lower sales of $ 5.1 million during 2017 compared to 2016. these declines were partially offset by higher sales of our connectivity solutions products , driven by increased demand from our u.s. military customers and stronger sales through our distribution channels . the decrease in asia sales from 2016 to 2017 was primarily due to declines in sales within our power solutions and protection group ( custom modules , dc-dc converters and power solutions products ) , largely offset by an increase in sales of our integrated connector modules within our magnetic solutions group . the year-over-year sales growth in our europe segment was led by our bel power europe group in italy , which we acquired in 2012 , as they have been successful in penetrating the marine and industrial markets in europe with their ac-dc power products .
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factors that could cause or contribute to these differences include , but are not limited to , those discussed below and those listed under “ risks factors. ” this section of this form 10-k 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 , as amended , for the fiscal year ended january 3 , 2020. executive level overview we are a leading provider of technology solutions that enable professionals and field mobile workers to improve or transform their work processes . our comprehensive work process solutions are used across a range of industries including architecture , building construction , civil engineering , geospatial , survey and mapping , agriculture , natural resources , utilities , transportation , and government . our representative customers include construction owners , contractors , engineering and construction firms , surveying companies , farmers and agricultural companies , energy and utility companies , trucking companies , and state , federal , and municipal governments . further information on our business is presented in part i , item 1 , “ business ” . our growth strategy is centered on multiple elements : executing on our connect and scale 2025 strategy ; focus on attractive markets with significant growth and profitability potential ; domain knowledge and technological innovation that benefit a diverse customer base ; increasing focus on software and services ; geographic expansion with localization strategy ; optimized go-to-market strategies to best access our markets ; and strategic acquisitions our focus on these growth drivers has led over time to growth in revenue and profitability and an increasingly diversified business model . we continue to experience a shift in revenue towards a more significant mix of software , recurring revenue , and services , which represented 58 % of total revenue for fiscal 2020 , and is leading to improved visibility in our businesses . additionally , our success in driving annualized recurring revenue ( “ arr ” ) ( 1 ) growth of 9 % year-over-year for fiscal 2020 has positively impacted our revenue mix and growth over time . as our solutions have expanded , our go-to-market model has also evolved with a balanced mix between direct , distribution , and oem customers as well as an increasing number of enterprise level customer relationships . ( 1 ) see supplemental disclosure of annualized recurring revenue and non-gaap financial measures for definition . covid-19 update in early march 2020 , the world health organization characterized covid-19 as a pandemic . as the covid-19 pandemic unfolded globally , we implemented protocols to safeguard our employees , customers , suppliers , third-party business partners and communities , and ensure business continuity . the extent to which the covid-19 pandemic impacts our business operations in future periods will depend on multiple uncertain factors outside of our control , such as its continued and future overall impact on the global economy and in the industries where we operate . we experienced an overall revenue decline in fiscal 2020 , due to economic disruptions related to covid-19 that began in the last weeks of march , primarily in hardware and professional services for the first two quarters . overall revenue increased in the third and fourth quarters . despite the revenue shortfall , operating income increased due to improved mix of higher margin sales and reduced spending due to cost containment measures as well as natural reductions in spending resulting from covid-19 restrictions . as the covid-19 pandemic is continually evolving , we are uncertain of its ultimate duration , and the nature and extent of its impact on our business , financial condition , and results of operations . to the extent that regions where we do business or source our products experience additional closures or restrictions on business activity , our results of operations could be harmed . see “ 1a . risk factors ” for further discussion of the possible impact of the covid-19 pandemic on our business . 32 table of contents critical accounting policies and estimates the preparation of financial statements and related disclosures in conformity with u.s. generally accepted accounting principles ( “ gaap ” ) requires us to make judgments , assumptions , and estimates that affect the reported amounts of assets , liabilities , revenue , costs of sales , operating expenses , and related disclosures . we consider the accounting polices described below to be our critical accounting policies . these critical accounting policies are impacted significantly by judgments , assumptions , and estimates used in the preparation of the consolidated financial statements , and actual results could differ materially from the amounts reported based on these policies . our accounting policies are more fully described in note 1 of our accompanying notes to consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data ” of this annual report on form 10-k. revenue recognition revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration that we expect to receive in exchange for those products or services . revenue is recognized net of allowance for returns and any taxes collected from customers . we enter into contracts that can include various combinations of products and services , which are generally capable of being distinct and accounted for as separate performance obligations ; however , determining whether products or services are considered distinct performance obligations that should be accounted for separately versus together may sometimes require significant judgment . judgment is required to determine stand-alone selling price ( “ ssp ” ) for each distinct performance obligation . story_separator_special_tag the decrease in g & a expense was primarily due to lower compensation expense , lower tax and legal costs , and travel reductions , partially offset by increased g & a expenses from acquired businesses not included in the prior corresponding period . amortization of purchased intangible assets the following table shows amortization of purchased intangible assets for the periods indicated : replace_table_token_4_th in fiscal 2020 , total amortization of purchased intangibles decreased $ 10.0 million or 6 % primarily due to the expiration of prior year acquisitions ' amortization . non-operating expense , net the following table shows non-operating expense , net for the periods indicated : replace_table_token_5_th 36 table of contents in fiscal 2020 , total non-operating expense , net decreased by $ 6.3 million or 20 % primarily due to lower interest costs and increased joint venture profitability , partially offset by unfavorable impacts fro m foreign currency exchange incl uded in other income , net . income tax provision the coronavirus aid , relief , and economic security act ( `` cares act '' ) , enacted on march 27 , 2020 , provides tax relief to individuals and businesses in light of the impacts of covid-19 . it did not result in material adjustments to our income tax provision or to our net deferred tax assets as of the end of the fourth quarter of fiscal 2020. in december 2020 , due to a change in the netherlands tax law , the statutory tax rate was increased from 21.7 % to 25.0 % , effective january 1 , 2021. as a result , we recorded a one-time tax benefit of $ 64.0 million due to the revaluation of the netherlands deferred tax assets . in december 2019 , to align with our international business operations , we completed a non-u.s. intercompany transfer of our intellectual property to a subsidiary in the netherlands . the transaction resulted in deferred tax assets in the netherlands and global intangible low-taxed income ( “ gilti ” ) deferred tax liabilities in the u.s. , recorded at the applicable statutory tax rates , resulting in a one-time income tax benefit of approximately $ 206.3 million in the fourth quarter of fiscal 2019. our effective income tax rates for fiscal 2020 and 2019 were 1.1 % and -49.2 % , respectively . the effective income tax rates in fiscal 2020 increased compared to 2019 primarily due to the one-time tax benefit from the non-u.s. intercompany transfer of intellectual property in the fourth quarter of fiscal 2019. results by segment we report our financial performance , including revenue and operating income , based on four reportable segments : buildings and infrastructure , geospatial , resources and utilities , and transportation . our chief executive officer and chief operating decision maker views and evaluates operations based on the results of our reportable operating segments under our management reporting system . these results are not necessarily in conformance with u.s. gaap . for additional discussion of our segments , see note 5 of the notes to the consolidated financial statements . 37 table of contents the following table shows a breakdown of revenue and operating income by segment for the periods indicated : replace_table_token_6_th the following table shows a reconciliation of our consolidated segment operating income to our consolidated income before income taxes for the periods indicated : replace_table_token_7_th fiscal year 2020 compared with fiscal year 2019 buildings and infrastructure buildings and infrastructure revenue decreased by $ 27.2 million or 2 % , and segment operating income increased by $ 18.2 million or 6 % . revenue decreased primarily due to a decline in civil engineering and construction hardware sales in the first two quarters of fiscal 2020 and lower revenue from professional services due to the economic impacts of covid-19 , partially offset by higher software maintenance and subscription revenue . hardware sales recovered in the third and fourth quarters due to improved market conditions including pent up demand and government stimulus programs . segment operating income and 38 table of contents operating income as a percentage of segment revenue increased due to gross margin improvements from higher mix of software maintenance and subscription revenue as well as cost reductions . geospatial geospatial revenue increased by $ 1.1 million or less than 1 % , and segment operating income increased by $ 52.2 million or 39 % . revenue was relatively flat for the year ; while survey sales recovered in the third and fourth quarters due to improved market conditions , including pent up demand , government stimulus programs , and new product introductions , there was a decline in the first two quarters due to the economic impacts of covid-19 . segment operating income and operating income as a percentage of segment revenue increased primarily due to gross margin improvements resulting from new higher margin product introductions and less discounting as well as cost reductions . resources and utilities resources and utilities revenue increased by $ 58.6 million or 10 % , and segment operating income increased by $ 51.9 million or 31 % . revenue increased due to strength in agriculture reseller and oem channels resulting from improved market conditions , including stabilization of commodity prices , government stimulus programs , and weather conditions . acquisition revenue , primarily cityworks , also contributed to growth . segment operating income and operating income as a percentage of segment revenue increased due to revenue expansion and gross margin improvements resulting from higher margin software maintenance and subscription sales , as well as cost reductions . transportation transportation revenue decreased by $ 151.8 million or 19 % , and segment operating income decreased by $ 75.8 million or 60 % . revenue decreased primarily due to reduced hardware upgrades and subscriber declines , attributable in part to challenges with the electronic logging device transition in the trucking industry , as well as the economic impacts of covid-19 . conversion of customers from perpetual software to subscription products also reduced revenue .
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results of operations overview the following table shows revenue by category , gross margin and gross margin as a percentage of revenue , operating income and operating income as a percentage of revenue , and diluted earnings per share for the periods indicated : replace_table_token_2_th ( 1 ) s ee supplemental disclosure of annualized recurring revenue and non-gaap financial measures for definitions . basis of presentation we have a 52-53 week fiscal year , ending on the friday nearest to december 31 , which for fiscal 2020 was january 1 , 2021. fiscal 2020 and 2018 were both 52-week years . fiscal 2019 was a 53-week year . 34 table of contents fiscal year 2020 compared with fiscal year 2019 revenue in fiscal 2020 , total revenue decreased by $ 116.6 million or 4 % . overall revenue decreased due to weakness in transportation , and to a lesser extent , buildings and infrastructure and geospatial , which were impacted in the first two quarters by covid-19 . the decrease was partially offset by organic and acquisitions growth in resources and utilities , as well as recovery in buildings and infrastructure and geospatial in the third and fourth quarters . we consider acquisition growth to include acquisition revenue that was not applicable in the prior corresponding periods . by revenue category , overall product revenue decreased $ 106.8 million or 6 % , service revenue decreased $ 41.4 million or 6 % , and subscription revenue increased $ 31.6 million or 5 % . product revenue decreased primarily due to weakness in our hardware sales in transportation , and to a lesser extent , buildings and infrastructure , partially offset by growth in resources and utilities . geospatial was relatively flat . the decrease in geospatial hardware sales in the first two quarters was largely offset by increased hardware sales in the third and fourth quarters . service revenue decreased due to lower professional services associated with customer installations .
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those statements include statements regarding the intent , belief or current expectations of us and members of its management team as well as the assumptions on which such statements are based . prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties , and that actual results may differ materially from those contemplated by such forward-looking statements . readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the securities and exchange commission . important factors known to us could cause actual results to differ materially from those in forward-looking statements . we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions , the occurrence of unanticipated events or changes in the future operating results over time . we believe that its assumptions are based upon reasonable data derived from and known about our business and operations and the business and operations of the company . no assurances are made that actual results of operations or the results of our future activities will not differ materially from its assumptions . factors that could cause differences include , but are not limited to , expected market demand for the company 's services , fluctuations in pricing for materials , and competition . business overview we are a clinical-stage pharmaceutical company dedicated to the development of novel prescription products for common yet challenging medical disorders . our clinical-stage product candidates , tnx-102 sl and tnx-201 , are directed toward conditions affecting the cns . in the second quarter of 2015 , we expect to initiate a phase 3 clinical trial of our most advanced candidate , tnx-102 sl , for the treatment of fm . we are also developing tnx-102 sl as a potential treatment for ptsd , and we commenced a phase 2 trial for this indication in january 2015. we expect to begin a phase 2 trial of tnx-201 in etth in the second quarter of 2015. our pipeline includes a preclinical program for the treatment of alcohol abuse and dependence as well as two preclinical biodefense programs ( protection from smallpox virus and from radiation injury ) . we hold worldwide development and commercialization rights to all of our candidates . our therapeutic strategy in fm is supported by results from the randomized , double-blind , placebo-controlled phase 2b bestfit trial of tnx-102 sl in fm . although the bestfit trial demonstrated only a positive trend and did not achieve statistical significance for tnx-102 sl in the primary efficacy analysis of change in mean pain intensity at week 12 , it demonstrated statistical significance ( p < 0.05 ) in a 30 % responder analysis of the primary pain data , a declared secondary endpoint in which a responder is defined as a subject for whom pain intensity was reduced by at least 30 % at week 12 as compared to baseline . the bestfit trial also showed statistically significant improvements with tnx-102 sl in the declared secondary analyses of the patient global impression of change ( p < 0.05 ) and the fibromyalgia impact questionnaire-revised , or fiq-r ( p < 0.05 ) . in addition , the study showed statistically significant improvement with tnx-102 sl on measures of sleep quality as well as on several fiq-r items . tnx-102 sl was well tolerated in the bestfit trial , and the most common adverse events were local in nature , with transient tongue or mouth numbness occurring in 42 % of participants on tnx-102 sl vs. 1 % on placebo , and bitter taste in 8 % on tnx-102 sl compared to none on placebo . these local adverse events did not appear to affect either rates of retention of study participants or their compliance with taking tnx-102 sl . systemic adverse events were similar between tnx-102 sl and placebo . no serious adverse events were reported . among subjects randomized to the active and control arms , 86 % and 83 % , respectively , completed the 12-week dosing period . we are conducting a 12-month open-label extension study of tnx-102 sl , into which patients who completed the bestfit study were eligible to enroll . on the basis of our discussions with the fda , we believe that positive results from two adequate , well-controlled efficacy and safety studies and long-term ( six- and 12-month ) safety exposure studies would provide sufficient evidence of efficacy and safety to support fda approval of tnx-102 sl for the management of fm . following the bestfit study , we received written guidance from the fda which accepted our proposal to use a 30 % pain responder analysis as the primary efficacy endpoint in our phase 3 program to support the approval of tnx-102 sl for the management of fm . we expect to initiate a randomized , double-blind , placebo-controlled , 12-week phase 3 trial of tnx-102 sl in 500 patients with fm in the second quarter of 2015. we expect to report top line results from this trial in the second half of 2016. we are evaluating tnx-102 sl for the treatment of military-related ptsd in the randomized , double-blind , placebo-controlled phase 2 atease study , from which we expect to report initial results in the first half of 2016. the primary objective of the atease trial is to evaluate the efficacy of tnx-102 sl 2.8 mg as compared to placebo sublingual tablet following eight weeks of treatment using the clinician-administered ptsd scale . based on our communications with the fda to date , we believe that positive results from two adequate , well-controlled efficacy and safety studies and long-term ( six- and 12-month ) safety exposure studies would support fda approval of tnx-102 sl for the management of ptsd . if we achieve our primary outcome measure in the atease study , it could qualify as one of the two studies required to support the nda . story_separator_special_tag results of operations ( in thousands except per share data ) we anticipate that our results of operations will fluctuate for the foreseeable future due to several factors , such as the progress of our research and development efforts and the timing and outcome of regulatory submissions . due to these uncertainties , accurate predictions of future operations are difficult or impossible to make . fiscal year ended december 31 , 2014 compared to fiscal year ended december 31 , 2013 revenues and cost of goods sold . we had no revenues or cost of goods sold during the fiscal years ended december 31 , 2014 and 2013 . 43 research and development expenses . research and development expenses for the fiscal year ended december 31 , 2014 were $ 18,617 , an increase of $ 13,967 , or 300 % , from $ 4,650 for the fiscal year ended december 31 , 2013. this increase is primarily due to increased development work related to tnx-102 sl , including formulation development , manufacturing , human safety and efficacy as well as pharmacokinetic studies . in 2014 , we incurred $ 3,743 , $ 5,948 and $ 1,501 in manufacturing cost , clinical activities and cost , and non-clinical activities and cost , respectively , as compared to $ 1,161 , $ 1,733 and $ 432 in 2013 , respectively . during the year ended december 31 , 2014 , we acquired intellectual property rights for $ 858 as compared to $ 0 in the same period last year . in addition , beginning in 2014 , we began classifying certain salaries , bonuses , and stock-based compensation to research and development expenses based on individuals ' responsibilities . included in the year ended december 31 , 2014 was $ 646 related to stock based compensation in connection with the vesting of stock options and cash compensation of $ 1,310 , primarily as a result of added personnel . story_separator_special_tag text-align : justify ; text-indent : 0.5in '' > roth acted as the exclusive placement agent in this offering pursuant to the terms of a placement agent agreement , dated july 11 , 2014 , between us and roth . pursuant to the placement agent agreement , we agreed to pay roth a placement agent fee equal to six percent of the gross proceeds of the offering . the registered direct offering closed on july 16 , 2014 and we received net proceeds of approximately $ 7,182 , after deducting placement agent fees and offering expenses of approximately $ 636. february 2015 financing on february 4 , 2015 , we entered into an underwriting agreement with roth and oppenheimer & co inc. , as representatives ( the “ representatives ” ) of several underwriters ( collectively , the “ second underwriters ” ) , relating to the issuance and sale of 4,900,000 shares of our common stock in an underwritten public offering ( the “ february 2015 financing ” ) . the public offering price for each share of common stock was $ 5.85. we granted the second underwriters a 45-day option to purchase up to an additional 735,000 shares of common stock to cover over-allotments , if any . the february 2015 financing closed on february 9 , 2015. the second underwriters purchased the shares at a six percent discount to the public offering price , for an aggregate discount of approximately $ 1,720 ( or $ 0.35 per share ) . the company also paid offering expenses of approximately $ 250. the company received net proceeds of approximately $ 26,700. on february 24 , 2015 , the second underwriters partially exercised the over-allotment option and purchased 418,700 shares of common stock for net proceeds of approximately $ 2,300. future liquidity requirements we expect to incur losses from operations for the near future . we expect to incur increasing research and development expenses , including expenses related to additional clinical trials . we expect that our general and administrative expenses will increase in the future as we expand our business development , add infrastructure and incur additional costs related to being a public company , including incremental audit fees , investor relations programs and increased professional services . our future capital requirements will depend on a number of factors , including the progress of our research and development of product candidates , the timing and outcome of regulatory approvals , the costs involved in preparing , filing , prosecuting , maintaining , defending and enforcing patent claims and other intellectual property rights , the status of competitive products , the availability of financing and our success in developing markets for our product candidates . we believe our existing cash is sufficient to fund our operating expenses and planned clinical trials for at least the next 12 months . we presently do not have any available credit , bank financing or other external sources of liquidity . due to our history and historical operating losses , our operations have not been a source of liquidity . we may need to obtain additional capital in order to fund future research and development activities . future financing may include the issuance of equity or debt securities , obtaining credit facilities , or other financing mechanisms . even if we are able to raise the funds required , it is possible that we could incur unexpected costs and expenses , fail to collect significant amounts owed to us , or experience unexpected cash requirements that would force us to seek alternative financing . furthermore , if we issue additional equity or debt securities , shareholders may experience additional dilution or the new equity securities may have rights , preferences or privileges senior to those of existing holders of our common stock .
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general and administrative expenses . general and administrative expenses for the fiscal year ended december 31 , 2014 were $ 9,039 , an increase of $ 2,801 , or 45 % , from $ 6,238 incurred in the fiscal year ended december 31 , 2013. this increase is primarily due to compensation related expenses and professional services . compensation related expenses increased to $ 4,511 for the fiscal year ended december 31 , 2014 from $ 3,248 for the fiscal year ended december 31 , 2013 , an increase of $ 1,263 , or 39 % . we incurred $ 2,434 in stock based compensation in connection with the vesting of stock options in 2014 previously issued to board members , officers and a consultant as compared to $ 1,717 in stock based compensation in 2013. the increase in cash compensation related costs of $ 546 was primarily a result of annual salary increases and added personnel , net with classification of wages and benefits related to research and development from general and administrative expenses . professional services for the fiscal year ended december 31 , 2014 totaled $ 2,564 , an increase of $ 682 , or 36 % , over the $ 1,882 incurred for the fiscal year ended december 31 , 2013. of professional services , legal fees totaled $ 1,003 for the fiscal year ended december 31 , 2014 , an increase of $ 100 , or 11 % , from $ 903 incurred for the fiscal year ended december 31 , 2013. of the legal fees incurred , $ 554 were patent related costs in the 2014 year as compared to $ 458 in 2013. audit and accounting fees incurred in the fiscal years ended december 31 , 2014 and 2013 amounted to $ 515 and $ 244 , respectively , an increase of $ 271 , or 111 % .
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you should review the risk factors section of this report beginning on page 23 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview benefitfocus provides a leading cloud-based benefits management platform for consumers , employers , insurance carriers , and brokers . the benefitfocus platform simplifies how organizations and individuals shop for , enroll in , manage , and exchange benefits . our employer and insurance carrier customers rely on our platform to manage , scale and exchange data . our web-based platform has a user-friendly interface designed to enable the insured consumers to access all of their benefits in one place . our comprehensive solutions support core benefits plans , including healthcare , dental , life , and disability insurance , and voluntary benefits plans , such as critical illness , supplemental income , and wellness programs . as the number of employer benefits plans has increased , with each plan subject to many different business rules and requirements , demand for the benefitfocus platform has grown . we serve two separate but related market segments . our fastest growing market segment , the employer market , consists of employers offering benefits to their employees . within this segment , we mainly target large employers with more than 1,000 employees , of which we believe there are over 18,000 in the united states . in our other market segment , we sell our solutions to insurance carriers , enabling us to expand our overall footprint in the benefits marketplace by aggregating many key constituents , including consumers , employers , and brokers . our business model capitalizes on the close relationship between carriers and their members , and the carriers ' ability to serve as lead generators for potential employer customers . carriers pay for services at a rate reflective of the aggregated nature of their customer base on a per application basis . carriers can then deploy their applications to employer groups and members . as employers become direct customers through our employer segment , we provide them our platform offering that bundles many software applications into a comprehensive benefits solution through benefitfocus marketplace . we believe our presence in both the employer and insurance carrier markets gives us a strong position at the center of the benefits ecosystem . we sell the benefitfocus platform on a subscription basis , typically through annual contracts with employer customers and multi-year contracts with our insurance carrier customers , with subscription fees paid monthly . the multi-year contracts with our carrier customers are generally only cancellable by the carrier in an instance of our uncured breach , although some of our carrier customers are able to terminate their respective contracts without cause or for convenience . software services revenue accounted for approximately 87 % , 91 % , and 93 % of our total revenue during the years ended december 31 , 2015 , 2014 and 2013 , respectively . 55 another component of our revenue is professional services . we derive the majority of our professional services revenue from the implementation of our customers onto our platform , which typically includes discovery , configuration and deployment , integration , testing , and training . in general , it takes from four to five months to implement a new employer customer 's benefits systems and eight to 10 months to implement a new carrier customer 's benefits systems . we also provide customer support services and customized media content that supports our customers ' effort to educate and communicate with consumers . professional services revenue accounted for approximately 13 % , 9 % , and 7 % of our total revenue during the years ended december 31 , 2015 , 2014 and 2013 , respectively . increasing our base of large employer customers is an important source of revenue growth for us . we actively pursue new employer customers in the u.s. market , and we have increased the number of large employer customers utilizing our solutions from 141 as of december 31 , 2010 to 723 as of december 31 , 2015 , a 38.7 % compound annual growth rate . we believe that our continued innovation and new solutions , such as online benefits marketplaces , also known as private exchanges , enhanced mobile offerings , and more robust data analytics capabilities will help us attract additional large employer customers and increase our revenue from existing customers . we believe that there is a substantial market for our services , and we have been investing in growth over the past four years . in particular , we have continued to invest in technology and services to better serve our larger employer customers , which we believe are an important source of growth for our business . we have also substantially increased our marketing and sales efforts and expect those increased efforts to continue . as we have invested in growth , we have had operating losses in each of the last five years , and expect our operating losses to continue for at least the next year . due to the nature of our customer relationships , which have been very stable with relatively few customer losses over the past years , and the subscription nature of our financial model , we believe that our current investment in growth should lead to substantially increased revenue , which will allow us to achieve profitability in the relatively near future . of course , our ability to achieve profitability will continue to be subject to many factors beyond our control . key financial and operating performance metrics we regularly monitor a number of financial and operating metrics in order to measure our current performance and project our future performance . these metrics help us develop and refine our growth strategies and make strategic decisions . story_separator_special_tag overhead allocation expenses associated with our facilities , it costs , and depreciation and amortization , are allocated between cost of revenue and operating expenses based on employee headcount determined by the nature of work performed . cost of revenue cost of revenue primarily consists of salaries and other personnel-related costs , including benefits , bonuses , and stock-based compensation , for employees , whom we refer to as associates , providing services to our customers and supporting our saas platform infrastructure . additional expenses in cost of revenue include co-location facility costs for our data centers , depreciation expense for computer equipment directly associated with generating revenue , infrastructure maintenance costs , professional fees , amortization expenses associated with capitalized software development costs , allocated overhead , and other direct costs . we expense our cost of revenue as we incur the costs . however , the related revenue from fees we receive for our implementation services , performed before a customer is operating on our platform , that is determined to not have stand-alone value is deferred until the commencement of the monthly subscription and recognized as revenue ratably over the longer of the related contract term or the estimated expected life of the customer relationship . for those implementation services that have standalone value , the related revenue is recognized as revenue upon completion of service . therefore , the cost incurred in providing these services is expensed in periods prior to the recognition of the corresponding revenue . our cost associated with providing implementation services has been significantly higher as a percentage of revenue than our cost associated with providing our monthly subscription services due to the labor associated with implementation . we plan to continue to expand our capacity to support our growth , which will result in higher cost of revenue in absolute dollars . however , we expect cost of revenue as a percentage of revenue to decline and gross margins to increase primarily from the growth of the percentage of our revenue from large employers and the realization of economies of scale driven by retention of our customer base . 58 operating expenses operating expenses consist of sales and marketing , research and development , and general and administrative expenses . salaries and personnel-related costs are the most significant component of each of these expense categories . we expect to continue to hire new associates in these areas in order to support our anticipated revenue growth . as a result , we expect our operating expenses to increase in both aggregate dollars and as a percentage of revenue in the near term , but to decrease as a percentage of revenue over the longer term as we achieve economies of scale . sales and marketing expense . sales and marketing expense consists primarily of salaries and other personnel-related costs , including benefits , bonuses , stock-based compensation , and commissions for our sales and marketing associates . we record expense for commissions at the time of contract signing . additional expenses include advertising , lead generation , promotional event programs , corporate communications , travel , and allocated overhead . for instance , our most significant promotional event is one place , which we have held annually . we expect our sales and marketing expense to increase in both absolute dollars and as a percentage of revenue in the foreseeable future as we further increase the number of our sales and marketing professionals and expand our marketing activities in order to continue to grow our business . research and development expense . research and development expense consists primarily of salaries and other personnel-related costs , including benefits , bonuses , and stock-based compensation for our research and development associates . additional expenses include costs related to the development , quality assurance , and testing of new technology , and enhancement of our existing platform technology , consulting , travel , and allocated overhead . we believe continuing to invest in research and development efforts is essential to maintaining our competitive position . we expect our research and development expense to increase in absolute dollars and as a percentage of revenue for the near term , but decrease as a percentage of revenue over the longer term as we achieve economies of scale . general and administrative expense . general and administrative expense consists primarily of salaries and other personnel-related costs , including benefits , bonuses , and stock-based compensation for administrative , finance and accounting , information systems , legal , and human resource associates . additional expenses include consulting and professional fees , insurance and other corporate expenses , and travel . we expect our general and administrative expenses to increase in absolute terms as a result of operating as a public company , including costs associated with compliance with the sarbanes-oxley act and other regulations governing public companies , increased costs of directors ' and officers ' liability insurance , increased professional services expenses , and costs associated with an enhanced investor relations function . other income and expense other income and expense consists primarily of interest income and expense , accretion of contingent consideration , and gain ( loss ) on disposal of fixed assets . interest income represents interest received on our cash and cash equivalents and marketable securities . interest expense consists primarily of the interest incurred on outstanding borrowings under our financing obligations , existing notes and credit facilities . income tax expense income tax expense consists of u.s. federal and state income taxes . we incurred minimal income tax expense for 2015 , 2014 , and 2013. net operating loss carryforwards for federal income tax purposes were $ 122.8 million at december 31 , 2015. state net operating loss carryforwards were 59 approximately $ 126.6 million at december 31 , 2015. federal net operating loss carryforwards will expire at various dates beginning in 2022 , if not utilized . state net operating losses will expire at various dates beginning in 2022 , if not utilized .
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results of operations consolidated statements of operations data the following table sets forth our consolidated statements of operations data for each of the periods indicated ( in thousands ) . replace_table_token_10_th ( 1 ) cost of revenue and operating expenses include stock-based compensation expense as follows ( in thousands ) : replace_table_token_11_th 60 the following table sets forth our consolidated statements of operations data as a percentage of revenue for each of the periods indicated ( as a percentage of revenue ) . replace_table_token_12_th our segments the following table sets forth segment results for revenue and gross profit for the periods indicated ( in thousands ) : replace_table_token_13_th 61 comparison of years ended december 31 , 2015 and 2014 revenue replace_table_token_14_th growth in software services revenue was primarily attributable to the addition of new customers , as the number of large employer and carrier customers increased to 777 as of december 31 , 2015 from 596 as of december 31 , 2014 and higher volumes from existing customers . the increase in professional services revenue of $ 11.3 million between the year ended december 31 , 2014 and the year ended december 31 , 2015 was in part attributable to the change in the customer relationship period from 10 to 7 years , resulting in an increase in revenue of $ 3.3 million from customers that were using our platform prior to the beginning of 2015. the remaining increase of $ 8.0 million was related to newly activated customers and products and other services provided to existing customers , including $ 2.4 million of revenue from services delivered that have standalone value .
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the accounting for the company 's loyalty programs was also impacted , with changes to the timing and or classification of certain transactions between total revenue and operating expenses . see note 4 “ revenue recognition ” . in february 2016 , the story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . you should review item 1a . “ risk factors ” and “ cautionary note regarding forward-looking statements ” in this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . 35 overview we are a delaware corporation headquartered in providence , rhode island , and a multi-jurisdictional owner of gaming and racing facilities , including slot machines and various casino table games , and restaurant and hotel facilities . through our wholly owned subsidiary trmg , we currently own and manage the twin river casino hotel in lincoln , rhode island , which is our flagship property , the tiverton casino hotel in tiverton , rhode island , hard rock biloxi in biloxi , mississippi , dover downs in dover , delaware , the golden gates , golden gulch and mardi gras casinos ( collectively “ black hawk casinos ” ) and mile high usa in aurora , colorado . following the closure of the newport grand casino ( “ newport grand ” ) in august 2018 , we opened the tiverton casino hotel on september 1 , 2018. on march 28 , 2019 , we completed our acquisition of dover downs gaming & entertainment inc. , which consisted of dover downs casino hotel ( collectively , “ dover downs ” ) . on january 23 , 2020 we completed our acquisition of the black hawk casinos . as of february 29 , 2020 , our casinos had an aggregate of over 446,000 square feet of gaming space , approximately 9,130 slot machines , approximately 267 gaming tables , approximately 54 stadium gaming positions , approximately 45 dining establishments , 25 bars , three entertainment venues and approximately 1,200 hotel rooms . twin river casino hotel , hard rock biloxi , tiverton casino hotel , dover downs and mile high usa have been aggregated into three reportable segments , rhode island , delaware and biloxi . newport grand , which represented an immaterial operating segment and operated up until its closing in august 2018 , has been aggregated with twin river casino hotel and tiverton casino hotel to form the rhode island reportable segment . our biloxi segment includes only hard rock biloxi . our delaware reportable segment includes only dover downs . the “ other ” category includes mile high usa , an immaterial operating segment . `` other '' also includes interest expense for the company and certain corporate operating expenses that are not allocated to the other segments , which include , among other expenses , share-based compensation , merger and acquisition costs , and certain non-recurring charges . we anticipate that the black hawk casinos will operate as a separate operating segment and we are still evaluating the reporting segment structure inclusive of the black hawk casinos . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > we incurred $ 12.2 million of acquisition , integration and restructuring expense during the year ended december 31 , 2019 compared to $ 6.8 million in 2018 . the dover downs merger and going public expenses were $ 7.9 million for 2019 , compared to $ 6.6 million in 2018 . additionally , we incurred $ 1.7 million and $ 1.3 million of acquisition costs related to the acquisitions of the black hawk casinos and isle kansas city and lady luck vicksburg , respectively , in the current period . during the year ended december 31 , 2019 , we reported restructuring expense of $ 1.3 million related to severance costs incurred attributable to the acquisition of dover downs as well as severance costs at our twin river casino hotel location as a result of a voluntary termination program put into place in response to softness in the market due to new competition . other operating costs and expenses during the year ended december 31 , 2019 we recorded a gain on insurance recoveries of $ 1.2 million related to proceeds received for a damaged roof at the company 's arapahoe park racetrack . during the year ended december 31 , 2018 , we recorded other operating costs and expenses of $ 6.5 million , directly attributable to a disposal loss related to the sale of newport grand . we also incurred $ 2.7 million of expansion and pre-opening expenses during the year ended december 31 , 2018 related to tiverton casino hotel prior to its opening on september 1 , 2018. depreciation and amortization depreciation and amortization of intangibles expense for the year ended december 31 , 2019 was $ 32.4 million , an increase of $ 10.1 million , or 45.0 % , compared to $ 22.3 million in 2018 . the increase is attributable to increased depreciation as a result of the tiverton casino hotel , which opened in late 2018 , the dover downs acquisition and , to a lesser extent , the new hotel at twin river casino hotel . income from operations income from operations was $ 114.6 million for the year ended december 31 , 2019 compared to $ 120.6 million in 2018 . story_separator_special_tag the change was primarily driven by a reduction in capital expenditures compared to the prior year related to the tiverton casino hotel and the new hotel at twin river casino hotel of $ 92.7 million and $ 18.6 million , respectively . this decrease was partially offset by the cash outlay for the acquisition of dover downs , net of cash acquired of $ 9.6 million , and a year-over-year increase in maintenance and small project capital expenditures of $ 10.7 million . net cash used in investing activities for the year ended december 31 , 2018 was $ 117.6 million , an increase of $ 70.1 million compared to $ 47.5 million used in investing activities for 2017. the change was primarily driven by an increase in capital expenditures for the tiverton casino hotel and the new hotel at twin river casino hotel of $ 60.2 million and $ 17.5 million , respectively , partially offset by proceeds of $ 7.1 million from the sale of the land and building relating of the closing of the newport grand and an increase in the repayments of the loans to officers and directors related to taxes on stock options of $ 5.0 million . all loans to officers and directors were repaid during 2018 . 40 financing activities net cash provided by financing activities for the year ended december 31 , 2019 was $ 48.9 million compared to net cash used in financing activities of $ 3.4 million for 2018 . this change was primarily driven by proceeds received from the term loan facility and senior notes ( both defined below ) net of fees incurred , of $ 683.2 million , partially offset by an increase in debt repayments of $ 309.4 million on our previous term loan and the required quarterly payments on our new term loan facility . during 2019 , we also paid $ 223.1 million to repurchase shares of our common stock , including shares repurchased in connection with our dutch auction tender offer completed in july , and paid cash dividends of $ 7.5 million to shareholders under our capital return program . net cash used in financing activities for the year ended december 31 , 2018 was $ 3.4 million , a decrease of $ 25.5 million compared to cash used in financing activities in 2017. this decrease was primarily driven by an increase in borrowings of $ 31.0 million , which was partially offset by an increase in repayments of $ 4.0 million , and an increase in the cash received for stock options exercised via repayment of non-recourse notes of $ 4.0 million . this increase was partially offset by an increase of stock repurchases of $ 5.7 million related to equity awards put to us by holders of our options and other entity-based awards . working capital at december 31 , 2019 , net working capital balance was $ 155.2 million , compared to $ 46.9 million at december 31 , 2018 . the increase in working capital of $ 108.4 million is primarily attributable to proceeds received from the term loan facility and senior notes ( both defined below ) net of fees incurred and repayment of existing debt balances , which drove our cash and cash equivalents and restricted cash balances to $ 185.5 million at december 31 , 2019 compared to $ 81.4 million in 2018 , coupled with cash from operations for the year ended december 31 , 2019 , offset by share repurchases of $ 222.7 million under our capital return program , the acquisition of dover downs and capital expenditures . at december 31 , 2018 , cash and cash equivalents and restricted cash totaled $ 81.4 million , compared to $ 93.2 million at december 31 , 2017. this decrease is primarily attributable to capital expenditures of $ 128.9 million , including those related to the tiverton casino hotel and the new hotel at twin river casino hotel , partially offset by cash provided by operating activities of $ 109.2 million and proceeds from the sale of newport grand land and building of $ 7.1 million . at december 31 , 2018 , net working capital balance was $ 46.9 million , compared to $ 17.8 million at december 31 , 2017. the increase was primarily attributable to the decrease in the current portion of the term loan of $ 29.7 million , as a mandatory prepayment was due on december 31 , 2017 , as well as a decrease of $ 10.9 million in accounts payable and accrued liabilities balances primarily driven by the completion of the tiverton casino hotel and the completion of the new hotel at twin river casino hotel . these decreases in current liabilities were partially offset by a decrease in cash and cash equivalents and restricted cash , discussed above . we assess liquidity in terms of the ability to generate cash to fund operating , investing and financing activities . the primary ongoing cash requirements will be to fund operations , capital expenditures , interest payments , investments and pay a quarterly dividend in line with our business strategy . we believe that future operating cash flows will be sufficient to meet future needs for operating and internal investing cash for the next twelve months . furthermore , existing cash balances and availability of additional borrowings under the credit facility provide additional sources of liquidity , which were utilized to fund the $ 73.9 million tender offer , which we completed on july 26 , 2019 , and $ 148.8 million of share repurchases under our capital return program during 2019 , and to fund the payment of the purchase price for the acquisition of the black hawk casinos . while we may seek other funding alternatives , we believe existing cash balances and availability under our credit facility will provide the cash necessary to fund our proposed acquisition of isle kansas city and lady luck vicksburg , which is expected to close in the second quarter of 2020 .
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results of operations the following table presents , for the periods indicated , certain revenue and income items : replace_table_token_4_th the following table presents , for the periods indicated , certain income and expense items expressed as a percentage of total revenue : replace_table_token_5_th note : amounts in table may not subtotal due to rounding . 36 segment information the following table sets forth certain financial information associated with results of operations for the years ended december 31 , 2019 , 2018 and 2017 . non-gaming revenue includes hotel , food and beverage and other revenue . non-gaming expenses include hotel , food and beverage and retail , entertainment and other expenses . replace_table_token_6_th 37 year ended december 31 , 2019 compared to year ended december 31 , 2018 total revenue total revenue for the year ended december 31 , 2019 increased 19.7 % to $ 523.6 million , from $ 437.5 million in 2018 . this increase was primarily attributable to the addition of dover downs , which added $ 80.8 million of revenue in 2019 . revenue was also favorably impacted by incremental revenue at the tiverton casino , which opened on september 1 , 2018 replacing newport grand which closed on august 28 , 2018. new competition in the new england market , and the associated increases in marketing and promotional activity , significantly impacted revenue in the second half of 2019 at twin river casino hotel . we expect this unusually high level of competitive market activity to moderate over time and are responding with new initiatives of our own , the combination of which we believe will result in some recaptured market share over time . in 2019 , tiverton casino hotel continued to demonstrate marked resilience in the face of the new regional competition mentioned above and hard rock biloxi gaming revenue performance remained strong .
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forward-looking statements may include words such as “ may , ” “ will , ” “ should , ” “ expect , ” “ plan , ” “ intend , ” “ aim , ” “ anticipate , ” “ assume , ” “ believe , ” “ contemplate , ” “ continue , ” “ could , ” “ due , ” “ estimate , ” “ expect , ” “ goal , ” “ intend , ” “ may , ” “ objective ” “ plan , ” “ predict , ” “ potential , ” “ positioned , ” “ seek , ” “ should , ” “ target , ” “ will , ” “ would , ” and other similar expressions that are predictions of or indicate future events and future trends , or the negative of these terms or other comparable terminology . forward-looking statements are subject to risks and uncertainties , and actual events or results may differ materially . factors that could cause our actual results to differ materially include , but are not limited to , those discussed under “ risk factors ” in this report . we also face risks and uncertainties relating to our business including : our ability to obtain additional financing in future offerings ; our operating losses ; our collaboration with roche pursuant to the license agreement to develop and commercialize prx002 , as well as any future licensed products targeting alpha-synuclein ; our ability to successfully complete research and development of our drug candidates and the growth of the markets for those drug candidates ; our ability to develop and commercialize products before competitors that are superior to the alternatives developed by such competitors ; expected activities and responsibilities of us and roche under the license agreement ; our potential receipt of revenue under the license agreement , including milestone and royalty revenue ; the satisfaction of conditions under the license agreement required for continued commercialization , and the payment of potential milestone payments , royalties and fulfillment of other roche obligations under the license agreement ; expectations with respect to our intent and ability to carry out plans to promote prx002 for the treatment of parkinson 's disease in the united states through our co-promotion option under the license agreement ; our ability to protect our patents and other intellectual property ; loss of key employees ; tax treatment of our separation from elan , now owned by perrigo , and subsequent distribution of our ordinary shares ; restrictions on our taking certain actions due to tax rules and covenants with elan ; our ability to maintain financial flexibility and sufficient cash , cash equivalents , and investments and other assets capable of being monetized to meet our liquidity requirements ; disruptions in the u.s. and global capital and credit markets ; fluctuations in foreign currency exchange rates ; extensive government regulation ; the volatility of our share price ; business disruptions caused by information technology failures ; and the other risks and uncertainties described in part ii , item 1 , “ risk factors. ” we undertake no obligation to revise or update any forward-looking statements to reflect any event or circumstance that arises after the date of this report , or to conform such statements to actual results or changes in our expectations . except with respect to our trademarks , the trademarks , trade names and service marks appearing in this report are the property of their respective owners . 38 this discussion should be read in conjunction with the consolidated financial statements and notes presented in item 8 of this form 10-k. overview we are a clinical stage biotechnology company focused on the discovery , development and commercialization of novel antibodies for the potential treatment of diseases that involve protein misfolding or cell adhesion . we focus on therapeutic monoclonal antibodies directed specifically to disease causing proteins . our antibody-based product candidates target a number of potential indications including al and aa forms of amyloidosis ( neod001 ) , parkinson 's disease and related synucleinopathies ( prx002 ) and novel cell adhesion targets involved in inflammatory diseases and cancers ( prx003 ) . we initiated a phase 1 clinical trial for neod001 , with the first successful patient dosing in april 2013. the phase 1 clinical trial of neod001 is evaluating its safety and tolerability in patients with al amyloidosis . we also plan to initiate phase 1 clinical trials for prx002 and prx003 in 2014 and 2015 , respectively . our strategy is to identify antibody candidates for clinical development and commercialization by applying our extensive expertise in generating novel therapeutic antibodies and working with collaborators having expertise in specific animal models of disease . we are a public limited company formed under the laws of ireland . we separated from elan corporation limited ( formerly elan corporation , plc ) , or elan , which subsequently became a wholly owned subsidiary of perrigo company plc , or perrigo , on december 20 , 2012. our ordinary shares began trading on the nasdaq global market under the symbol “ prta ” on december 21 , 2012 and currently trade on the nasdaq global select market . our business consists of a substantial portion of elan 's former drug discovery business platform , including neotope biosciences limited and its wholly owned subsidiaries onclave therapeutics limited and prothena biosciences inc ( which for the period prior to separation and distribution we refer to herein as the “ prothena business ” ) . prior to december 21 , 2012 , the prothena business operated as part of elan and not as a separate stand-alone entity . our financial statements for the periods prior to december 21 , 2012 have been derived from elan 's historical accounting records and reflect significant allocations of direct costs and expenses . all of the allocations and estimates in these financial statements are based on assumptions that we believe are reasonable . story_separator_special_tag prior to the separation and distribution on december 20 , 2012 , centralized support costs were allocated to us for the purposes of preparing the consolidated financial statements based on our estimated usage of the resources . our estimated usage of the centralized support resources was determined by estimating our portion of the most appropriate driver for each category of centralized support costs such as headcount or labor hours , depending on the nature of the costs . we believe that such allocations were made on a reasonable basis , but may not necessarily be indicative of the costs that would have been incurred if we had operated on a standalone basis . for additional information regarding the basis of preparation , refer to note 2 of the “ notes to the consolidated financial statements ” included in item 8 of this report . critical accounting policies and estimates management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states ( `` u.s. gaap '' ) . the preparation of these consolidated financial statements requires us to make estimates and assumptions for the reported amounts of assets , liabilities , revenues , expenses and related disclosures . we believe the following policies to be critical to the judgments and estimates used in the preparation of our financial statements . carve-out of the results of operations , financial condition and cash flows of the prothena business prior to december 21 , 2012 , the prothena business operated as part of elan and not as a separate stand-alone entity . our consolidated financial statements for the periods prior to december 21 , 2012 have been prepared on a “ carve-out ” basis from the consolidated financial statements of elan to represent the financial position and performance of prothena as if we had existed on 40 a stand-alone basis during those periods , and as if financial accounting standards board , or fasb , accounting standard codification , or asc , topic 810 , “ consolidation , ” or asc 810 , had been applied throughout . the consolidated financial statements have been prepared in conformity with u.s. gaap , by aggregating financial information from the components of prothena described in note 2 to the consolidated financial statements . the accompanying consolidated financial statements include allocations of direct costs and indirect costs attributable to our operations for the periods prior to december 21 , 2012. indirect costs relate to certain support functions that were provided on a centralized basis within elan . the support functions provided to us by elan included , but were not limited to : accounting , information technology , taxation , legal , corporate strategy , investor relations , corporate governance and other professional services , employee benefit administration , including equity award and pension services , and cash and treasury management . central support costs of our business for the years ended december 31 , 2012 and 2011 were $ 7.7 million and $ 4.0 million , respectively . these costs have been allocated to us for the purposes of preparing the consolidated financial statements based on our estimated usage of the resources . our estimated usage of the central support resources was determined by estimating our portion of the most appropriate driver for each category of central support costs such as headcount or labor hours , depending on the nature of the costs . we believe that such allocations have been made on a reasonable basis , but may not necessarily be indicative of the costs that would have been incurred if we had operated on a standalone basis . share-based compensation we account for our share-based compensation in accordance with the fair value recognition provisions of current authoritative guidance . share-based awards , including stock options , are measured at fair value as of the grant date and recognized to expense over the requisite service period ( generally the vesting period ) , which we have elected to amortize on a straight-line basis . since share-based compensation expense is based on awards ultimately expected to vest , it has been reduced by an estimate for future forfeitures . we estimate forfeitures at the time of grant and revise our estimate , if necessary , in subsequent periods . we estimate the fair value of options granted using the black-scholes option valuation model . significant judgment is required in determining the proper assumptions used in these models . the assumptions used include the risk free interest rate , expected term , expected volatility and expected dividend yield . we base our assumptions on historical data when available or when not available , on a peer group of companies . however , these assumptions consist of estimates of future market conditions , which are inherently uncertain , and therefore subject to our judgment and therefore any changes in assumptions could significantly impact the future grant date fair value of share-based awards . total share-based compensation expense for the years ended december 31 , 2013 , 2012 , and 2011 was $ 3.1 million , $ 7.5 million and $ 3.6 million , respectively . the expense for periods prior to december 21 , 2012 was allocated to us based on awards from elan equity plans granted to elan employees who have , directly or indirectly , provided services to prothena . share-based compensation expense for restricted stock units was measured based on the closing fair market value of elan 's ordinary shares on the date of grant . we did not recognize any expense after december 20 , 2012 in relation to the existing elan equity-based awards as our employees were not required to provide service after the separation and distribution in order to receive the benefits of the awards .
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results of operations comparison of years ended december 31 , 2013 , 2012 and 2011 revenue replace_table_token_3_th revenue for the years ended december 31 , 2013 , 2012 , and 2011 was comprised of fees earned from the provision of research and development services to elan . total revenues decreased by $ 2.0 million , or 75 % , during the year ended december 31 , 2013 compared to the prior year due to a reduction in the scope of the r & d services provided to elan . total revenues increased by $ 2.2 million , or 424 % , from 2011 to 2012 , primarily by an expansion of the scope of the r & d services provided to elan . we expect our revenue to increase in 2014 as a result of the license agreement with roche . we received a one-time , non-refundable , non-creditable payment of $ 30.0 million from roche in february 2014 . we are also eligible to receive a $ 15.0 million payment upon achievement of a near-term clinical milestone , which we expect to occur in 2014. we also expect to receive reimbursement for certain full time employees ( fte ) for research services which we will record as collaboration revenue in the income statement as earned . operating expenses replace_table_token_4_th total operating expenses consist of research and development , or r & d expenses and general and administrative , or g & a , expenses . our operating expenses for the years ended december 31 , 2013 , 2012 and 2011 were $ 41.1 million , $ 44.1 million and $ 29.8 million , respectively . our r & d expenses primarily consist of personnel costs and related expenses including share-based compensation , external costs associated with preclinical activities and regulatory operations related to our drug programs , including neod001 , prx002 , prx003 and our discovery programs , and costs of providing research services to elan 's elnd005 program .
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actual results may differ substantially and adversely from those referred to herein due to a number of factors , including but not limited to those described below and in “ item 1a - risk factors ” and elsewhere in this annual report . overview we design and manufacture semiconductor products for telecommunications ( “ telecom ” ) , industrial and defense ( “ i & d ” ) and data center applications . headquartered in lowell , massachusetts , we have more than 70 years of application expertise , with silicon , gallium arsenide ( “ gaas ” ) and indium phosphide ( “ inp ” ) fabrication , manufacturing , assembly and test , and operational facilities throughout north america , europe and asia . we design , develop and manufacture differentiated , high-value products for customers 26 who demand high performance , quality and reliability . we offer a broad portfolio of thousands of standard and custom devices , which include integrated circuits ( “ ic ” ) , multi-chip modules ( “ mcm ” ) , diodes , amplifiers , switches and switch limiters , passive and active components and complete subsystems , across dozens of product lines serving over 6,000 end customers in three primary markets . our semiconductor products are electronic components that our customers generally incorporate into larger electronic systems , such as , wireless basestations , high capacity optical networks , radar , medical systems and test and measurement . our primary markets are : ( 1 ) telecom , which includes carrier infrastructure such as long-haul/metro , 5g and fttx/pon , among others ; ( 2 ) i & d , which includes military and commercial radar , rf jammers , electronic countermeasures , communication data links , satellite communications and multi-market applications , which include industrial , medical , test and measurement and scientific applications ; and ( 3 ) data center , enabled by our broad portfolio of analog ics and photonic components for high speed optical module customers . see “ item 1 - business ” for additional information . basis of presentation we have one reportable operating segment and all intercompany balances have been eliminated in consolidation . we have a 52 or 53-week fiscal year ending on the friday closest to the last day of september . fiscal year 2020 included 53 weeks and fiscal years 2019 and 2018 each consisted of 52 weeks . to offset the effect of holidays , for fiscal years in which there are 53 weeks , we typically include the extra week in the first quarter of our fiscal year . our first quarter of fiscal year 2020 , ended january 3 , 2020 , included 14 weeks . description of our revenue revenue . our revenue is derived from sales of high-performance rf , microwave , millimeter wave , optical and photonic semiconductor products . we design , integrate , manufacture and package differentiated , semiconductor-based products that we sell to customers through our direct sales organization , our network of independent sales representatives and our distributors . we believe the primary drivers of our future revenue growth will include : continued growth in the demand for high-performance analog , digital and optical semiconductors in our three primary markets ; introducing new products using advanced technologies , added features , higher levels of integration and improved performance ; increasing content of our semiconductor solutions in customers ' systems through cross-selling our product lines ; leveraging our core strength and leadership position in standard , catalog products that service all of our end applications ; and engaging early with our lead customers to develop custom and standard products . our core strategy is to develop and innovate high-performance products that address our customers ' most difficult technical challenges in our primary markets : telecom , i & d and data center . we expect our revenue in the telecom market to be driven by 5g deployments , with continued upgrades and expansion of communications equipment , and increasing adoption of our high-performance rf , millimeter wave , optical and photonic components . we expect our revenue in the i & d market to be driven by the expanding product portfolio that we offer which services applications such as test and measurement , satellite communications , civil and military radar , industrial , scientific and medical applications , further supported by growth in applications for our multi-market catalog products . we expect our revenue in the data center market to be driven by the adoption of cloud-based services and the upgrade of data center architectures , to 100g , 200g , 400g and 800g interconnects , which we expect will drive adoption of higher speed optical and photonic components . covid-19 impact see “ item 1 - business. ” for additional information on risk factors that could impact our future results , please refer to “ item 1a - risk factors ” in this annual report . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements . the preparation of financial statements , in conformity with generally accepted accounting principles ( “ gaap ” ) in the u.s. , requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period . by their nature , these estimates and judgments are subject to an inherent degree of uncertainty and could be material 27 if our actual or expected experience were to change unexpectedly . on an ongoing basis , we re-evaluate our estimates and judgments . due to the covid-19 pandemic , there has been uncertainty and disruption in the global economy and financial markets . story_separator_special_tag we recognize potential liabilities for anticipated tax audit issues in the united states and other tax jurisdictions based on our estimate of whether , and the extent to which , additional taxes and interest will be due . we record an amount as an estimate of probable additional income tax liability at the largest amount that we feel is more likely than not , based upon the technical merits of the position , to be sustained upon audit by the relevant tax authority . historically , we have not experienced material differences in our estimates and actual results . for additional information related to these and other accounting policies refer to note 2 - summary of significant accounting policies to our consolidated financial statements included in this annual report which is incorporated by reference herein . story_separator_special_tag or 0.9 % of revenue , compared to a benefit of $ 39.4 million , or 7.9 % of revenue , for fiscal year 2019. the change in the provision is primarily due to recognition of current and deferred income tax effects totaling $ 39.8 million during fiscal year 2019 , from an intra-entity transfer of a license for intellectual property between foreign tax jurisdictions that received a tax basis step-up , with no similar benefit during fiscal year 2020. the difference between the u.s. federal income tax rate of 21 % and our effective income tax rate of ( 10.9 ) % for fiscal year 2020 was primarily driven by the continuation of a full valuation allowance against any benefit associated with u.s. losses and income taxed in foreign jurisdictions at generally lower tax rates . for fiscal year 2019 , our effective income tax rate of 9.3 % was primarily impacted by the reduction of our nols from section 382 limitations , the immediate recognition of the current and deferred income tax effects of an intra-entity transfer of a license for intellectual property and the valuation allowance against our u.s. deferred tax assets . comparison of fiscal year ended september 27 , 2019 to fiscal year ended september 28 , 2018 revenue . in fiscal year 2019 , our revenue decreased by $ 70.7 million , or 12.4 % , to $ 499.7 million from $ 570.4 million for fiscal year 2018. revenue from our primary markets , the percentage of change between the years and revenue by primary markets expressed as a percentage of total revenue were ( in thousands , except percentages ) : replace_table_token_7_th in fiscal year 2019 , our telecom market revenue decreased by $ 42.0 million , or 18.8 % , compared to fiscal year 2018. the decrease was primarily due to the full year effect of our may 2018 sale of the japan-based long-range optical subassembly business ( the “ lr4 business ” ) , lower sales of carrier-based optical semiconductor products to our asia customer base , as well as lower sales of products targeting fiber to the home applications . in fiscal year 2019 , our i & d market revenues increased by $ 19.3 million , or 10.4 % , compared to fiscal year 2018. the increase was related to higher revenue from sales across the product portfolio . in fiscal year 2019 , our data center market revenue decreased by $ 48.0 million , or 29.6 % , compared to fiscal year 2018. the decrease was primarily due to lower revenue related to sales of legacy optical products and lasers , partially offset by the recognition of $ 7.0 million of licensing revenue during the fiscal year ended september 27 , 2019. gross profit . in fiscal year 2019 , our gross profit decreased by $ 25.0 million , or 10.2 % , compared to fiscal year 2018. gross margin of 44.2 % in fiscal year 2019 decreased 110 basis points , compared to fiscal year 2018. gross profit during 2019 was primarily impacted by lower fiscal year 2019 revenue , lower gross profit as a result of the may 2018 sale of the lr4 business and higher inventory reserves primarily associated with data center products , partially offset by the recognition of $ 7.0 million of licensing revenue during fiscal year 2019. research and development . in fiscal year 2019 , research and development expense decreased by $ 14.2 million , or 8.0 % , to $ 163.5 million representing 32.7 % of revenue , compared with $ 177.7 million , representing 31.2 % of revenue in fiscal year 2018. research and development expense decreased in the 2019 period primarily as a result of lower compensation-related costs , lower share-based compensation , as well the closure of certain design facilities associated with restructuring actions . research and development expense increased as a percentage of revenue due to the decrease in net revenue during fiscal year 2019. selling , general and administrative . in fiscal year 2019 , selling , general and administrative expenses decreased by $ 8.4 million , or 5.2 % , to $ 153.3 million , or 30.7 % of revenue , compared with $ 161.7 million , or 28.3 % of revenue , for fiscal year 2018. selling , general and administrative expenses decreased in the fiscal year 2019 period primarily due to lower share-based compensation , lower amortization expense , and lower other compensation-related costs as a result of restructuring actions . selling , general and administrative expense increased as a percentage of revenue due to the decrease in net revenue during fiscal year 2019. impairment charges . in fiscal year 2019 impairment charges were $ 264.8 million , or 53.0 % of revenue , primarily related to the $ 257.0 million impairment of intangible assets , as well as the impairment of $ 7.1 million impairment of equipment from construction 32 in process that will not be placed in service . see note 16 - impairments to the consolidated financial statements included in this annual report for additional information . restructuring charges .
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results of operations as discussed in note 22 - divested businesses and discontinued operations to our consolidated financial statements included in this annual report , we have adjusted certain amounts associated with discontinued operations in our results of operations , cash flows and assets and liabilities for all periods presented . the following table sets forth , for the periods indicated , our statements of operations data ( in thousands ) : replace_table_token_3_th ( 1 ) includes ( a ) amortization expense related to intangible assets arising from acquisitions and ( b ) share-based compensation expense included in our consolidated statements of operations as set forth below ( in thousands ) : replace_table_token_4_th 29 ( 2 ) impairment charges in fiscal year 2019 include $ 264.8 million for impairment of customer relationship and acquired technology intangible assets as well as equipment . in fiscal year 2018 , impairment charges include $ 6.6 million related to abandoned property and equipment and other assets . additionally , cost of revenue includes inventory charges of $ 17.2 million associated with certain production and product line exits during fiscal year 2018. see note 16 - impairments to the consolidated financial statements included in this annual report for additional information . ( 3 ) see note 14 - restructurings , to the consolidated financial statements included in this annual report for additional information . ( 4 ) represents changes in the fair value of common stock warrants recorded as liabilities and adjusted each reporting period to fair value . see note 20 - stockholders ' equity to the consolidated financial statements included in this annual report for additional information regarding the common stock warrants . ( 5 ) see note 22 - divested business and discontinued operations to the consolidated financial statements included in this annual report for additional information .
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” introduction we are a global semiconductor company primarily offering : ( i ) x86 microprocessors , as a standalone central processing unit ( cpu ) or as incorporated into an accelerated processing unit ( apu ) , chipsets , and discrete graphics processing units ( gpus ) for the consumer , commercial and professional graphics markets ; and ( ii ) server and embedded cpus , gpus and apus , and semi-custom system-on-chip ( soc ) products and technology for game consoles . in this md & a , we will describe the results of operations and the financial condition for us and our consolidated subsidiaries , including a discussion of our results of operations for 2015 compared to 2014 and 2014 compared to 2013 , an analysis of changes in our financial condition and a discussion of our contractual obligations and off balance sheet arrangements . overview we faced a challenging business environment in 2015. the impact of global macro-economic conditions , especially the volatility in the greater china region contributed to a decrease in demand for our products . additionally , competitive pressures contributed to an overall challenging year . we also experienced reduced demand from our original equipment manufacturers ( “ oem ” ) customers in advance of the launch of microsoft windows® 10. net revenue for 2015 was approximately $ 4.0 billion , a decrease of 28 % compared to 2014 net revenue of $ 5.5 billion . the decrease in net revenue from 2014 was due to a 42 % decrease in computing and graphics segment revenue and an 8 % decrease in enterprise , embedded and semi-custom segment revenue . computing and graphics segment revenue declined year-over-year primarily due to lower client processor sales . enterprise , embedded and semi-custom segment revenue declined year-over-year primarily due to lower server and embedded revenue and lower game console royalties , partially offset by higher semi-custom soc sales . gross margin , as a percentage of net revenue for 2015 , was 27 % compared to 33 % in 2014. gross margin in 2015 was adversely impacted by an inventory write-down of $ 65 million , which was primarily the result of lower anticipated demand for older-generation apus and a technology node transition charge of $ 33 million . the impact of the write-down accounted for approximately two gross margin percentage points and the technology node transition charge accounted for approximately one gross margin percentage point . gross margin in 2015 was also adversely impacted by a lower proportion of revenue from computing and graphics segment due to lower sales which has a higher average gross margin than our enterprise , embedded and semi-custom segment and due to lower game console royalties . gross margin in 2014 included a $ 58 million lower of cost or market inventory adjustment , which accounted for one gross margin percentage point , and a $ 27 million benefit from technology licensing revenue , which accounted for less than one gross margin percentage point . operating loss for 2015 was $ 481 million compared to an operating loss of $ 155 million in 2014. the decline in operating performance in 2015 compared to 2014 was primarily due to a decrease in net revenue and in gross margin as described above . despite the challenging business environment , we made important changes to our business . during 2015 , we continued to focus on introducing a more diverse product portfolio . as part of our long-term strategy to deliver great products , we introduced a number of new products in 2015 including , our 6 th generation amd a-series mobile processors ( formerly codenamed “ carrizo ” ) in a soc design and introduced a desktop a-series processor , the amd a10-7870k apu . we also introduced the a8-7670k apu designed to support windows® 10 , mainstream workloads and online gaming . with respect to our graphics products , we introduced the new amd radeon r9 fury x and r9 fury graphics , the amd radeon r7 300 and r9 300 series graphics as well as the amd radeon m300 series graphics to reinforce our graphics leadership in both power efficiency for notebooks and best-in class performance for desktops . we also expanded our amd firepro server gpu family by introducing the amd firepro s9170 , designed for high performance compute ( hpc ) environments . the amd firepro s9170 is based on second-generation amd graphics core next ( gcn ) gpu architecture and a unified scalable gpu optimized for graphics and compute . we announced the amd firepro w4300 graphics card designed for computer-aided design ( cad ) for both small and full-size workstations . we also launched the amd radeon r9 nano , a small-form-factor mini-itx enthusiast graphics card designed to deliver energy efficiency and performance for ultra-high resolutions , improved virtual reality experiences and smoother gameplay . with respect 34 to our embedded products , we introduced the amd embedded r-series soc processor designed for digital signage , retail signage , medical imaging , electronic gaming , media storage and communications and networking . during 2015 , we continued to focus on reducing our expenses . our operating expenses in 2015 decreased to $ 1.56 billion , from $ 1.99 billion in 2014. our operating expenses in 2014 included a goodwill impairment charge of $ 233 million . we also took steps to simplify our business and better align resources around our priorities and business outlook . in the third quarter of 2015 , we implemented a restructuring plan ( 2015 restructuring plan ) . the 2015 restructuring plan provides for a workforce reduction of approximately 5 % and includes organizational actions such as outsourcing certain it services and application development . the 2015 restructuring plan also anticipates a charge for the consolidation of certain real estate facilities . story_separator_special_tag pursuant to the third amendment , we modified our wafer purchase commitments for the fourth quarter of 2012 made pursuant to the second amendment to the wsa . in addition , we agreed to certain pricing and other terms of the wsa applicable to wafers for our microprocessor and apu products , to be delivered by gf to us from the fourth quarter of 2012 through december 31 , 2013. pursuant to the third amendment , gf agreed to waive a portion of our wafer purchase commitments for the fourth quarter of 2012. in consideration for this waiver , we agreed to pay gf a fee of $ 320 million . as a result , we recorded a lower of cost or market charge of $ 273 million for the write-down of inventory to its market value in the fourth quarter of 2012. the cash impact of this $ 320 million fee was paid over several quarters , with $ 80 million paid on december 28 , 2012 , $ 40 million paid on april 1 , 2013 and $ 200 million paid on december 31 , 2013. fourth amendment to wafer supply agreement . on march 30 , 2014 , we entered into a fourth amendment to the wsa . the primary effect of the fourth amendment was to establish volume purchase commitments and fixed pricing for the 2014 calendar year as well as to modify certain other terms of the wsa applicable to wafers for some of our microprocessor , graphics processor and semi-custom game console products to be delivered by gf to us during the 2014 calendar year . fifth amendment to wafer supply agreement . on april 16 , 2015 , we entered into a fifth amendment to the wsa . the primary effect of the fifth amendment was to establish volume purchase commitments and fixed pricing for the 2015 calendar year as well as to modify certain other terms of the wsa applicable to wafers for some of our microprocessor unit , graphics processor unit and semi-custom products to be delivered by gf to us during the 2015 calendar year . as of december 26 , 2015 , certain wafer deliveries under the fifth amendment to the wsa have been delayed until fiscal 2016. as of december 26 , 2015 , purchase obligations for fiscal 2016 were approximately $ 248 million , of which approximately $ 185 million , consisting of wafers and research and development activities , were received by december 31 , 2015. we generally negotiate our purchase commitments with gf on an annual basis and as such we can not meaningfully quantify or estimate our future purchase obligations to gf . we are currently in the process of negotiating a sixth amendment to the wsa , and we expect that our future purchases from gf will continue to be material . our total purchases from gf related to wafer manufacturing and research and development activities were approximately $ 0.9 billion for 2015 and approximately $ 1 billion for each 2014 and 2013 , respectively . equity interest purchase agreement on october 15 , 2015 , we entered into an equity interest purchase agreement ( the equity interest purchase agreement ) with nantong fujitsu microelectronics co. , ltd. , a chinese joint stock company ( jv party ) , under which we will sell to jv party a majority of the equity interests in amd technologies ( china ) co. ltd. , a wholly-foreign owned enterprise incorporated as a limited liability company ( the chinese target company ) , and advanced micro devices export sdn . bhd. , a malaysian limited liability company ( the malaysian target company and , together with the chinese target company , the target companies ) , thereby forming two joint ventures ( collectively , the jvs ) with jv party in a transaction valued at approximately $ 436 million ( the transaction ) . the jv party will acquire 85 % of the equity interests in each jv for approximately $ 371 million and we estimate we will receive approximately $ 320 million cash , net of taxes and other customary expenses . after closing , jv party 's affiliates will own 85 % of the equity interests in each jv while certain of our subsidiaries will own the remaining 15 % . the transaction will result in the jvs providing assembly , testing , marking , packing and packaging services ( atmp ) to us . we plan to account for our investment in the jvs under the equity method of accounting . the equity interest purchase agreement also has related agreements including : ( i ) with respect to the malaysian target company , a shareholders ' agreement , and with respect to the chinese target company , a joint venture contract governing the joint venture relationships from and after the closing , ( ii ) an ip license agreement , ( iii ) a manufacturing services agreement , ( iv ) a transition services agreement , and ( v ) a trademark license agreement . 36 the transaction is expected to close in the first half of 2016 , pending all regulatory and other approvals . as a result of the decision to form the above jvs , the balance sheet as of december 26 , 2015 , reflects held-for-sale accounting of the atmp assets and liabilities which requires reclassification of such financial amounts to current assets and current liabilities . we reclassified $ 183 million to other current assets and $ 79 million to other current liabilities . asset balances reclassified into other current assets primarily consist of property , plant , and equipment of $ 110 million , goodwill of $ 42 million and inventory of $ 15 million . liability balances reclassified into other current liabilities primarily consist of accounts payable of $ 70 million . the balances included in the final gain/ ( loss ) calculation , at closing , are likely to be different due to normal operational activities occurring through the closing date .
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results of operations management , including the chief operating decision maker , who is our chief executive officer , reviews and assesses our operating performance using segment net revenue and operating income ( loss ) before interest , other income ( expense ) , net and income taxes . these performance measures include the allocation of expenses to the operating segments based on management 's judgment . in connection with our continued strategic transformation , effective july 1 , 2014 , we realigned our organizational structure . as a result of this organizational change , we have the following two reportable segments : the computing and graphics segment , which primarily includes desktop and notebook processors and chipsets , discrete gpus and professional graphics ; and the enterprise , embedded and semi-custom segment , which primarily includes server and embedded processors , semi-custom soc products , engineering services and royalties . in addition to these reportable segments , we have an all other category , which is not a reportable segment . this category primarily includes certain expenses and credits that are not allocated to any of the reportable segments because management does 38 not consider these expenses and credits in evaluating the performance of the reportable segments . also included in this category are amortization of acquired intangible assets , employee stock-based compensation expense , restructuring and other special charges , net , technology node transition charge , workforce rebalancing severance charges , goodwill impairment charge , significant or unusual lower of cost or market inventory adjustments and a net gain from licenses and settlement agreements regarding patent-related matters . we also reported the results of former businesses in the all other category because the operating results were not material .
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because the company 's investment portfolio may include securities that do not always trade on a daily basis , the pricing services use many observable market inputs to determine value including reportable trades , benchmark yields and benchmarking of like securities . the company validates the prices provided by the third-party pricing services by reviewing their pricing methods and obtaining market values from other pricing sources . after completing the validation procedures , the company did not adjust or override any fair value measurements provided by these pricing services as of december 31 , 2020 and december 31 , 2019. the $ 14,977 fair values of the series a and series b warrant liability at december 31 , 2019 was determined using the black-scholes valuation model . the expected volatility and the risk free discount rate used in the black-scholes model were determined based on the company 's historical market price published by the nasdaq capital market and from published u.s. treasury yield curves , respectively , for story_separator_special_tag the following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto included in this annual report on form 10-k. all dollar amounts are stated in thousands . on january 15 , 2020 , the company effected a 1-for-40 reverse stock split of its common stock . unless otherwise indicated , all share amounts , per share data , share prices , and conversion rates set forth in these notes and the accompanying financial statements have , where applicable , been adjusted to reflect this reverse stock split . overview yield10 bioscience , inc. is an agricultural bioscience company that is using its differentiated trait gene discovery platform , which we refer to as the `` trait factory '' , to develop improved camelina varieties to produce proprietary products , and to produce other high value seed traits for the agriculture and food industries . yield10 is headquartered in woburn , massachusetts and has an oilseed center of excellence in saskatoon , saskatchewan , canada . our goals are to efficiently develop and commercialize a high value crop products business based on developing superior varieties of camelina for the production of feedstock oils , nutritional oils , and pha bioplastics , and to license our yield traits to major seed companies for commercialization in commercial row crops , including corn , soybean and canola . government grants on may 20 , 2020 , metabolix oilseeds , inc. ( “ moi ” ) , the company 's wholly-owned canadian research subsidiary , received a research grant through the industrial research assistance program ( `` irap '' ) administered by national research council canada ( `` nrc '' ) . the objective of the grant was to provide financial research assistance to innovative , early-stage small and medium-sized enterprises . under the terms of the agreement , nrc agreed to contribute up to a maximum of $ 67 for payroll costs incurred by moi during the period april - june , 2020. during the second quarter of 2020 , moi submitted claims for eligible payroll costs and recognized grant revenue for the full amount of the award . on december 3 , 2020 , moi received a second irap funded research grant with a similar objective of providing financial research assistance . under the terms of this second grant , nrc agreed to contribute up to a maximum of $ 86 for payroll costs incurred by moi during the 45 period july - december , 2020. the full amount of the grant was recognized as grant revenue during the fourth quarter and is recorded as accounts receivable in the company 's consolidated balance sheet at december 31 , 2020. during 2018 we entered into a sub-award with michigan state university ( `` msu '' ) to support a department of energy ( `` doe '' ) funded grant entitled `` a systems approach to increasing carbon flux to seed oil. `` our participation under this projected five-year grant is awarded incrementally on an annual basis with the first year commencing september 15 , 2017. cumulative funding for this sub-award in the amount of $ 2,403 has been appropriated by the u.s. congress through the fourth contractual year ending in september 2021. during 2021 , we anticipate that the final option year ending on september 14 , 2022 will be awarded to yield10 , resulting in aggregate total sub-award funding of $ 2,957 , provided the u.s. congress continues to appropriate funds for the program , we are able to make progress towards meeting grant objectives and we remain in compliance with other terms and conditions of the sub-award . as of december 31 , 2020 , proceeds of $ 531 remain to be earned from the msu sub-award amounts awarded to date . this includes amounts for reimbursement to our subcontractors , as well as reimbursement for our employees ' time , benefits and other expenses related to future performance . program title funding agency total government funds total revenue recognized through december 31 , 2020 remaining amount to be recognized as of december 31 , 2020 contract/grant expiration subcontract from michigan state university project funded by doe entitled `` a systems approach to increasing carbon flux to seed oil '' department of energy $ 2,403 $ 1,872 $ 531 september 15 , 2021 funding from national research council canada through its industrial research assistance program ( nrc-irap ) entitled `` innovation assistance program '' national research council canada 67 67 — june 24 , 2020 funding from national research council canada through its industrial research assistance program ( nrc-irap ) entitled `` innovation assistance program '' national research council canada 86 86 — december 19 , 2020 total $ 2,556 $ 2,025 $ 531 critical accounting estimates and judgments our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states of america . story_separator_special_tag we primarily followed the guidance of asc 480 , distinguishing liabilities from equity , and asc 815 , derivatives and hedging , in reaching conclusions that the series a convertible preferred stock , the series b convertible preferred stock and the warrants issued in the offering should be recorded in permanent equity , temporary equity and liabilities , respectively , in our consolidated balance sheet as of december 31 , 2019 , included herein . we also applied applicable accounting guidance in order to calculate the fair value of the warrants sold in the offerings and determined that the black-scholes fair value of the liability classified warrants exceeded the proceeds received in the offering . this resulted in a charge of $ 13,018 to other income ( expense ) on the date of issuance . at december 31 , 2019 , we completed a mark-to-market revaluation of the warrants and recorded a gain of $ 9,541 within other income ( expense ) for the 47 year ended december 31 , 2019. the company re-measured the fair value of the warrants again on january 15 , 2020 following the effective time of the 1-for-40 reverse stock split , resulting in the recognition of a loss of $ 957. as a result of the 1-for-40 reverse stock split , sufficient shares of authorized , but unissued shares of common stock became available for series a and series b warrant holders to exercise their warrants resulting in their reclassification from warrant liability to equity in the company 's consolidated balance sheet . see note 9 to the consolidated financial statements for further discussion on the november 2019 securities offerings . comparison of the years ended december 31 , 2020 and 2019 revenue replace_table_token_1_th total grant revenue was $ 799 and $ 806 for the years ended december 31 , 2020 and 2019 , respectively . grant revenue for each of the years was derived primarily from the company 's doe sub-award with michigan state university . during the year ended december 31 , 2020 , $ 153 in grant revenue was also recognized from two research support grants awarded by national research council canada to our subsidiary metabolix oilseeds , inc. we anticipate that msu grant revenue will fluctuate slightly over the next twelve months as a result of varying annual budget appropriations awarded under the msu sub-award and our application of company resources to the grant . our forecast related to grant revenue is subject to change , should we receive new grants or if our ability to earn revenue from our existing grant is negatively impacted by the covid-19 pandemic . expenses replace_table_token_2_th research and development expenses research and development expense increased by $ 513 , or 11 % , to $ 5,361 during the year ended december 31 , 2020 , from $ 4,848 recorded during the year ended december 31 , 2019. the 2020 variance is partially the result of a $ 146 increase in employee compensation and benefits and a $ 146 increase in camelina and canola field trial costs for plant trials conducted in the u.s. and canada to further evaluate our traits under development . facility expense also increased by $ 128 during the year ended december 31 , 2020 , primarily as a result of higher landlord maintenance costs associated with our woburn , massachusetts headquarters . early in 2020 , we returned 7,409 square feet of underutilized space in our woburn facility to the landlord for the remaining term of the lease . as a result of this lease modification , we wrote off $ 141 in leasehold improvements and office furniture previously used to support our research and development activities which also contributed to the increase in expense during the year ended december 31 , 2020. based on our current planning and budgeting , we anticipate that research and development expense will increase over the next twelve months as we continue to expand our plant field trials and continue to prepare our camelina germplasm for future commercial launch . our forecasts related to research and development expense are subject to change due to the potential impact of the covid-19 pandemic , or as new collaborative and other business opportunities arise that alter our plans . 48 story_separator_special_tag roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % '' > investments are made in accordance with our corporate investment policy , as approved by our board of directors . the primary objective of this policy is to preserve principal , and consequently , investments are limited to high quality corporate debt , u.s. treasury bills and notes , money market funds , bank debt obligations , municipal debt obligations and asset-backed securities . the policy establishes maturity limits , concentration limits , and liquidity requirements . as of december 31 , 2020 , we were in compliance with this policy . subsequent to year-end , on february 3 , 2021 , we raised $ 11,996 , net of estimated offering costs of $ 744 , through the public sale of 1,040,000 shares of common stock at an issuance price of $ 12.25. these shares were offered by us pursuant to a registration statement on form s-3 ( file no . 333-237539 ) ( `` shelf registration '' ) , as initially filed with the sec on april 1 , 2020 and declared effective on april 10 , 2020. during august 2020 , we completed a public offering of 951,835 shares of our common stock at a public offering price of $ 4.25 per share . gross proceeds from this offering totaled $ 4,045 before issuance costs of $ 425. these shares were also offered pursuant to the shelf registration .
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general and administrative expenses general and administrative expenses were $ 5,047 and $ 4,554 for the fiscal years ended december 31 , 2020 and december 31 , 2019 , respectively . the increase of $ 493 , or 11 % , was primarily due to increased employee compensation and benefits , professional fees and higher insurance premiums . employee compensation and benefits increased by $ 198 , from $ 1,826 during the year ended december 31 , 2019 to $ 2,024 during the year ended december 31 , 2020 , and was primarily a result of recording employee bonuses for 2020. stock compensation expense increased by $ 58 during the year ended december 31 , 2020 , as a result of stock option awards issued to employees during the year . professional fees increased by $ 239 , due to work performed by our outside legal and accounting firms in connection with securities registrations and corporate governance activities . during the year ended december 31 , 2020 , insurance expense increased by $ 81 as a result of higher director and officer ( `` d & o '' ) liability insurance premiums . higher d & o premiums are being assessed nationwide by insurance underwriters due to consecutive years of increased class action lawsuits and settlement claims . based on our current planning and budgeting , we anticipate that general and administrative expense will increase over the next twelve months as we add regulatory support and senior operations and business development resources to our company in connection with the future launch of our camelina products . our forecasts related to general and administrative expense are subject to change due to the potential impact of the covid-19 pandemic , or as new collaborative and other business opportunities arise that alter our plans .
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story_separator_special_tag any reference in this management 's discussion and analysis of financial condition and results of operations to our financial condition and results of operations prior to the business combination on march 11 , 2017 refer to the financial condition and results of operations of our predecessor , playa hotels & resorts b.v. overview we are a leading owner , operator , manager and developer of all-inclusive beachfront resorts in popular vacation destinations in mexico and the caribbean . we are currently the only publicly-traded company focusing exclusively on the all-inclusive segment of the lodging industry . we have a portfolio consisting of 13 resorts ( 6,130 rooms ) we own , which are located in mexico , the dominican republic and jamaica , and one resort ( 184 rooms ) we manage for a third party , which is located in the dominican republic . we believe that the resorts we own , as well as the resorts we manage , are among the finest all-inclusive resorts in the markets they serve . all of our resorts offer guests luxury accommodations , noteworthy architecture , extensive on-site activities and multiple food and beverage options . our guests also have the opportunity to purchase upgrades from us such as premium rooms , dining experiences , wines and spirits and spa packages . for the year ended december 31 , 2017 , we generated a net loss of $ 0.2 million , total revenue of $ 559.5 million and adjusted ebitda of $ 170.9 million , representing a decrease of 101.2 % , an increase of 7.3 % and an increase of 10.5 % over the year ended december 31 , 2016 , respectively . we believe that our resorts have a competitive advantage due to their location , extensive amenities , scale and guest-friendly design . our portfolio is comprised of all-inclusive resorts that share the following characteristics : ( i ) prime beachfront locations ; ( ii ) convenient air access from a number of north american and other international gateway markets ; ( iii ) strategic locations in popular vacation destinations in countries with strong government commitments to tourism ; ( iv ) high quality physical condition ; and ( v ) capacity for further revenues and earnings growth through incremental renovation or repositioning opportunities . we focus on the all-inclusive resort business because we believe it is a rapidly growing segment of the lodging industry that provides our guests and us with compelling value opportunities . our all-inclusive resorts provide guests with an attractive vacation experience that couples value and a high degree of cost certainty , as compared to traditional resorts , where the costs of discretionary food and beverage services and other amenities can be unpredictable and significant . we believe that the all-inclusive model provides us with more predictable occupancy rates , revenue and expenses as compared to other lodging industry business models because , among other reasons , guests at all-inclusive resorts often book and pay for their stays further in advance than guests at traditional 45 resorts . since stays are generally booked and paid for in advance , customers are less likely to cancel , which allows us to manage on-site expenses and manage operating margins accordingly . these characteristics of the all-inclusive model allow us to more accurately adjust certain operating costs in light of expected demand , as compared to other lodging industry business models . we also have the opportunity to generate incremental revenue by offering upgrades , premium services and amenities not included in the all-inclusive package . for the year ended december 31 , 2017 , approximately 58.8 % of our guests came from the united states ( with the balance coming from europe ( 14.4 % ) , canada ( 9.4 % ) and elsewhere ( 17.4 % ) ) . we believe that guests from the united states purchase upgrades , premium services and amenities that are not included in the all-inclusive package more frequently than guests from other markets . our portfolio consists of resorts marketed under a number of different all-inclusive brands . hyatt ziva , panama jack and dreams are all-ages brands . sanctuary , hyatt zilara , the royal and secrets are adults-only brands . we have also entered into an exclusive agreement with panama jack that provides us with the right to develop and own , and or manage all-inclusive resorts under the panama jack brand in antigua , aruba , the bahamas , barbados , costa rica , the dominican republic , jamaica , mexico , panama , st. lucia and , subject to the lifting of various u.s. sanctions , cuba . we have rebranded two of our resorts under the panama jack brand , which both opened under the new brand in december 2017. we believe that these brands enable us to differentiate our resorts and attract a loyal guest base . we have a strategic relationship with hyatt , a global lodging company with widely recognized brands , pursuant to which we jointly developed the standards for the operation of the hyatt all-inclusive resort brands . we currently are the only hyatt-approved operator of the hyatt all-inclusive resort brands and we have rebranded five of our resorts under the hyatt all-inclusive resort brands since 2013. refer to “ item 1. business ” for a description of our contractual agreements with hyatt . in addition to creating potential future opportunities to expand our business , we believe that our strategic relationship with hyatt will further establish us as a leader in the all-inclusive resort business by providing our hyatt all-inclusive resort brand resorts access to hyatt 's distribution channels and guest base that includes leisure travelers . story_separator_special_tag during the year ended december 31 , 2016 , we recorded a gain of $ 0.3 million from net property damage insurance proceeds related to small claims at the dreams palm beach , dreams punta cana , and hyatt zilara cancun . interest expense our interest expense for the year ended december 31 , 2017 decreased $ 1.1 million , or 2.1 % , as compared to the year ended december 31 , 2016 . this decrease was due to the paydown of the senior unsecured notes issued by our predecessor on august 9 , 2013 , february 14 , 2014 , may 11 , 2015 and october 4 , 2016 ( the “ senior notes due 2020 '' ) in april and december 2017 . loss on extinguishment of debt the refinancings of our senior secured credit facility and the repayment of our senior notes due 2020 were accounted for as a partial modification and partial extinguishment of debt , which resulted in a lo ss on extinguishment of debt for the year ended december 31 , 2017 of $ 25.1 million . income tax provision the income tax provision for the year ended december 31 , 2017 was $ 9.1 million , an increase of $ 4.8 million compared to the year ended december 31 , 2016 , during which period we reported income tax expense of $ 4.2 million . the increased income tax provision was driven primarily by a $ 10.4 million increased tax expense associated with foreign exchange rate fluctuations , a $ 9.0 million increase on the valuation allowance and a $ 2.6 million increased tax expense on the measurement of the u.s. deferred tax assets pursuant to the u.s. tax rate change for tax years beginning after december 31 , 2017. the tax expense increase partially offset a $ 4.0 million decrease of tax expense on decreased pre-tax book income , a $ 1.4 million decreased tax expense associated with other book tax differences and a tax benefit of $ 4.6 million from the rate-favorable jurisdictions . the tax expense was further offset by a $ 7.8 million tax benefit on the reversal of the 2016 tax expense for one of our dominican republic entities pursuant to the advanced pricing agreement signed with dominican republic tax authorities in december 2017. this agreement is retroactive to 2016. adjusted ebitda our adjusted ebitda for the year ended december 31 , 2017 increased $ 16.2 million , or 10.5 % , compared to the year ended december 31 , 2016 . for discussions of adjusted ebitda and reconciliation to the most comparable u.s. gaap financial measures , see “ key indicators of financial and operating performance ” and “ non-u.s. gaap financial measures , ” below . 50 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > year ended december 31 , 2015 were $ 12.4 million and consisted of expenses incurred in connection with the renovations and expansions of hyatt ziva los cabos and hyatt ziva cancún . 54 depreciation and amortization expense our depreciation and amortization expense for the year ended december 31 , 2016 increased $ 6.6 million , or 14.4 % , compared to the year ended december 31 , 2015 . this increase was driven by the reopening of hyatt ziva los cabos and hyatt ziva cancún . gain on insurance proceeds we received $ 0.5 million of insurance proceeds during the year ended december 31 , 2016 , which represents proceeds related to small claims at dreams palm beach , dreams punta cana , and hyatt zilara cancun . we recognized a net gain of $ 0.3 million related to these small claims . we also received $ 27.7 million of insurance proceeds during the year ended december 31 , 2015 , which represents business interruption and property damage insurance related to hyatt ziva los cabos . the resort sustained significant damage when hurricane odile , a category 3 hurricane , made landfall on mexico 's baja peninsula on september 14 , 2014 . the resort underwent repairs and reopened on september 15 , 2015 . interest expense our interest expense for the year ended december 31 , 2016 increased $ 5.0 million , or 9.9 % , as compared to the year ended december 31 , 2015 . this increase was primarily attributable to the issuance of an additional $ 50.0 million of our senior notes due 2020 on october 4 , 2016. income tax provision the income tax provision for the year ended december 31 , 2016 was $ 4.2 million , an increase of $ 6.0 million compared to the year ended december 31 , 2015 , during which we reported an income tax benefit of $ 1.8 million . the increased income tax provision in the year ended december 31 , 2016 was driven primarily by $ 3.4 million of deferred income tax expense in the dominican republic , $ 4.1 million of additional tax expense on increased pre-tax book income , a $ 2.1 million increase on non-deductible expenses , a $ 2.2 million increased tax expense associated with other book tax differences and a $ 1.4 million decrease in tax benefit associated with foreign rate fluctuation . the net tax expense increase was partially offset by the $ 6.4 million decrease on valuation allowance , which was mainly due to the release of valuation allowance of two mexican entities . adjusted ebitda our adjusted ebitda for the year ended december 31 , 2016 increased $ 53.0 million , or 52.1 % , compared to the year ended december 31 , 2015 . this increase was a result of a $ 24.5 million increase in comparable adjusted ebitda , and a $ 28.5 million increase in adjusted ebitda attributable to our non-comparable resorts . for discussions of adjusted ebitda and comparable adjusted ebitda and reconciliations of these measures to the most comparable u.s. gaap financial measures , see `` key indicators of financial and operating performance `` and “ non-u.s. gaap financial measures .
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results of operations years ended december 31 , 2016 and 2015 the following table summarizes our results of operations on a consolidated basis for the years ended december 31 , 2016 and 2015 : replace_table_token_11_th the following tables set forth information with respect to our occupancy , net package adr , net package revpar , net package revenue , net non-package revenue , total net revenue and adjusted ebitda ( as defined below ) for the years ended december 31 , 2016 and 2015 for both our total portfolio and comparable portfolio . for a description of these operating metrics and non-u.s. gaap measures and a reconciliation of net package revenue , net non-package revenue and total net revenue to total revenue as computed under u.s. gaap , see “ key indicators of financial and operating performance , ” below . for discussions of adjusted ebitda and comparable adjusted ebitda and reconciliations of these measures to the most comparable u.s. gaap financial measures , see “ non-u.s. gaap financial measures . ” total portfolio replace_table_token_12_th 51 comparable portfolio replace_table_token_13_th total revenue and total net revenue our total revenue for the year ended december 31 , 2016 increased $ 113.1 million , or 27.7 % , compared to the year ended december 31 , 2015 . our total net revenue ( which represents total revenue less compulsory tips paid to employees ) for the year ended december 31 , 2016 increased $ 109.7 million , or 27.5 % , compared to the year ended december 31 , 2015 . this increase was driven by an increase in net package revenue of $ 95.2 million , or 27.7 % , and an increase in net non-package revenue of $ 14.5 million , or 26.1 % .
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you should read the following discussion and analysis in conjunction with “ item 8. financial statements and supplementary data , ” and our consolidated financial statements beginning on page f-1 of this report . overview we are a biopharmaceutical company focused on the acquisition , development and commercialization of novel treatments for b-cell malignancies and autoimmune diseases . currently , the company is developing two therapies targeting hematologic malignancies . tg-1101 ( ublituximab ) is a novel , glycoengineered monoclonal antibody that targets a specific and unique epitope on the cd20 antigen found on mature b-lymphocytes . we are also developing tgr-1202 , an orally available pi3k delta inhibitor . the delta isoform of pi3k is strongly expressed in cells of hematopoietic origin and is believed to be important in the proliferation and survival of b-lymphocytes . both tg-1101 and tgr-1202 are in clinical development for patients with hematologic malignancies . we also have pre-clinical programs to develop irak4 ( interleukin-1 receptor-associated kinase 4 ) inhibitors , bet inhibitors , and anti-pd-l1 and anti-gitr antibodies . we also actively evaluate complementary products , technologies and companies for in-licensing , partnership , acquisition and or investment opportunities . to date , we have not received approval for the sale of any of our drug candidates in any market and , therefore , have not generated any product sales from our drug candidates . our license revenues currently consist of license fees arising from our agreement with ildong . we recognize upfront license fee revenues ratably over the estimated period in which we will have certain significant ongoing responsibilities under the sublicense agreement , with unamortized amounts recorded as deferred revenue . we have not earned any revenues from the commercial sale of any of our drug candidates . our research and development expenses consist primarily of expenses related to in-licensing of new product candidates , fees paid to consultants and outside service providers for clinical and laboratory development , facilities-related and other expenses relating to the design , development , manufacture , testing and enhancement of our drug candidates and technologies . we expense our research and development costs as they are incurred . research and development expenses for the years ended december 31 , 2016 , 2015 and 2014 were $ 66,489,820 , $ 43,445,817 and $ 31,354,781 , respectively , excluding non-cash compensation expenses related to research and development . the following table sets forth the research and development expenses per project , exclusive of non-cash compensation expenses , for the periods presented . 38 replace_table_token_5_th our general and administrative expenses consist primarily of salaries and related expenses for executive , finance and other administrative personnel , recruitment expenses , professional fees and other corporate expenses , including investor relations , legal activities and facilities-related expenses such as rent expense and amortization of leasehold interest . our results of operations include non-cash compensation expenses as a result of the grants of stock options and restricted stock . compensation expense for awards of options and restricted stock granted to employees and directors represents the fair value of the award recorded over the respective vesting periods of the individual awards . the expense is included in the respective categories of expense in the consolidated statements of operations . we expect to continue to incur significant non-cash compensation expenses . for awards of options and restricted stock to consultants and other third-parties , compensation expense is determined at the “ measurement date. ” the expense is recognized over the vesting period of the award . until the measurement date is reached , the total amount of compensation expense remains uncertain . we record compensation expense based on the fair value of the award at the reporting date . the awards to consultants and other third-parties are then revalued , or the total compensation is recalculated based on the then current fair value , at each subsequent reporting date . this results in a change to the amount previously recorded in respect of the equity award grant , and additional expense or a reversal of expense may be recorded in subsequent periods based on changes in the assumptions used to calculate fair value , such as changes in market price , until the measurement date is reached and the compensation expense is finalized . in addition , certain restricted stock issued to employees vest upon the achievement of certain milestones ; therefore , the total expense is uncertain until the milestone is probable . our clinical trials will be lengthy and expensive . even if these trials show that our drug candidates are effective in treating certain indications , there is no guarantee that we will be able to record commercial sales of any of our drug candidates in the near future . in addition , we expect losses to continue as we continue to fund in-licensing and development of new drug candidates . as we continue our development efforts , we may enter into additional third-party collaborative agreements and may incur additional expenses , such as licensing fees and milestone payments . in addition , we may need to establish the commercial infrastructure required to manufacture , market and sell our drug candidates following approval , if any , by the fda , which would result in us incurring additional expenses . as a result , our quarterly results may fluctuate and a quarter-by-quarter comparison of our operating results may not be a meaningful indication of our future performance . 39 story_separator_special_tag ( research and development ) . noncash compensation expense ( research and development ) related to equity incentive grants totaled $ 4,261,406 for the year ended december 31 , 2015 , as compared to $ 8,731,566 during the comparable period in 2014. the decrease in noncash compensation expense was primarily related to milestone-based vesting of restricted stock grants to personnel during the year ended december 31 , 2014 and a decrease in the measurement date fair value of certain consultant restricted stock during the period ended december 31 , 2015. other research and development expenses . story_separator_special_tag under the agreement we would pay mlv a commission rate of up to 3.0 % of the gross proceeds from the sale of any shares of common stock sold through mlv . during the year ended december 31 , 2014 , we sold a total of 4,850,055 shares of common stock under this arrangement for aggregate total gross proceeds of approximately $ 50.0 million at an average selling price of $ 10.31 per share . net proceeds were approximately $ 48.8 million after deducting commissions and other transaction costs . we have fully utilized the capacity under the 2013 atm and , accordingly , no further sales can be made under the 2013 atm . in december 2014 , we amended our 2013 atm with mlv ( the “ 2015 atm ” ) such that we could issue and sell additional shares of our common stock , having an aggregate offering price of up to $ 75.0 million , from time to time through mlv , acting as the sales agent . under the 2015 atm , we would pay mlv a commission rate of up to 3.0 % of the gross proceeds from the sale of any shares of common stock sold through mlv . during the year ended december 31 , 2015 , we sold a total of 4,094,498 shares of common stock under the 2015 atm for aggregate total gross proceeds of approximately $ 68.2 million at an average selling price of $ 16.66 per share , resulting in net proceeds of approximately $ 67.0 million after deducting commissions and other transaction costs . during the year ended december 31 , 2016 , we sold a total of 570,366 shares of common stock under the 2015 atm for aggregate total gross proceeds of approximately $ 4.5 million at an average selling price of $ 7.88 per share , resulting in net proceeds of approximately $ 4.4 million after deducting commissions and other transaction costs . equity financings on march 11 , 2014 , we announced the pricing of an underwritten sale of 2,702,809 shares of our common stock at a price of $ 6.71 per share for gross proceeds of approximately $ 18.1 million . net proceeds from this offering were approximately $ 16.8 million , net of underwriting discounts and offering expenses of approximately $ 1.3 million . on july 18 , 2013 , we announced the pricing of an underwritten public offering of 5,700,000 shares of our common stock at a price of $ 6.15 per share for gross proceeds of approximately $ 35 million . we also granted to the underwriters a 30-day option to acquire an additional 855,000 shares to cover overallotments in connection with the offering , which they exercised . total net proceeds from this offering , including the overallotment , were approximately $ 37.6 million , net of underwriting discounts and offering expenses of approximately $ 2.7 million . 42 off-balance sheet arrangements we have not entered into any transactions with unconsolidated entities whereby we have financial guarantees , subordinated retained interests , derivative instruments or other contingent arrangements that expose us to material continuing risks , contingent liabilities , or any other obligations under a variable interest in an unconsolidated entity that provides us with financing , liquidity , market risk or credit risk support . obligations and commitments as of december 31 , 2016 , we have known contractual obligations , commitments and contingencies of $ 18.0 million related to our operating lease obligations . replace_table_token_7_th leases in october 2014 , we entered into an agreement ( the “ office agreement ” ) with fbio , to occupy approximately 45 % of the 24,000 square feet of new york city office space leased by fbio , which is now our corporate headquarters . the office agreement requires us to pay our respective share of the average annual rent and other costs of the 15-year lease . we approximate an average annual rental obligation of $ 1.1 million under the office agreement . we began to occupy this new space in april 2016 , with rental payments beginning in the third quarter of 2016. during the year ended december 31 , 2016 , we recorded rent expense of approximately $ 1.4 million and at december 31 , 2016 , have deferred rent of approximately $ 0.8 million . mr. weiss , our executive chairman and ceo , is also executive vice chairman of fbio . during the year ended december 31 , 2016 , we agreed to pay fbio $ 2.2 million for our portion of the build out costs , which have been allocated to us at the 45 % rate mentioned above . the allocated build-out costs have been recorded in leasehold interest and will be amortized over the 15-year term of the office agreement . after an initial commitment period of the 45 % rate for a period of three ( 3 ) years , we and fbio will determine actual office space utilization annually and if our utilization differs from the amount we have been billed , we will either receive credits or be assessed incremental utilization charges . also in connection with this lease , in october 2014 we pledged $ 0.6 million to secure a line of credit as a security deposit for the office agreement , which has been recorded as restricted cash in the accompanying consolidated balance sheets . total rental expense was approximately $ 1.6 million , $ 0.3 million and $ 0.1 million for the years ended december 31 , 2016 , 2015 and 2014 , respectively .
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results of operations years ended december 31 , 2016 , 2015 and 2014 replace_table_token_6_th years ended december 31 , 2016 and 2015 license revenue . license revenue was $ 152,381 for each of the years ended december 31 , 2016 and 2015. license revenue is related to the amortization of an upfront payment of $ 2.0 million associated with our license agreement with ildong . the upfront payment from ildong will be recognized as license revenue on a straight-line basis through december 2025 , which represents the estimated period over which the company will have certain ongoing responsibilities under the sublicense agreement . noncash compensation expense ( research and development ) . noncash compensation expense ( research and development ) related to equity incentive grants totaled $ 2,742,354 for the year ended december 31 , 2016 , as compared to $ 4,261,406 during the comparable period in 2015. the decrease in noncash compensation expense was primarily related to milestone-based vesting of restricted stock grants to non-executive personnel during the year ended december 31 , 2015 , and a decrease in the measurement date fair value of certain consultant restricted stock during the year ended december 31 , 2016 . other research and development expenses . other research and development expenses increased by $ 23,044,003 from $ 43,445,817 for the year ended december 31 , 2015 to $ 66,489,820 for the year ended december 31 , 2016. the increase in other research and development expenses was due primarily to a $ 1.0 million licensing fee for the jubilant sub-license agreement , as well as the ongoing clinical development programs and related manufacturing costs for tg-1101 and tgr-1202 during the year ended december 31 , 2016. we expect our other research and development costs to increase modestly during 2017 as enrollment of additional patients in our phase 3 clinical trials increases and we prepare for a commercial launch .
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in the event that these tax rates change , we will incur a benefit or detriment on our income tax expense in the period of change . if we were to story_separator_special_tag the following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties . our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors , including those set forth under item 1a `` risk factors '' and elsewhere in this annual report on form 10-k. unless otherwise stated , references in this report to particular years or quarters refer to our fiscal year and the associated quarters of those fiscal years . overview we are a leading provider of automated solutions for medication and supply management in healthcare . we believe our products improve healthcare for everyone , and it is our mission to continue improving healthcare with solutions that change the practice of healthcare in ways that improve patient and provider outcomes . our automation and analytics solutions are designed to enable healthcare facilities to acquire , manage , dispense and administer medications and medical-surgical supplies and are intended to enhance patient safety , reduce medication errors , reduce operating costs , improve workflow and increase operational efficiency . we sell our medication control systems together with related consumables and services , and medical and surgical supply control systems . we generate approximately 89 % of our product revenue in the united states and canada . however , we expect our revenue from international operations to increase in future periods as we continue to grow our international business . we have not sold in the past , and have no future plans to sell our products either directly or indirectly to customers located in countries that are identified as state sponsors of terrorism by the u.s. department of state , and are subject to economic sanctions and export controls . we manage our business in two segments defined by customer type : products and services sold to hospital customers are designated as our acute care segment , and products and services sold outside the hospital setting are designated as our non-acute care segment . our acute care segment has been the predominant market for our products since the founding of the company in 1992 and today comprises approximately 75 % of our overall business . the non-acute care segment became a significant portion of our business in may 2012 , when we completed our acquisition of medpak holdings , inc. ( `` medpak '' ) . medpak is the parent company of mts medication technologies , inc. ( `` mts '' ) , a worldwide provider of medication adherence packaging systems . the acquisition aligns us with the long-term trends of the healthcare market to manage the health of patients across the continuum of care . the combination of omnicell and mts brought capabilities to each other that strengthened the product lines and expanded the medication management coverage of both companies . in addition to mts medication adherence packaging systems , we now also sell other products into non-acute care customers as a result of increased access to these customers through the acquisition . please refer to note 2 , business acquisitions , of the notes to consolidated financial statements included in this annual report on form 10-k for more information regarding the acquisition transaction and note 17 , segments , of the notes to consolidated financial statements included in this annual report on form 10-k for more information regarding the results for both the acute care and non-acute care segments . the healthcare market we sell to is experiencing a period of substantive change . the adoption of electronic healthcare records , new regulatory constraints , and changes in the reimbursement structure have caused healthcare institutions to re-examine their operating structures , re-prioritize their investments , and seek efficiencies . we believe our customers ' evolving operating environment creates challenges for any supplier , but also affords opportunities for suppliers that are able to partner with customers to help them meet the changing demands . we have invested in strategies which we believe have generated our revenue and earnings growth by directly supporting our customers ' initiatives . these strategies include : development of differentiated products . we invest in the development of products that we believe bring patient safety and workflow efficiency to our customers ' operations that they can not get from other competing solutions . these differentiators may be as small as how a transaction operates or information provided on a report or as large as the entire automation of a workflow that would otherwise be completed manually . we intend to continue our focus on differentiating our products , and we carefully assess our investments regularly as we strive to assure those investments provide the solutions most valuable to our customers . deliver our solutions to new markets . areas of healthcare where work is done manually may benefit from our existing solutions . these areas include hospitals that continue to utilize manual operations , healthcare segments of the us market outside hospitals , and markets outside the us . we weigh the cost of entering these new markets against the expected benefits and focus on the markets that we believe are most likely to adopt our products . expansion of our solutions through acquisitions and partnerships . our acquisitions have generally been focused on automation of manual workflows or data analytics , which is the enhancement of data for our customers ' decision- 35 making processes . we believe that expansion of our product lines through acquisition and partnerships to meet our customers changing and evolving expectations is a key aspect to our historical and future success . story_separator_special_tag our 36 customers ' medication control systems are mission critical to their success and our customers require these systems to be functional at all times . to help assure the maximum availability of our systems , our customers typically purchase maintenance and support contracts in one , two or five year increments . as a result of the growth of our installed base of customers , our service revenues have also grown . we strive to provide the best service possible , as measured by third party rating agencies and by our own surveys , to assure our customers continue to seek service maintenance from us . our long-term liabilities include long-term deferred service revenue of $ 18 million as of december 31 , 2013 , and $ 20 million as of december 31 , 2012. our deferred service revenue will be amortized to service revenue as the service contracts are executed . in the future , we expect our strategies to evolve as the business environment of our customers evolves , but for our focus to remain on improving healthcare with solutions that help change the practice of healthcare in ways that improve patient and provider outcomes . we expect our investment in differentiated products , new markets , and acquisitions and partnerships to continue . in 2014 , we also intend to manage our business to operating profit margins similar to those achieved in 2013. our full time headcount of 1,134 on december 31 , 2013 , which is an increase of 45 from 2012 , is dedicated to bringing our strategies to bear in all the markets we participate in . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with united states generally accepted accounting principles , or gaap . the preparation of these financial statements requires us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of any contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods . we regularly review our estimates and assumptions , which are based on historical experience and various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of certain assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates and assumptions . we believe the following critical accounting policies are affected by significant judgments and estimates used in the preparation of our consolidated financial statements : revenue recognition . we earn revenues from sales of our medication and medical and surgical supply automation systems along with consumables and related services that are sold in the healthcare industry , our principal market . revenues related to consumable products are reported net of discounts provided to our customers . our customer arrangements typically include one or more of the following deliverables : products —software-enabled equipment that manages and regulates the storage and dispensing of pharmaceuticals , consumable blister cards and packaging equipment and other medical supplies . software —additional software applications that enable incremental functionality of our equipment . installation —installation of equipment as integrated systems at customers ' sites . post-installation technical support —phone support , on-site service , parts and access to unspecified software upgrades and enhancements , if and when available . professional services —other customer services , such as training and consulting . we recognize revenue when the earnings process is complete , based upon our evaluation of whether the following four criteria have been met : persuasive evidence of an arrangement exists . we use signed customer contracts and signed customer purchase orders as evidence of an arrangement for leases and sales . for service engagements , we use a signed services agreement and a statement of work to evidence an arrangement . delivery has occurred . equipment and embedded software product delivery is deemed to occur upon successful installation and receipt of a signed and dated customer confirmation of installation letter , providing evidence that we have delivered what a customer ordered . in instances of a customer self-installation , product delivery is deemed to have occurred upon receipt of a signed and dated customer confirmation letter . if a sale does not require installation , we recognize revenue on delivery of products to the customer , including transfer of title and risk of loss , assuming all other revenue criteria are met . for existing distributors , where installation of equipment training has been previously provided and the distributor is certified to install our equipment at end user customer facility , we recognize revenue from sales of products to the distributor upon shipment assuming all other revenue criteria are met since we do not allow for rights of return or refund . for new distributors , where we have not provided installation of equipment training , revenue on the sales of products to the distributor is deferred until the distributor has completed the distributor training program and has been certified to install our equipment at the 37 end user facility . for the sale of consumable blister cards , we recognize revenue when title and risk of loss of the products shipped have transferred to the customer , which usually occurs upon shipment from our facilities . assuming all other revenue criteria are met , we recognize revenue for support services ratably over the related support services contract period . we recognize revenue on training and professional services as they are performed . fee is fixed or determinable . we assess whether a fee is fixed or determinable at the outset of the arrangement based on the payment terms associated with the transaction . we have established a history of collecting under the original contract without providing concessions on payments , products or services . collection is probable .
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results of operations replace_table_token_9_th the consolidated operating results presented above include the operating results of mts since may 21 , 2012 , the date of acquisition , and are included as part of the non-acute care segment . product revenues , cost of product revenues and gross profit the table below shows our product revenues , cost of product revenues and gross profit for the years ended december 31 , 2013 , 2012 and 2011 and the change between those years ( in thousands , except percentages ) : replace_table_token_10_th 2013 compared to 2012 product revenues . the overall increase in product revenues was primarily driven by a full twelve month contribution of mts activities as a part of our non-acute care segment , which contributed $ 91.0 million during the period . this compared 42 to $ 50.3 million in the same twelve month period in 2012 in which we owned mts only after may 21 , 2012. our acute care segment contributed $ 216.2 million in product revenues in 2013 compared to $ 197.4 million in 2012. the growth in our acute-care segment was driven by increased customer receptivity to our products due to product differentiation and entrance into new markets . we anticipate our revenues will continue to increase in 2014 compared to the same periods in 2013 , as we fulfill our existing orders . our ability to continue to grow revenue is dependent on our ability to continue to obtain orders from customers , our ability to produce quality consumables to fulfill customer demand , the volume of installations we are able to complete and our ability to meet customer needs by providing a quality installation experience and our flexibility in manpower allocations among customers to complete installations on a timely basis . the timing of our product revenues for equipment is primarily dependent on when our customers ' schedules allow for installations .
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neither the fund nor mlai has an audit committee to pre-approve principal accountant fees and services . in lieu of an audit committee , the managers and the principal financial officer pre-approve all billings prior to the commencement of services . 23 part iv item 15 : exhibits and financial statement schedules 1. financial statements ( found in exhibit 13.01 ) : page : report of independent registered public accounting firm 1 statement of financial condition as of december 31 , 2006 2 for the period december 1 , 2006 ( commencement of operations ) to december 31 , 2006 : statement of operations 3 statement of changes in members ' capital 4 financial data highlights december 31 , 2006 5 notes to financial statements 6-12 2. financial statement schedules : financial statement schedules not included in this form 10-k have been omitted for the reason that they are not required or are not applicable or that equivalent information has been included in the financial statements or notes thereto . 3. exhibits : the following exhibits are incorporated by reference or are filed herewith to this annual report on form 10-k : designation description 3.01 certificate of formation of ml apm global commodity futuresaccess llc . exhibit 3.01 : is incorporated herein by reference from exhibit 3.01 contained in the registration statement ( file no . 000-51086 ) filed on december 20 , 2004 , on form 10 under the securities exchange act of 1934 ( the registrant 's registration statement ) . 3.02 3.02 limited liability company operating agreement of ml apm global commodity futuresaccess llc . exhibit 3.02 is incorporated by reference from exhibit 3.02 contained in the registrant 's registration statement 3.03 10.01 customer agreement between ml apm global commodity futuresaccess llc . and merrill lynch , pierce , fenner & smith incorporated . exhibit 10.01 : is filed herewith . 3.04 10.02 advisory agreement by and among ml apm global commodity futuresaccess llc and merrill lynch alternative investments llc . exhibit 10.02 : is incorporated hereby by reference from exhibit 10.02 contained in the registrant 's registration statement . replace_table_token_9_th 24 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . ml apm global commodity futuresaccess llc . by : merrill lynch alternative investments llc sponsor by : benjamin c. weston benjamin c. weston chief executive officer and president ( principal executive officer ) pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , this report has been signed on march 30 , 2007 by the following persons on behalf of the registrant and in the capacities indicated . signature title date benjamin c. weston chief executive officer and president march 30 , 2007 bejamin c. weston robert d. ollwerther chief operating officer and manager march 30 , 2007 robert d. ollwerther barbra e. kocsis chief financial officer march 30 , 2007 barbra e. kocsis robert m. alderman vice president and manager march 30 , 2007 robert m. alderman andrew b. weisman manager march 30 , 2007 andrew b. weisman ( being the principal executive officer , the principal financial and accounting officer and a majority of the managers of merrill lynch alternative investments llc ) 25 ml apm global commodity futuresaccess llc 2006 form 10-k index to exhibits exhibit exhibit 13.01 2006 annual report and report of independent registered public accounting firm 26 story_separator_special_tag operational overview this performance summary is an outline description of how the fund performed in the past , not necessarily any indication of how it will perform in the future . in addition , the general causes to which certain price movements are attributed may or may not in fact have caused such movements , but simply occurred at or about the same time . apm is unlikely to be profitable in markets in which such trends do not occur . static or erratic prices are likely to result in losses . similarly , unexpected events ( for example , a political upheaval , natural disaster or governmental intervention ) can lead to major short-term losses , as well as gains . while there can be no assurance that apm will be profitable under any given market condition , markets in which substantial and sustained price movements occur typically offer the best profit potential for the fund . results of operations general apm 's objective in providing trading management services is to effect appreciation of the assets of its clients through the speculative trading of financial instruments of any kind , which includes without limitation : ( i ) futures contracts that are now traded , or may be traded in the future , on exchanges located in the united states and abroad and options on such futures contracts and ( ii ) foreign currencies , foreign currency futures contracts , foreign currency forward contracts , foreign currency forward contracts and options relating thereto . the apm hedged global commodity strategy ( apm hgc ) is a program that seeks to achieve consistent long-term capital appreciation while adhering to volatility control and disciplined risk management principles . apm hgc intends to exploit the coincident relationship between economic expansion and commodity demand , and the options basket traded by apm hgc is designed to produce a stable negative correlation versus the global fixed income markets . when commodity demand increases , apm hgc should benefit through a dynamic increase in the portfolio exposure to commodities . when economies contract , apm hgc should benefit through varying exposure to g-10 interest rate markets . the commodity options program trades on the major non-financial futures markets and utilizes two components of commodity price behavior to its advantage : 1 ) the fat tail nature of commodity returns ( caused by supply demand story_separator_special_tag neither the fund nor mlai has an audit committee to pre-approve principal accountant fees and services . in lieu of an audit committee , the managers and the principal financial officer pre-approve all billings prior to the commencement of services . 23 part iv item 15 : exhibits and financial statement schedules 1. financial statements ( found in exhibit 13.01 ) : page : report of independent registered public accounting firm 1 statement of financial condition as of december 31 , 2006 2 for the period december 1 , 2006 ( commencement of operations ) to december 31 , 2006 : statement of operations 3 statement of changes in members ' capital 4 financial data highlights december 31 , 2006 5 notes to financial statements 6-12 2. financial statement schedules : financial statement schedules not included in this form 10-k have been omitted for the reason that they are not required or are not applicable or that equivalent information has been included in the financial statements or notes thereto . 3. exhibits : the following exhibits are incorporated by reference or are filed herewith to this annual report on form 10-k : designation description 3.01 certificate of formation of ml apm global commodity futuresaccess llc . exhibit 3.01 : is incorporated herein by reference from exhibit 3.01 contained in the registration statement ( file no . 000-51086 ) filed on december 20 , 2004 , on form 10 under the securities exchange act of 1934 ( the registrant 's registration statement ) . 3.02 3.02 limited liability company operating agreement of ml apm global commodity futuresaccess llc . exhibit 3.02 is incorporated by reference from exhibit 3.02 contained in the registrant 's registration statement 3.03 10.01 customer agreement between ml apm global commodity futuresaccess llc . and merrill lynch , pierce , fenner & smith incorporated . exhibit 10.01 : is filed herewith . 3.04 10.02 advisory agreement by and among ml apm global commodity futuresaccess llc and merrill lynch alternative investments llc . exhibit 10.02 : is incorporated hereby by reference from exhibit 10.02 contained in the registrant 's registration statement . replace_table_token_9_th 24 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . ml apm global commodity futuresaccess llc . by : merrill lynch alternative investments llc sponsor by : benjamin c. weston benjamin c. weston chief executive officer and president ( principal executive officer ) pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , this report has been signed on march 30 , 2007 by the following persons on behalf of the registrant and in the capacities indicated . signature title date benjamin c. weston chief executive officer and president march 30 , 2007 bejamin c. weston robert d. ollwerther chief operating officer and manager march 30 , 2007 robert d. ollwerther barbra e. kocsis chief financial officer march 30 , 2007 barbra e. kocsis robert m. alderman vice president and manager march 30 , 2007 robert m. alderman andrew b. weisman manager march 30 , 2007 andrew b. weisman ( being the principal executive officer , the principal financial and accounting officer and a majority of the managers of merrill lynch alternative investments llc ) 25 ml apm global commodity futuresaccess llc 2006 form 10-k index to exhibits exhibit exhibit 13.01 2006 annual report and report of independent registered public accounting firm 26 story_separator_special_tag operational overview this performance summary is an outline description of how the fund performed in the past , not necessarily any indication of how it will perform in the future . in addition , the general causes to which certain price movements are attributed may or may not in fact have caused such movements , but simply occurred at or about the same time . apm is unlikely to be profitable in markets in which such trends do not occur . static or erratic prices are likely to result in losses . similarly , unexpected events ( for example , a political upheaval , natural disaster or governmental intervention ) can lead to major short-term losses , as well as gains . while there can be no assurance that apm will be profitable under any given market condition , markets in which substantial and sustained price movements occur typically offer the best profit potential for the fund . results of operations general apm 's objective in providing trading management services is to effect appreciation of the assets of its clients through the speculative trading of financial instruments of any kind , which includes without limitation : ( i ) futures contracts that are now traded , or may be traded in the future , on exchanges located in the united states and abroad and options on such futures contracts and ( ii ) foreign currencies , foreign currency futures contracts , foreign currency forward contracts , foreign currency forward contracts and options relating thereto . the apm hedged global commodity strategy ( apm hgc ) is a program that seeks to achieve consistent long-term capital appreciation while adhering to volatility control and disciplined risk management principles . apm hgc intends to exploit the coincident relationship between economic expansion and commodity demand , and the options basket traded by apm hgc is designed to produce a stable negative correlation versus the global fixed income markets . when commodity demand increases , apm hgc should benefit through a dynamic increase in the portfolio exposure to commodities . when economies contract , apm hgc should benefit through varying exposure to g-10 interest rate markets . the commodity options program trades on the major non-financial futures markets and utilizes two components of commodity price behavior to its advantage : 1 ) the fat tail nature of commodity returns ( caused by supply demand
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performance summary this performance summary is an outline description of how the fund performed in the past , not necessarily any indication of how it will perform in the future . in addition , the general causes to which certain price movements are attributed may or may not in fact have caused such movements , but simply occurred at or about the same time . replace_table_token_7_th 2006 the fund posted an overall loss for the period with currency sector posting gains and agriculture , interest rates , energy and the metal sectors posting losses as the fund started trading december 1 , 2006. the currency sector was the most profitable for the fund . the u.s. dollar furthered recent losses to move slightly lower by 0.3 % , subject to the then expected u.s. federal reserve policy modifications . the agricultural sector posted losses for the fund . the agricultural market was soft which attributed to the difficult trading environment resulting in the fund posting losses for this sector . the interest rate sector posted losses for the fund . the year end revisions of sentiment were based on potentially stronger u.s. real growth and improving assessments for growth prospects particularly in europe and the pacific rim . the u.s. federal reserve , now data-driven , once again validated its stance by refraining from another interest rate increase . concurrently , the european central bank and bank of england continue to focus on reigning in renewed inflationary expectations through higher market interest rates . the energy sector posted losses for the fund . energy prices dropped sharply from a combination of weather , sanguine geo-political concerns and near-term inventory patterns worldwide . the metals sector was the least profitable for the fund . the metals collectively managed to lose value in response to market specific demand data , moving copper lower by 9.5 % and gold decreased roughly 1.7 % .
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page 54 of 80 the following table is a summary of available-for-sale securities ( in thousands ) : replace_table_token_17_th the company 's specifically identified gross unrealized losses of $ 55 thousand relates to 18 different securities with a total amortized cost of approximately $ 99.9 million at march 25 , 2017. four securities had been in a continuous unrealized loss position for more than 12 months as of march 25 , 2017. the gross unrealized loss on these securities was less than one tenth of one percent of the position value . because the story_separator_special_tag please read the following discussion in conjunction with our audited historical consolidated financial statements and notes thereto , which are included elsewhere in this form 10-k. management 's discussion and analysis of financial condition and results of operations contains statements that are forward-looking . these statements are based on current expectations and assumptions that are subject to risk , uncertainties and other factors . actual results could differ materially because of the factors discussed in part i , item 1a . risk factors of this form 10-k. critical accounting policies our discussion and analysis of the company 's financial condition and results of operations are based upon the consolidated financial statements included in this report , which have been prepared in accordance with u. s. generally accepted accounting principles . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts . we evaluate the estimates on an on-going basis . we base these estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions and conditions . we believe the following critical accounting policies involve significant judgments and estimates that are used in the preparation of the consolidated financial statements : ◾ we report income taxes under the asset and liability method . deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the financial reporting basis and tax basis of assets and liabilities , which are measured using the enacted tax laws and tax rates that will be in effect when the differences are expected to reverse . we assess the likelihood that the deferred tax assets will be realized . a valuation allowance is established against deferred tax assets to page 25 of 80 the extent the company believes that it is more likely than not that the deferred tax assets will not be realized , taking into consideration the level of historical taxable income and projections for future taxable income over the periods in which the temporary differences are deductible . the calculation of our tax liabilities involves assessing uncertainties with respect to the application of complex tax rules . uncertain tax positions must meet a more likely than not threshold to be recognized in the financial statements and the tax benefits recognized are measured based on the largest benefit that has a greater than 50 % likelihood of being realized upon final settlement . see note 15 income taxes of the notes to consolidated financial statements contained in item 8 for additional details . ◾ we recognize revenue when all of the following criteria are met : persuasive evidence that an arrangement exists , delivery of goods has occurred , the sales price is fixed or determinable and collectability is reasonably assured . prior to the fourth quarter of fiscal year 2016 , we had a number of arrangements with distributors whereby we deferred revenue at the time of shipment of our products to those distributors . as part of those arrangements , when a distributor resold those products to an end customer , the company would credit the distributor the difference between ( 1 ) the original distributor price and the distributor 's agreed upon margin and ( 2 ) the final sales price to the end customer ( known as the ship and debit arrangement ) . for those transactions , revenue was deferred until the product was resold by the distributor and we determined that the final sales price to the distributor was fixed or determinable . for certain of our smaller distributors , we did not have similar ship and debit arrangements and the distributors were billed at a fixed upfront price . for those transactions , revenue was recognized upon delivery to the distributor based upon the distributor 's individual shipping terms , less an allowance for estimated returns , as the company determined that the revenue recognition criteria were met . in light of the fact that the distributor program had been declining as a portion of the overall business for several years , in fiscal year 2016 the company performed a review of all distributor arrangements in an effort to streamline our distribution program and reduce overhead costs . based upon this review , the company terminated its ship and debit arrangements with distributors during the fourth quarter of fiscal year 2016. subsequent to the termination of the ship and debit arrangements , the company began recognizing revenue for all distributors upon delivery to the distributor based upon the distributor 's individual shipping terms , less an allowance for estimated returns , as the company 's final sales price to the distributor was fixed and determinable and the company determined that all four criteria for revenue recognition were met . although the company terminated its ship and debit arrangements with all distributors along with certain ancillary agreements related to the ship and debit arrangements , the company continues to grant varying levels of stock rotation and price protection rights based on individual distributor agreements . to the extent these rights are implicated in any transaction with a distributor , we continue to evaluate their effect on when the revenue recognition criteria have been met . story_separator_special_tag the amendments in this update require that debt issuance costs related to a recognized debt liability are presented in the balance sheet as a direct deduction from the carrying amount of that debt liability and that the amortization of debt issuance costs is reported as interest expense . asu 2015-03 is to be applied retrospectively and represents a change in accounting principle . in august 2015 , the fasb issued fasb asu no . 2015-15 , interest imputation of interest ( subtopic 835-30 ) : presentation and subsequent measurement of debt issuance costs associated with line-of-credit page 27 of 80 arrangements . asu 2015-15 clarified the presentation and subsequent measurement of debt issuance costs related to line-of-credit arrangements . debt issuance costs related to a line-of-credit arrangement may be presented in the balance sheet as an asset and subsequently amortized ratably over the term of the arrangement regardless of whether there are any outstanding borrowings . both asu 2015-03 and asu 2015-15 are effective for fiscal years beginning after december 15 , 2015 , including interim periods within those fiscal years . earlier adoption is permitted for financial statements that have not been previously issued . the company adopted these asus in fiscal year 2017 with no material impact to its financial statements . in april 2015 , the fasb issued asu no . 2015-04 , compensation retirement benefits ( topic 715 ) : practical expedient for the measurement date of an employer 's defined benefit obligation and plan assets . the asu is part of the fasb 's simplification initiative to reduce complexity in accounting standards . the fasb decided to permit entities to measure defined benefit plan assets and obligations as of the month-end that is closest to their fiscal year-end . an entity is required to disclose the accounting policy election and the date used to measure defined benefit plan assets and obligations in accordance with the amendments in this update . the amendments in this update are effective for public business entities for financial statements issued for fiscal years beginning after december 15 , 2015 , and interim periods within those fiscal years , with earlier application permitted . the company adopted this asu in the first quarter of fiscal year 2017 , with no material impact to its financial statements . in july 2015 , asu no . 2015-11 , inventory ( topic 330 ) : simplifying the measurement of inventory was issued . this asu requires companies to subsequently measure inventory at the lower of cost and net realizable value versus the previous lower of cost or market . the amendments in this update are effective for fiscal years beginning after december 15 , 2016 , including interim periods within those fiscal years , to be applied prospectively . early application is permitted . the company early adopted this asu in fiscal year 2017 with no material modifications to its financial statements as a result . in february 2016 , the fasb issued asu no . 2016-02 , leases ( topic 842 ) . the fasb issued this update to increase transparency and comparability by recognizing lease assets and lease liabilities on the balance sheet and disclosing key leasing arrangement details . lessees would recognize operating leases on the balance sheet under this asu with the future lease payments recognized as a liability , measured at present value , and the right-of-use asset recognized for the lease term . a single lease cost would be recognized over the lease term . for terms less than twelve months , a lessee would be permitted to make an accounting policy election to recognize lease expense for such leases generally on a straight-line basis over the lease term . this asu is effective for fiscal years beginning after december 15 , 2018 , including interim periods within those fiscal years . early adoption is permitted . the company is currently evaluating the impact of this asu . in march 2016 , the fasb issued asu 2016-09 , compensation stock compensation ( topic 718 ) : improvements to employee share-based payment accounting . this asu requires all excess tax benefits and deficiencies to be recognized as income tax benefit / expense in the income statement and presented as an operating activity in the statement of cash flows . forfeitures can be calculated based on either the estimated number of awards that are expected to vest , as required by current guidance , or when forfeitures actually occur . this asu is effective for annual periods beginning after december 15 , 2016 , and interim periods within those annual periods . early adoption is permitted , but all amendments must be adopted in the same period and any adjustments should be reflected as of the beginning of the fiscal year if adopted in an interim period . the company early adopted in the third quarter of fiscal year 2017 , which resulted in the following : ◾ we recorded excess tax benefits within income tax expense , rather than in additional paid-in capital ( apic ) , of $ 2.2 million , $ 8.0 million , $ 10.8 million and $ 1.9 million for the first , second , third and fourth quarters of fiscal year 2017 , respectively . ◾ we recorded a cumulative-effect adjustment as of march 27 , 2016 to increase retained earnings by $ 5.6 million , with a corresponding increase to deferred tax assets , to recognize net operating loss and tax credit carryforwards attributable to excess tax benefits on stock-based compensation that had not been previously recognized . ◾ we now include the excess tax benefits in net operating cash rather than net financing cash in our consolidated statements of cash flows . page 28 of 80 we applied this change in presentation prospectively and thus prior years have not been adjusted . we elected not to change our policy on accounting for forfeitures and continue to estimate forfeitures expected to occur to determine the amount of compensation cost to be recognized in each period .
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results of operations the following table summarizes the results of our operations for each of the past three fiscal years as a percentage of net sales . all percentage amounts were calculated using the underlying data , in thousands : replace_table_token_5_th page 31 of 80 net sales we report sales in two product categories : portable audio products and non-portable audio and other products . our sales by product line are as follows ( in thousands ) : replace_table_token_6_th net sales for fiscal year 2017 increased 32 percent , to $ 1.5 billion from $ 1.2 billion in fiscal year 2016. the increase in net sales reflects a $ 384.7 million increase in portable audio product sales and a $ 15.1 million decrease in non-portable audio and other product sales . the portable audio products group experienced an increase in net sales attributable to significant increases in the sales of smart codecs and boosted amplifiers for fiscal year 2017. non-portable audio and other product line sales of $ 165.1 million represented an 8 percent decrease from fiscal year 2016 sales of $ 180.2 million , which was primarily attributable to a decrease in sales of dac and surround codec products for the period . net sales for fiscal year 2016 increased 28 percent , to $ 1.2 billion from $ 916.6 million in fiscal year 2015. the increase in net sales reflected a $ 248.8 million increase in portable audio product sales and a $ 3.9 million increase in non-portable audio and other product sales . the portable audio products group experienced an increase in net sales attributable to significant increases in the sales of smart codecs and boosted amplifiers for fiscal year 2016 , which includes a full year revenue effect of the wolfson acquisition .
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results of operations for the years ended december 31 , 2012 , 2011 and 2010 overview—year ended december 31 , 2012 versus year ended december 31 , 2011 white mountains ended 2012 with an adjusted book value per share of $ 588 , an increase of 8.6 % , including dividends , from december 31 , 2011 . white mountains reported adjusted comprehensive income of $ 245 million in 2012 compared to adjusted comprehensive income of $ 745 million in 2011 , which included an after-tax gain of $ 678 million from the esurance sale . onebeacon 's book value per share decreased 0.8 % during 2012 , including dividends . onebeacon 's 2012 results included $ 101 million of after-tax gaap losses related to the sale of its runoff business , which resulted in a decrease of $ 12 to white mountains ' adjusted book value per share ( net of non-controlling interest ) . onebeacon 's gaap combined ratio was 98 % for 2012 compared to 92 % for 2011. the increase was primarily driven by higher catastrophe losses , mainly from hurricane sandy , lower favorable loss reserve development and higher expenses . sirius group 's gaap combined ratio was 90 % for 2012 compared to 100 % for 2011. sirius group 's combined ratio for 2012 included 13 points of catastrophe losses , 11 points of which were from hurricane sandy , compared to 24 points of catastrophe losses for 2011. additionally , sirius group 's combined ratio for 2012 included 3 points of losses from its agricultural line of business , primarily as a result of the drought in the midwestern united states . total net written premiums increased 8 % to $ 2,127 million in 2012 from $ 1,978 million in 2011 , due to higher net written premiums at both onebeacon and sirius group . onebeacon 's net written premiums increased 11 % to $ 1,179 million in 2012 , primarily due to new business and improved retention in several lines , particularly within the accident , government risk , energy and technology businesses . in january 2013 , onebeacon terminated its relationship with hagerty and sold essentia , the wholly owned subsidiary that wrote onebeacon 's hagerty collector car and boat business , to markel corporation . business written through hagerty generated net written premiums of approximately 8 % of white mountains ' consolidated net written premiums in each of 2012 , 2011 and 2010. onebeacon will recognize a $ 23 million pre-tax gain on the sale of essentia ( $ 15 million after tax ) in the first quarter of 2013. sirius group 's net written premiums increased 3 % to $ 948 million in 2012 , primarily due to increases in the accident and health and property lines of business , partially offset by a decrease in the trade credit line of business . white mountains ' gaap investment return was 4.9 % in 2012. the fixed income portfolio return ( in local currencies ) of 3.8 % was higher than the barclay 's intermediate aggregate bond index return of 3.6 % , despite significantly less duration risk , while the equity portfolio return was 7.7 % compared to the s & p 500 index return of 16.0 % . in addition , adjusted book value per share increased $ 10 in 2012 from share repurchases and $ 3 from foreign currency translation . effective january 1 , 2013 , sweden reduced its corporate tax rate from 26.3 % to 22.0 % , and luxembourg increased its corporate tax rate from 28.8 % to 29.2 % . this resulted in a reduction in sirius group 's net deferred tax liabilities in sweden and an increase in sirius group 's net deferred tax assets in luxembourg at december 31 , 2012. in addition , during the quarter sirius group had a net release of valuation allowances on deferred tax assets in luxembourg and white mountains established a valuation allowance on deferred tax assets of a group of u.s. companies reported in the other operations segment . in total , these changes resulted in an increase to adjusted book value per share of $ 13 in the fourth quarter of 2012 . 46 overview-year ended december 31 , 2011 versus year ended december 31 , 2010 white mountains ended 2011 with an adjusted book value per share of $ 542 , an increase of 23 % , including dividends , from december 31 , 2010. white mountains reported adjusted comprehensive income of $ 745 million in 2011 compared to adjusted comprehensive income of $ 141 million in 2010. the increase in adjusted book value per share in 2011 was driven by an $ 89 increase from the gain from the esurance sale , net of transaction related expenses . onebeacon 's book value per share increased 3 % during 2011 , including dividends . onebeacon 's gaap combined ratio was 92 % for 2011 compared to 96 % for 2010. the decrease was primarily driven by improved current accident year results , partially offset by higher catastrophe losses . sirius group 's gaap combined ratio was 100 % for 2011 compared to 94 % for 2010. both years were impacted by significant catastrophe losses as 2011 included 24 points of catastrophe losses compared to 23 points in 2010. total net written premiums decreased 3 % to $ 1,978 million in 2011 from $ 2,034 million in 2010. excluding the $ 180 million of net written premiums in 2010 related to onebeacon 's personal lines business , net written premiums were up 7 % in 2011 , due to higher net written premiums at both onebeacon and sirius group . onebeacon 's net written premiums increased 8 % to $ 1,063 million in 2011 , primarily due to new business and improved retention in several lines , particularly within the accident , government risk , energy and technology businesses . story_separator_special_tag companies reported in the other operations segment , resulting in a tax expense of $ 38 million . in total , white mountains recognized $ 76 million in overall net tax benefits from these changes . excluding the impact of these changes , white mountains effective tax rate for 2012 was 23 % , which was lower than the u.s. statutory rate of 35 % due primarily to income generated in jurisdictions other than the united states . white mountains reported an income tax benefit of $ 110 million in 2011 on pre-tax income of $ 98 million , due primarily to a $ 130 million tax benefit from the release of a valuation allowance against certain deferred tax assets as a result of the reorganization of sirius group . in connection with the reorganization , which included sirius group 's acquisition of a luxembourg holding company from onebeacon in january 2012 , internal debt was contributed to holding companies that had large deferred tax assets offset by full valuation allowances . because the reorganization created a future stream of income for these holding companies , white mountains was required to reduce the valuation allowances by $ 130 million in the fourth quarter of 2011. white mountains also recorded a reclassification of $ 3 million of equity from white mountains ' common shareholders ' equity to non-controlling interest , which represents onebeacon 's minority shareholders ' portion of the excess of the purchase price over the net assets of the luxembourg holding company . excluding the valuation allowance reduction , white mountains effective tax rate for 2011 was 20 % , which was lower than the u.s. statutory rate of 35 % due primarily to income generated in jurisdictions other than the united states . the income tax expense related to pre-tax income for 2010 represented an effective tax rate of 16.0 % , which was lower than the u.s. statutory rate of 35 % due primarily to income generated in jurisdictions other than the united states . discontinued operations on october 17 , 2012 , onebeacon entered into an agreement to sell its runoff business to armour and recorded $ 101 million in after-tax losses related to the runoff transaction in 2012. these losses are composed of a $ 92 million after-tax loss on sale and a $ 9 million after-tax loss related to a reduction in the workers compensation loss reserve discount rate on reserves being transferred as part of the sale . the transaction is expected to close in the second half of 2013. on october 7 , 2011 , white mountains completed the sale of esurance to allstate for cash equal to $ 700 million plus the tangible book value at closing of the entities being sold and recorded a gain of $ 678 million . in 2011 , onebeacon agreed to sell its autoone business to interboro and recorded a charge of $ 19 million after tax for the estimated loss on the sale . the autoone transaction closed in february 2012. as a result of these transactions , the results of the runoff business , the esurance and autoone businesses and related transaction gains and losses are reported in discontinued operations in white mountains ' gaap financial statements . 50 i. summary of operations by segment white mountains conducts its operations through four segments : ( 1 ) onebeacon , ( 2 ) sirius group , ( 3 ) hg global/bam and ( 4 ) other operations . while investment results are included in these segments , because white mountains manages the majority of its investments through its wholly-owned subsidiary , wm advisors , a discussion of white mountains ' consolidated investment operations is included after the discussion of operations by segment . white mountains ' segment information is presented in note 14 — “ segment information ” to the consolidated financial statements . onebeacon financial results and gaap combined ratios for onebeacon for the years ended december 31 , 2012 , 2011 and 2010 follow : replace_table_token_20_th the following table presents onebeacon 's book value per share . replace_table_token_21_th 51 onebeacon results—year ended december 31 , 2012 versus year ended december 31 , 2011 onebeacon ended 2012 with a book value per share of $ 10.63 , a decrease of 0.8 % , including dividends ( a quarterly dividend of $ 0.21 per share ) from december 31 , 2011. the decrease in book value was driven by a $ 92 million estimated after-tax loss on the runoff transaction and $ 24 million of net after-tax operating losses from discontinued operations , which included a $ 9 million after-tax charge related to the runoff transaction from a reduction in the workers compensation loss reserve discount rate . this negative impact to book value was partially offset by a $ 14 million increase from the sale of onebeacon holdings ( luxembourg ) s.à r.l . to sirius group . the transaction was recorded as an increase in onebeacon 's equity and was eliminated in white mountains ' consolidated financial statements . onebeacon 's gaap return of investments was 4.4 % for 2012. onebeacon 's gaap combined ratio increased to 98 % for 2012 from 92 % for 2011 , primarily driven by lower favorable loss reserve development , higher catastrophe losses and higher expenses . favorable loss reserve development for 2012 was $ 7 million , or 1 point , compared to $ 30 million , or 3 points , for 2011. the favorable reserve development for 2012 was primarily in the workers ' compensation , multiple peril liability and general liability lines , mostly offset by adverse loss reserve development on excess property claims .
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review of consolidated results a summary of white mountains ' consolidated financial results for the years ended december 31 , 2012 , 2011 and 2010 follows : replace_table_token_19_th ( 1 ) on december 31 , 2011 , tuckerman fund i was dissolved and all of the net assets of the fund , which consisted of the llc units of hamer and bri-mar , two small manufacturing companies , were distributed . as of october 1 , 2012 , hamer and bri-mar are no longer consolidated and are accounted for as investments in unconsolidated affiliates . ( 2 ) adjusted comprehensive income is a non-gaap measure . for a reconciliation to the most comparable gaap measure ( see non-gaap measures on page 73 ) . 48 consolidated results—year ended december 31 , 2012 versus year ended december 31 , 2011 white mountains ' total revenues increased 12 % to $ 2,436 million in 2012 compared to $ 2,173 million in 2011 , primarily due to higher earned insurance and reinsurance premiums , foreign currency translation gains , higher net realized and unrealized investment gains and an improvement of the mark-to-market performance of the symetra warrants , partially offset by lower net investment income . earned premiums increased 7 % to $ 2,064 million in 2012 , with an 11 % increase at onebeacon and a 3 % increase at sirius group . net investment income was down 17 % to $ 154 million in 2012 , principally due to a lower invested asset base driven by share repurchases and lower fixed maturity yields . white mountains reported net realized and unrealized investment gains of $ 118 million in 2012 compared to $ 74 million in 2011. net realized and unrealized investment gains for both periods were impacted by foreign currency translation on u.s. dollar-denominated investments at sirius international , the effects of which are offset in other comprehensive income ( see “ impact of foreign currency on investment returns ” on page 59 ) .
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since that time , we have established a strong foundation of laboratory , pre-clinical and clinical data with respect to the development of natural interferon and nucleic acids to enhance the natural antiviral defense system of the human body and to aid the development of therapeutic products for the treatment of certain chronic diseases . we have reported net income only from 1985 through 1987. since 1987 , we have incurred , as expected , substantial operating losses due to our conducting research and development programs . fair value in connection with equity financings on may 11 and 19 , 2009 , we issued warrants ( the “ warrants ” ) that are single compound derivatives containing both an embedded right to obtain stock upon exercise ( a “ call ” ) and a series of embedded rights to settle the warrants for cash upon the occurrence of certain events ( each , a “ put ” ) . generally , the put provisions allow the warrant holders liquidity protection ; the right to receive cash in certain situations where the holders would not have a means of readily selling the shares issuable upon exercise of the warrants ( e.g. , where there would no longer be a significant public market for our common stock ) . however because the contractual formula used to determine the cash settlement value of the embedded put requires use of certain assumptions , the cash settlement value of the embedded put can differ from the fair value of the unexercised embedded call option at the time the embedded put option is exercised . specifically , the put rights would be triggered upon the happening of a “ fundamental transaction ” ( as defined below ) that also is ( 1 ) an all cash transaction ; ( 2 ) a “ rule 13e-3 transaction ” under the exchange act ( where the company would be taken private ) ; or ( 3 ) a transaction involving a person or entity not traded on a national securities exchange . “ fundamental transactions ” include ( i ) a merger or consolidation of the company with or into another person or entity ; ( ii ) a sale , lease , license , transfer or other disposition of all or substantially all of the company 's assets ; ( iii ) any purchase offer , tender offer or exchange offer in which holders of company common stock are permitted to sell , tender or exchange their shares for other securities , cash or property , which offer has been accepted by the holders of 50 % or more of the company 's outstanding common stock ; ( iv ) a reclassification , reorganization or recapitalization of the common stock pursuant to which the common stock is effectively converted into or exchanged for other securities , cash or property ; or ( v ) a stock purchase or other business combination with another person or entity is effected pursuant to which such other person or entity acquires more than 50 % of the outstanding shares of common stock . pursuant to the warrants , the put rights enable the warrant holders to receive cash in the amount of the black-scholes-merton value obtained from the “ ov ” function on bloomberg , l.p. ( “ bloomberg ” ) determined as of the day of consummation of the applicable fundamental transaction for pricing purposes and reflecting ( a ) a risk-free interest rate corresponding to the u.s. treasury rate for a period equal to the time between the date of the public announcement of the applicable fundamental transaction and the warrant expiration date , ( b ) an expected volatility equal to the greater of 100 % and the 100 day volatility obtained from the hvt function on bloomberg as of the trading day immediately following the public announcement of the applicable fundamental transaction , ( c ) the underlying price per share used in such calculation shall be the sum of the price per share being offered in cash , if any , plus the value of any non-cash consideration , if any , being offered in such fundamental transaction and ( d ) a remaining option time equal to the time between the date of the public announcement of the applicable fundamental transaction and the warrant expiration date . the company recomputes the fair value of the warrants at the end of each quarterly reporting period . such value computation includes subjective input assumptions that are consistently applied each period . if the company were to alter its assumptions or the numbers input based on such assumptions , the resulting fair value could be materially different . the warrants expired during 2014 . 30 the company utilized the following assumptions to estimate the fair value of the may 10 , 2009 , may 18 , 2009 and may 21 , 2009 warrants : replace_table_token_7_th the significant assumptions using the monte carlo simulation approach for valuation of the warrants are : ( i ) risk-free interest rate . the risk-free interest rates for the warrants are based on u.s treasury constant maturities for periods commensurate with the remaining expected holding periods of the warrants . ( ii ) expected holding period . the expected holding period represents the period of time that the warrants are expected to be outstanding until they are exercised . the company utilizes the remaining contractual term of the warrants at each valuation date as the expected holding period . ( iii ) expected volatility . expected stock volatility is based on daily observations of the company 's historical stock values for a period commensurate with the remaining expected holding period on the last day of the period for which the computation is made . ( iv ) expected dividend yield . expected dividend yield is based on the company 's anticipated dividend payments over the remaining expected holding period . story_separator_special_tag primarily due to : 1 ) a decrease in production/costs of goods sold costs in 2013 of approximately $ 755,000 or 38 % as compared to the same period in 2012 ; 2 ) a decrease in research and development in 2013 of approximately $ 1,148,000 or 12 % ; 3 ) a decrease in general and administrative of approximately $ 1,333,000 or 15 % as compared to the same period in 2012 ; offset by 4 ) an increase in loss due to the recording of an impairment loss on marketable securities of $ 791,000 ; 5 ) sale in january 2013 of new jersey state net operating loss carry-forwards ( for the year 2011 ) for approximately $ 686,000 as compared to approximately $ 1,328,000 in january 2012 ( for the years 2009 and 2010 ) , representing a decrease in cash gain of approximately $ 642,000 or 48 % ; and 6 ) a decrease in interest and other income of approximately $ 815,000 from funds invested in marketable securities as compared to the prior period . 33 net loss per share was $ ( 0.10 ) for the current twelve month period versus $ ( 0.12 ) per share for the same period in 2012. the weighted average number of shares of our common stock outstanding as of december 31 , 2013 was 167,325,584 as compared to 141,016,935 as of december 31 , 2012. revenues revenues from our ampligen® cost recovery treatment program for the year ended december 31 , 2013 were approximately $ 150,000 compared to revenues of $ 213,000 for the same period in 2012 , a decrease of $ 63,000 or 30 % primarily due to the number of patients decreasing 26 % during the year ended december 31 , 2013. as of december 31 , 2013 , we had no alferon n injection® finished good product to commercially sell and all revenue was generated from the fda approved open-label treatment protocol , ( “ amp 511 ” ) , that allows patient access to ampligen ® for treatment in an open-label safety study . production costs production costs were approximately $ 1,234,000 and $ 1,989,000 , respectively , for the years ended december 31 , 2013 and 2012. this decrease of approximately $ 755,000 or 38 % was primarily due to the write-down of alferon® work in process inventory of approximately $ 1,024,000 in 2012 versus $ 453,000 in 2013 plus lower cost for the testing of finished goods inventory of approximately $ 113,000 which is being used for research purposes . research and development costs overall research and development ( “ r & d ” ) costs for the year ended december 31 , 2013 were approximately $ 8,360,000 as compared to approximately $ 9,508,000 for the same period a year ago , reflecting a decrease of approximately $ 1,148,000 or 12 % . the decreased r & d costs during 2013 were primarily due to an incentive bonus paid to dr. carter in 2012 amounting to $ 1,159,000. in addition , we experienced higher alferon® related costs for research and development of $ 809,000 offset by a decline in ampligen® research and development expenses of $ 810,000 related to clinical studies , general research and polymer production . general and administrative expenses general and administrative ( “ g & a ” ) expenses for the year ended december 31 , 2013 and 2012 , were approximately $ 7,723,000 and $ 9,056,000 , respectively , reflecting a decrease of $ 1,333,000 or 15 % . the lower g & a expenses in 2013 were primarily due to bonuses paid to mr. equels in 2012 amounting to $ 1,159,000. decreases in consulting fees of $ 185,000 , director 's fees of $ 240,000 and administrative costs within our nj facility of $ 244,000 were offset by an increase in legal fees of $ 525,000 due to the legal proceedings currently outstanding ( see `` part i - item 3 : legal proceedings '' for details ) . interest and other income interest and other income for the year ended december 31 , 2013 and 2012 were approximately $ 791,000 and $ 1,606,000 , respectively , representing a decrease of $ 801,000 or 51 % . for the year ending december 31 , 2012 , the company had sold an aggregate of 29,496,743 shares through the new atm with maxim that resulted in net cash proceeds of approximately $ 23,003,000 , as compared to an aggregate of 973,411 shares sold with maxim for net cash proceeds of approximately $ 249,000 for the same period in 2013. the cause for the decrease in investment income in 2013 was primarily due to greater value of funds available in 2012 for investment purposes during the period of the respective years . impairment loss from marketable securities impairment loss from marketable securities was $ 800,000 and $ 9,000 , respectively , for the years ended december 2013 and 2012. our analysis in 2013 of the trading value for marketable securities for the year ended december 31 , 2013 resulted in an observation that some of our investments had experienced a decrease in market value for a period of longer than the last twelve consecutive months . accordingly , an estimated impairment loss of $ 800,000 was recognized in 2013 for the sustained decrease in the respective market value . redeemable warrants the revaluation of redeemable warrants resulted in non-cash adjustments to the redeemable warrants liability for the year ended december 31 , 2013 and 2012 of approximately $ 281,000 and $ 85,000 gain , respectively , representing a non-cash , increase of $ 281,000 ( see “ note 17 : fair value ” for the various factors considered in the valuation of redeemable warrants ) .
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results of operations year ended december 31 , 2014 versus december 31 , 2013 net loss our net loss was approximately $ 17,450,000 for the year ended december 31 , 2014 , an increase in loss of approximately $ 1,225,000 or 8 % when compared to the same period in 2013. this increase in loss for the year was primarily due to the following : 1 ) an increase in general and administrative expenses of approximately $ 1,334,000 or 17 % ; 2 ) an increase in research and development of approximately $ 628,000 or 8 % ; 3 ) a decrease in the value of the redeemable warrant liability valuation adjustment of $ 267,000 or 95 % ; offset by 4 ) an increase in the cash gain from sale of new jersey state net operating loss carry-forwards of approximately $ 440,000 or 64 % as compared to the prior year ; and 5 ) a decrease in other than temporary impairment loss on marketable securities of $ 655,000 or 82 % . net loss per share was $ ( 0.09 ) and $ ( 0.10 ) for the year ended december 31 , 2014 and 2013 , respectively . the weighted average number of shares of our common stock outstanding as of december 31 , 2014 was 188,291,976 as compared to 167,325,584 as of december 31 , 2013. revenues revenues from our ampligen® cost recovery program were $ 197,000 and $ 150,000 for the year ended december 31 , 2014 and 2013 , respectively . revenues increased approximately $ 47,000 or 31 % , for the year ended december 31 , 2014 as compared to the same time period of 2013. as of december 31 , 2014 , we had no alferon n injection® finished good product to commercially sell and all revenue was generated from the fda approved open-label treatment protocol , ( “ amp 511 ” ) , that allows patient access to ampligen ® for treatment in an open-label safety study .
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our results of operations depend primarily on our net interest income . we drive our income from interest received on our loan portfolio and the fee income we receive in connection with our deposits and the sale and service of sba loans . our major operating expenses are the interest we pay on deposits , the salaries and related benefits we pay our management and staff and the rent we pay on our leased properties . we rely primarily on locally-generated deposits , mostly from the korean-american market within california , to fund our loan activities . we currently operate seven branches in los angeles county and orange county , one branch in santa clara county , and one branch in carrollton , texas . we have four loan production offices in atlanta , georgia , aurora , colorado , and lynnwood and seattle , washington . as of december 31 , 2020 , we had total assets of $ 1.37 billion , gross loans of $ 1.10 billion , total deposits of $ 1.20 billion , and total consolidated shareholders ' equity of $ 143.4 million . for the years ended december 31 , 2020 , 2019 and 2018 , we recorded net income of $ 13.1 million , $ 16.8 million , and $ 14.3 million , respectively . the following significant items are of note for the year ended december 31 , 2020 : net income totaled $ 13.1 million or $ 0.85 per diluted common share for 2020 , compared to $ 16.8 million or $ 1.03 per diluted common share for 2019 net interest income increased to $ 45.4 million , up 2.5 % from $ 44.3 million for 2019 total assets of $ 1.37 billion , a 15.9 % increase over 2020 gross loans of $ 1.10 billion , a 11.1 % increase over 2020 total deposits of $ 1.20 billion , a 17.6 % increase over 2020 shareholders ' equity of $ 143.4 million , a 2.0 % increase over 2020 covid-19 and government response the covid-19 pandemic has caused significant , unprecedented disruption around the world that has affected daily living and negatively impacted the local , state , national and global economies . the pandemic has resulted in temporary closures of many businesses and the institution of social distancing and shelter-in-place requirements in many states and communities . this has increased unemployment levels and caused extreme volatility in the financial markets . while covid-19 has negatively impacted the economy , the cares act provided for financial stimulus and government lending programs at unprecedented levels . the benefits of these programs , as well as any potential additional stimulus , to effectively support businesses and consumers within the economy are uncertain . the company was able to react quickly to these changes because of the commitment and flexibility of its workforce coupled with a well-prepared business continuity plan . the company has taken various steps to help our customers , employees , and communities , while maintaining safe and sound banking operations . the company has been assisting customers with loan deferrals and the paycheck protection program ( “ ppp ” ) loans and has provided employees remote working environment while maintaining fully functioning operations in all areas . since the pandemic has begun , the company donated $ 1.0 million through the open stewardship foundation to support small restaurants in the communities we serve . the company also donated $ 10,000 in contribution from its board of directors and employees to two local non-profit organizations to support families who are most severely impacted by the pandemic . 65 critical accounting policies and estimates our accounting and reporting policies conform to accounting principles generally accepted in the united states of america ( “ gaap ” ) and conform to general practices within the industry in which we operate . to prepare financial statements in conformity with gaap , management makes estimates , assumptions and judgments based on available information . these estimates , assumptions and judgments affect the amounts reported in the financial statements and accompanying notes . these estimates , assumptions and judgments are based on information available as of the date of the financial statements and , as this information changes , actual results could differ from the estimates , assumptions and judgments reflected in the financial statement . in particular , management has identified several accounting policies that , due to the estimates , assumptions and judgments inherent in those policies , are critical in understanding our financial statements . the following is a discussion of the critical accounting policies and significant estimates that require us to make complex and subjective judgments . additional information about these policies can be found in the “ notes to consolidated financial statements , note 1. summary of significant accounting policies. ” allowance for loan losses the allowance for loan losses ( “ all ” ) is a valuation allowance for probable incurred credit losses . loan losses are charged against the all when management believes the uncollectibility of a loan balance is confirmed . subsequent recoveries , if any , are credited to the all . management estimates the all balance required using past loan loss experience , the nature and volume of the portfolio , information about specific borrower situations and estimated collateral values , economic conditions , and other factors . allocations of the all may be made for specific loans , but the entire allowance is available for any loan that , in management 's judgment , should be charged off . the all is maintained at a level that management believes is appropriate to provide for known and inherent incurred loan losses as of the date of the consolidated balance sheet and we have established methodologies for the determination of its adequacy . the methodologies are set forth in a formal policy and take into consideration the need for an overall general valuation allowance as well as specific allowances that are determined on an individual loan basis . story_separator_special_tag our total sba loan servicing portfolio was $ 388.8 million as of december 31 , 2020 , compared to $ 347.8 million as of december 31 , 2019. the servicing assets that result from the sales of sba loans with servicing retained are amortized over the expected term of the loans using a method approximating the interest method . servicing income generally declines as the respective loans are repaid . other income and fees for 2020 were $ 1.7 million , compared to $ 2.6 million for 2019 , a decrease of $ 949,000 , or 35.9 % . the decrease was primarily attributable to a one-time gain on company owned life insurance of $ 1.2 million in the year ended december 31 , 2019 , partially offset by a gain of $ 213,000 from a sale of other property in the year ended december 31 , 2020. the company sold a property that has been used for the company 's internal use with a gain of $ 213,000 during the fourth quarter of 2020. noninterest expense noninterest expense for the year ended december 31 , 2020 was $ 31.9 million , compared to $ 32.5 million for the year ended december 31 , 2019 , a decrease of $ 580,000 , or 1.8 % . the following table sets forth the major components of our noninterest expense for the years ended december 31 , 2020 and 2019 : replace_table_token_7_th 70 salaries and employee benefits expense for the year ended december 31 , 2020 was $ 20.0 million , compared to $ 20.3 million for the year ended december 31 , 2019 , a decrease of $ 226,000 , or 1.1 % . this decrease was attributable to an increase in deferred loan origination cost , partially offset by an increase in the number of employees to support continued growth , annual salary adjustments and increased benefits costs . the increase in deferred loan costs is primarily attributable to the origination of 1,300 new loans , including 979 sba ppp loans , in the year ended december 31 , 2020 , compared to 345 new loans in the year ended december 31 , 2019. the average number of full-time equivalent employees was 171.3 in 2020 compared to 166.1 in 2019. occupancy and equipment expense for 2020 was $ 5.0 million , compared to $ 4.6 million for 2019 , an increase of $ 326,000 , or 7.0 % . this increase was primarily due the annual increase of rent under our office leases and a new branch opened in the second quarter of 2019. data processing and communication expense for 2020 was $ 1.7 million , compared to $ 1.5 million for 2019 , an increase of $ 152,000 , or 9.9 % . this increase was primarily due to supporting increased online transaction activities and supporting increased users on authentication system along with an increase in number of employees in 2020. professional fees for 2020 were $ 1.1 million , compared to $ 980,000 for 2019 , an increase of $ 121,000 , or 12.3 % . the increase was primarily due to an increase in internal audit costs in line with the company 's growth . fdic insurance and regulatory assessment expense for 2020 was $ 449,000 , compared to $ 259,000 for 2019 , an increase of $ 190,000 or 73.4 % . the fdic insurance and regulatory assessments for 2019 was lower due to the small bank assessment credits that was applied to offset the fdic assessments for the second half of 2019. directors ' fees and expenses for 2020 were $ 700,000 , compared to $ 908,000 for 2019 , a decrease of $ 208,000 or 22.9 % . directors ' fees and expenses include a monthly retainer fee , reimbursement for travel and other expenses , and stock-based expenses relating to equity awards granted to our directors in prior years under our equity plans . the decrease was primarily due to a decrease in stock-based expenses resulting from the full vesting of the restricted stock units in july 2020. directors ' stock-based expenses for 2020 and 2019 were $ 252,000 and $ 431,000 , respectively . our aggregate donations to the foundation and other charitable and community contributions for 2020 were $ 1.3 million , compared to $ 1.6 million for 2019 , a decrease of $ 251,000 , or 15.8 % . the decrease was due to decreased donation accruals for open stewardship foundation , which is directly proportionate to our after-tax net income . on an annual basis , we donate 10 % of our consolidated net income after taxes to the foundation . other expenses for 2020 were $ 1.2 million compared to $ 1.5 million for 2019 , a decrease of $ 345,000 , or 22.5 % . the decrease was primarily due to company 's proactive management of overhead expenses amid the covid-19 pandemic . income tax expense income tax expense was $ 5.1 million in 2020 , compared to $ 5.3 million in 2019. effective tax rates were 28.0 % and 24.1 % in 2020 and 2019 , respectively . the increase in the effective tax rate was primarily attributable to the less permanent difference in 2020 compared to 2019. these differences are substantially attributable to one-time proceeds from company owned life insurance received in 2019 and realizing a lower amount of tax benefits resulting from the exercise of non-qualified stock options in 2020 compared to 2019. some items of income and expense are recognized in different years for tax purposes than when applying gaap , leading to timing differences between our actual tax liability and the amount accrued for liability based on book income . these temporary differences comprise the “ deferred ” portion of our tax expense or benefit , which accumulates on our books as a deferred tax asset or deferred tax liability , until such time as they reverse .
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results of operations comparison of results of operations for the years ended december 31 , 2020 and 2019 net income we reported net income for the year ended december 31 , 2020 of $ 13.1 million , compared to net income of $ 16.8 million for the year ended december 31 , 2019. the decrease was primarily due to a $ 4.9 million increase in provision for loan losses , offset by a $ 1.1 million increase in net interest income . replace_table_token_3_th 66 net interest income the management of interest income and expense is fundamental to our financial performance . net interest income , the difference between interest income and interest expense , is the largest component of the company 's total revenue . management closely monitors both total net interest income and the net interest margin ( net interest income divided by average earning assets ) . we seek to maximize net interest income without exposing the company to an excessive level of interest rate risk through our asset and liability policies . interest rate risk is managed by monitoring the pricing , maturity and repricing options of all classes of interest-bearing assets and liabilities . our net interest margin is also adversely impacted by the reversal of interest on nonaccrual loans and the reinvestment of loan payoffs into lower yielding investment securities and other short-term investments . the following table presents , for the periods indicated , information about : ( i ) weighted average balances , the total dollar amount of interest income from interest-earning assets and the resultant average yields ; ( ii ) average balances , the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rates ; ( iii ) net interest income ; ( iv ) the interest rate spread ; and ( v ) the net interest margin .
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forward-looking statements this report , including , without limitation , the sections captioned `` business '' and `` management 's discussion and analysis of financial condition and results of operations , '' contains `` forward-looking statements '' as defined by the securities and exchange commission ( `` sec '' ) , including statements concerning contemplated transactions and strategic plans , expectations and objectives for future operations . forward-looking statements include , without limitation : statements , other than statements of historical fact , that address activities , events or developments that we expect , believe or anticipate will or may occur in the future ; statements relating to future financial or operational performance , future dividends , future capital sources and capital expenditures ; and any other statements preceded by , followed by or that include the words `` anticipates , '' `` believes , '' `` expects , '' `` plans , '' `` intends , '' `` estimates , '' `` projects , '' `` could , '' `` should , '' `` may , '' or similar expressions . although we believe that our plans , intentions and expectations reflected in or suggested by the forward-looking statements we make in this report , including this management 's discussion and analysis of financial condition and results of operations , are reasonable , we can give no assurance that such plans , intentions or expectations will be achieved . these statements are based on assumptions made by us based on our experience and perception of historical trends , current conditions , expected future developments and other factors that we believe are appropriate in the circumstances . such statements are subject to a number of risks and uncertainties , many of which are beyond our control . you are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements as a result of various factors , including but not limited to those set forth under the section captioned `` risk factors '' and contained elsewhere in this report . such factors include , among others : volatile margins in the refining industry and exposure to the risks associated with volatile crude oil prices ; the availability of adequate cash and other sources of liquidity for the capital needs of our businesses ; the ability to forecast future financial condition or results of operations and future revenues and expenses of our businesses ; the effects of transactions involving forward and derivative instruments ; disruption of the petroleum business ' ability to obtain an adequate supply of crude oil ; changes in laws , regulations and policies with respect to the export of crude oil or other hydrocarbons ; interruption of the pipelines supplying feedstock and in the distribution of the petroleum business ' products ; competition in the petroleum and nitrogen fertilizer businesses ; capital expenditures and potential liabilities arising from environmental laws and regulations ; changes in ours or the refining partnership 's or nitrogen fertilizer partnership 's credit profile ; the cyclical nature of the nitrogen fertilizer business ; the seasonal nature of the petroleum business ; the supply and price levels of essential raw materials of our businesses ; the risk of a material decline in production at our refineries and nitrogen fertilizer plants ; 57 potential operating hazards from accidents , fire , severe weather , floods or other natural disasters ; the risk associated with governmental policies affecting the agricultural industry ; the volatile nature of ammonia , potential liability for accidents involving ammonia that cause interruption to the nitrogen fertilizer business , severe damage to property and or injury to the environment and human health and potential increased costs relating to the transport of ammonia ; the dependence of the nitrogen fertilizer business on a few third-party suppliers , including providers of transportation services and equipment ; new regulations concerning the transportation of hazardous chemicals , risks of terrorism and the security of chemical manufacturing facilities ; the risk of security breaches ; the petroleum business ' and the nitrogen fertilizer business ' dependence on significant customers ; the potential loss of the nitrogen fertilizer business ' transportation cost advantage over its competitors ; the potential inability to successfully implement our business strategies , including the completion of significant capital programs ; our ability to continue to license the technology used in the petroleum business and nitrogen fertilizer business operations ; our petroleum business ' ability to purchase rins on a timely and cost effective basis ; our petroleum business ' continued ability to secure environmental and other governmental permits necessary for the operation of its business ; existing and proposed environmental laws and regulations , including those relating to climate change , alternative energy or fuel sources , and existing and future regulations related to the end-use and application of fertilizers ; refinery and nitrogen fertilizer facilities ' operating hazards and interruptions , including unscheduled maintenance or downtime , and the availability of adequate insurance coverage ; instability and volatility in the capital and credit markets ; and potential exposure to underfunded pension obligations of affiliates as a member of the controlled group of mr. icahn . all forward-looking statements contained in this report only speak as of the date of this report . we undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that occur after the date of this report , or to reflect the occurrence of unanticipated events , except to the extent required by law . 58 story_separator_special_tag refining margin benchmark is calculated by assuming that two barrels of benchmark light sweet crude oil are converted into one barrel of conventional gasoline and one barrel of distillate . this benchmark is referred to as the 2-1-1 crack spread . story_separator_special_tag the petroleum business seeks to mitigate the financial impact of scheduled downtime , such as major turnaround maintenance , through a diligent planning process that takes into account the margin environment , the availability of resources to perform the needed maintenance , feedstock logistics and other factors . the refineries generally require a facility turnaround every four to five years . the length of the turnaround is contingent upon the scope of work to be completed . the first phase of the coffeyville refinery 's most recent turnaround was completed in november 2015 at a total cost of approximately $ 102.2 million . the second phase of the coffeyville turnaround was completed during the first quarter of 2016 at a total cost of approximately $ 31.5 million . the next turnaround scheduled for the wynnewood refinery is being performed as a two phase turnaround . the first phase of its current turnaround was completed in november 2017 at a total cost of approximately $ 67.4 million . the second phase of the wynnewood turnaround is expected to occur in 2019. turnaround expenses associated with the second phase of the wynnewood turnaround are estimated to be approximately $ 25.0 million . in addition to the two phase turnaround , the petroleum business accelerated certain planned turnaround activities in the first quarter of 2017 on the hydrocracker unit for a catalyst change-out . the petroleum business incurred approximately $ 13.0 million of major scheduled turnaround expenses for the hydrocracker . nitrogen fertilizer business in the nitrogen fertilizer business , earnings and cash flows from operations are primarily affected by the relationship between nitrogen fertilizer product prices , on-stream factors and operating costs and expenses . the price at which nitrogen fertilizer products are ultimately sold depends on numerous factors , including the global supply and demand for nitrogen fertilizer products which , in turn , depends on , among other factors , world grain demand and production levels , changes in world population , the cost and availability of fertilizer transportation infrastructure , weather conditions , the availability of imports , and the extent of government intervention in agriculture markets . nitrogen fertilizer prices are also affected by local factors , including local market conditions and the operating levels of competing facilities . an expansion or upgrade of competitors ' facilities , new facility development , political and economic developments and other factors are likely to continue to play an important role in nitrogen fertilizer industry economics . these factors can impact , among other things , the level of inventories in the market , resulting in price volatility and a reduction in product margins . moreover , the industry typically experiences seasonal fluctuations in demand for nitrogen fertilizer products . as a result of a favorable global demand environment for grains , nitrogen fertilizer prices rose to near historic levels beginning in 2011. in addition , north american producers began to benefit from lower natural gas prices due to the significant increase in shale basin and other non-conventional production in the region . the combination of higher nitrogen fertilizer prices globally and a feedstock cost advantage led to high margins for north american nitrogen fertilizer producers . this resulted in numerous announcements for expansion plans for existing plants as well as new facility development in the corn belt and the gulf coast . the substantial majority of the additional supply from this expansion phase in north america came online in 2017. the nitrogen fertilizer business expects product pricing may experience volatility as the new supply displaces imports into the u.s .. however , over the longer-term the u.s. is expected to remain a net importer of nitrogen fertilizer with domestic prices influenced by the higher cost of imported tons into the u.s. since mid-2013 , global nitrogen fertilizer prices have trended down as global grain supply increased and growth in grain demand slowed due to more challenging worldwide economic considerations . while there is risk of shorter-term volatility given the inherent nature of the commodity cycle , the longer-term fundamentals for the u.s. nitrogen fertilizer industry remain intact . the nitrogen fertilizer business views the anticipated combination of ( i ) increasing global population , ( ii ) decreasing arable land per capita , ( iii ) continued evolution to more protein-based diets in developing countries , ( iv ) sustained use of corn as feedstock for the domestic production of ethanol and ( v ) positioning at the lower end of the global cost curve will continue to provide a solid foundation for nitrogen fertilizer producers in the u.s. in order to assess its operating performance , the nitrogen fertilizer business calculates the product pricing at gate as an input to determine its operating margin . product pricing at gate represents net sales less freight revenue divided by product sales volume in tons . the nitrogen fertilizer business believes product pricing at gate is a meaningful measure because it sells products at its plant gate and terminal locations ' gates ( `` sold gate '' ) and delivered to the customer 's designated delivery site ( `` sold delivered '' ) . the relative percentage of sold gate versus sold delivered can change period to period . the product pricing at gate provides a measure that is consistently comparable period to period . 62 the nitrogen fertilizer business and other competitors in the u.s. farm belt share a significant transportation cost advantage when compared to its out-of-region competitors in serving the u.s. farm belt agricultural market . the nitrogen fertilizer business ' products leave the coffeyville fertilizer facility either in railcars for destinations located principally on the union pacific railroad or in trucks for direct shipment to customers . the nitrogen fertilizer business does not currently incur significant intermediate transfer , storage , barge freight or pipeline freight charges ; however , it does incur costs to maintain and repair its railcar fleet , including expenses related to regulatory inspections and repairs . for example , many of its railcars require specific regulatory inspections and repairs due on ten-year intervals .
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overview and executive summary we are a diversified holding company primarily engaged in the petroleum refining and nitrogen fertilizer manufacturing industries through our holdings in the refining partnership and the nitrogen fertilizer partnership . the refining partnership is an independent petroleum refiner and marketer of high value transportation fuels . the nitrogen fertilizer partnership produces nitrogen fertilizers in the form of uan and ammonia . we own the general partner and approximately 66 % and 34 % , respectively , of the outstanding common units representing limited partner interests in each of the refining partnership and the nitrogen fertilizer partnership . we operate under two business segments : petroleum and nitrogen fertilizer . for the fiscal years ended december 31 , 2017 , 2016 and 2015 , we generated consolidated net sales of $ 6.0 billion , $ 4.8 billion and $ 5.4 billion , respectively , and operating income of $ 177.8 million , $ 90.9 million and $ 421.6 million , respectively . the petroleum business generated net sales of $ 5.7 billion , $ 4.4 billion and $ 5.2 billion , and the nitrogen fertilizer business generated net sales of $ 330.8 million , $ 356.3 million and $ 289.2 million , in each case , for the years ended december 31 , 2017 , 2016 and 2015 , respectively . the petroleum business generated operating income of $ 203.8 million , $ 77.8 million and $ 361.7 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively . the nitrogen fertilizer business generated operating ( loss ) income of $ ( 9.2 ) million , $ 26.8 million and $ 68.7 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively . refer to part i , item 1 , business , of this report for a detailed discussion of our business and the petroleum and nitrogen fertilizer segments .
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we are a contrarian , value-oriented investment manager in private equity , credit and real estate with significant distressed expertise and a flexible mandate in the majority of our funds which enables our funds to invest opportunistically across a company 's capital structure . we raise , invest and manage funds on behalf of some of the world 's most prominent pension , endowment and sovereign wealth funds as well as other institutional and individual investors . apollo is led by our managing partners , leon black , joshua harris and marc rowan , who have worked together for more than 24 years and lead a team of 845 employees , including 320 investment professionals , as of december 31 , 2014 . apollo conducts its management and incentive businesses primarily in the united states and substantially all of its revenues are generated domestically . these businesses are conducted through the following three reportable segments : ( i ) private equity —primarily invests in control equity and related debt instruments , convertible securities and distressed debt instruments ; ( ii ) credit —primarily invests in non-control corporate and structured debt instruments ; and ( iii ) real estate —primarily invests in real estate equity for the acquisition and recapitalization of real estate assets , portfolios , platforms and operating companies , and real estate debt including first mortgage and mezzanine loans , preferred equity and commercial mortgage backed securities . these business segments are differentiated based on the varying investment strategies . the performance is measured by management on an unconsolidated basis because management makes operating decisions and assesses the performance of each of apollo 's business segments based on financial and operating metrics and data that exclude the effects of consolidation of any of the managed funds . our financial results vary since carried interest , which generally constitutes a large portion of the income we receive from the funds that we manage , as well as the transaction and advisory fees that we receive , can vary significantly from quarter to quarter and year to year . as a result , we emphasize long-term financial growth and profitability to manage our business . in addition , the growth in our fee-generating aum during the last year has primarily been in our credit segment . the average management fee rate for these new credit products is at market rates for such products and in certain cases is below our historical rates . also , due to the complexity of these new product offerings , the company has incurred and will continue to incur additional costs associated with managing these products . to date , these additional costs have been offset by realized economies of scale and ongoing cost management . as of december 31 , 2014 , approximately 96 % of our total aum was in funds with a contractual life at inception of seven years or more , and 45 % of our total aum was considered permanent capital . as of december 31 , 2014 , we had total aum of $ 159.8 billion across all of our businesses . on december 31 , 2013 , fund viii held a final closing raising a total of $ 17.5 billion in third-party capital and approximately $ 880 million of additional - 68 - capital from apollo and affiliated investors , and as of december 31 , 2014 , fund viii had $ 16.8 billion of uncalled commitments remaining . additionally , fund vii held a final closing in december 2008 , raising a total of $ 14.7 billion , and as of december 31 , 2014 , fund vii had $ 3.2 billion of uncalled commitments remaining . we have consistently produced attractive long-term investment returns in our traditional private equity funds , generating a 39 % gross irr and a 25 % net irr on a compound annual basis from inception through december 31 , 2014 . for further detail related to fund performance metrics across all of our businesses , see “ —the historical investment performance of our funds. ” holding company structure the diagram below depicts our current organizational structure : note : the organizational structure chart above depicts a simplified version of the apollo structure . it does not include all legal entities in the structure . ownership percentages are as of the date of the filing of this annual report on form 10-k. ( 1 ) the strategic investors hold 26.79 % of the class a shares outstanding and 11.53 % of the economic interests in the apollo operating group . the class a shares held by investors other than the strategic investors represent 35.59 % of the total voting power of our shares entitled to vote and 31.51 % of the economic interests in the apollo operating group . class a shares held by the strategic investors do not have voting rights . however , such class a shares will become entitled to vote upon transfers by a strategic investor in accordance with the agreements entered into in connection with the investments made by the strategic investors . ( 2 ) our managing partners own brh holdings gp , ltd. , which in turn holds our only outstanding class b share . the class b share represents 64.41 % of the total voting power of our shares entitled to vote but no economic interest in apollo global management , llc . our managing partners ' economic interests are instead represented by their indirect beneficial ownership , through holdings , of 50.48 % of the limited partner interests in the apollo operating group . ( 3 ) through brh holdings , l.p. , our managing partners indirectly beneficially own through estate planning vehicles , limited partner interests in holdings . ( 4 ) holdings owns 56.99 % of the limited partner interests in each apollo operating group entity ( `` aog units '' ) . the aog units held by holdings are exchangeable for class a shares . our managing partners , through their interests in brh and holdings , beneficially own 50.48 % of the aog units . story_separator_special_tag apollo believes that these attributes have contributed to the success of its private equity funds investing in buyouts and credit opportunities during both expansionary and recessionary economic periods . managing business performance we believe that the presentation of economic net income ( loss ) supplements a reader 's understanding of the economic operating performance of each of our segments . economic net income ( loss ) economic net income , or eni , is a key performance measure used by management in evaluating the performance of apollo 's private equity , credit and real estate segments . management also believes the components of eni such as the amount of management fees , advisory and transaction fees and carried interest income are indicative of apollo 's performance . management uses these performance measures in making key operating decisions such as the following : — decisions related to the allocation of resources such as staffing decisions including hiring and locations for deployment of the new hires ; — decisions related to capital deployment such as providing capital to facilitate growth for the business and or to facilitate expansion into new businesses ; and — decisions related to expenses , such as determining annual discretionary bonuses and equity-based compensation awards to our employees . with respect to compensation , management seeks to align the interests of certain professionals and selected other individuals with those of the investors in the funds and those of apollo 's shareholders by providing such individuals a profit sharing interest in the carried interest income earned in relation to the funds . to achieve that objective , a certain amount of compensation is based on apollo 's performance and growth for the year . eni has certain limitations in that it does not take into account certain items included under u.s. gaap . eni represents segment income ( loss ) attributable to apollo global management , llc , which excludes the impact of ( i ) non-cash charges related to restricted share units ( `` rsus '' ) granted in connection with the 2007 private placement and amortization of aog units , ( ii ) income tax expense , ( iii ) amortization of intangibles associated with the 2007 reorganization as well as acquisitions , ( iv ) non-controlling interests ( excluding the remaining interest held by certain individuals who receive an allocation of income from certain of our credit management companies ) and ( v ) non-cash revenue and expense related to equity awards granted by unconsolidated affiliates to employees of the company . in addition , segment data excludes the assets , liabilities and operating results of the funds and vies that are included in the consolidated financial statements as such carried interest income , management fees and other revenues from these consolidated entities are reflected on an unconsolidated basis . adjustments relating to income tax expense , intangible asset amortization and non-controlling interests are common in the calculation of supplemental measures of performance in our industry . we believe the exclusion of the non-cash charges related to the 2007 reorganization for equity-based compensation provides investors with a meaningful indication of our performance because these charges relate to the equity portion of our capital structure and not our core operating performance . we believe that eni is helpful for an understanding of our business and that investors should review the same supplemental financial measure that management uses to analyze our segment performance . this measure supplements and should be considered in addition to and not in lieu of the results of operations discussed below in `` —overview of results of operations '' that have been prepared in accordance with u.s. gaap . eni may not be comparable to similarly titled measures used by other companies and is not a measure of performance calculated in accordance with u.s. gaap . we use eni as a measure of operating performance , not as a measure of liquidity . eni should not be considered in isolation or as a substitute for operating income , net income , operating cash flows , investing and financing activities , or other income or cash flow statement data prepared in accordance with u.s. gaap . the use of eni without consideration of related u.s. gaap measures is not adequate due to the adjustments described above . management compensates for these limitations by using eni as a supplemental measure to u.s. gaap results , to provide a more complete understanding of our performance as management measures it . a reconciliation of eni to our u.s. gaap net income ( loss ) attributable to apollo global management , llc can be found in the notes to our consolidated financial statements . - 70 - operating metrics we monitor certain operating metrics that are common to the alternative investment management industry . these operating metrics include assets under management , private equity dollars invested and uncalled private equity commitments . assets under management assets under management , or aum , refers to the assets we manage for the funds , partnerships and accounts to which we provide investment management services , including , without limitation , capital that such funds , partnerships and accounts have the right to call from investors pursuant to capital commitments . our aum equals the sum of : ( i ) the fair value of the investments of the private equity funds , partnerships and accounts we manage plus the capital which such funds , partnerships and accounts are entitled to call from investors pursuant to capital commitments ; ( ii ) the net asset value ( `` nav '' ) of the credit funds , partnerships and accounts for which we provide investment management services , other than certain clos and cdos , which have a fee generating basis other than the mark-to-market value of the underlying assets , plus used or available leverage and or capital which such funds , partnerships and accounts are entitled to call from investors pursuant to capital commitments ; ( iii ) the gross asset value or net asset value of the real estate funds , partnerships and accounts we manage ,
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results of operations below is a discussion of our consolidated results of operations for the years ended december 31 , 2014 , 2013 , and 2012. for additional analysis of the factors that affected our results at the segment level , see “ —segment analysis ” below : replace_table_token_22_th note : “ nm ” denotes not meaningful . changes from negative to positive amounts and positive to negative amounts are not considered meaningful . increases or decreases from zero and changes greater than 500 % are also not considered meaningful . - 93 - revenues year ended december 31 , 2014 compared to year ended december 31 , 2013 our revenues and other income include fixed components that result from measures of capital and asset valuations and variable components that result from realized and unrealized investment performance , as well as the value of successfully completed transactions . advisory and transaction fees from affiliates , net , increased by $ 119.0 million for the year ended december 31 , 2014 as compared to the year ended december 31 , 2013. this change was attributable to an increase in the credit segment of $ 140.5 million offset by a decrease in the private equity segment of $ 20.1 million . the increase in the credit segment was primarily attributable to an increase in monitoring fees from athene of $ 118.5 million as a result of athene 's acquisition of aviva usa . the decrease in the private equity segment was primarily attributable to lower net advisory fees due to the realization of underlying investments , termination fees and waived fees related to debt investment vehicles , taminco , realogy and caesars entertainment that occurred during the year ended december 31 , 2013 and lower net transaction fees earned for the year ended december 31 , 2014 compared to 2013. advisory and transaction fees are reported net of management fee offsets as calculated under the terms of the applicable limited partnership agreements .
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this discussion should be read in conjunction with forward-looking statements and our consolidated financial statements and notes thereto appearing elsewhere in this form 10-k . this discussion and analysis also addresses our liquidity and financial condition and other matters . general we are a diversified , global medical device company focused on developing and delivering innovative repair and regenerative solutions to the spine and orthopedic markets along with offering a portfolio of non-invasive products to treat a variety of sports medicine related conditions in order to minimize pain and restore mobility . our products are designed to address the lifelong bone-and-joint health needs of patients of all ages , helping them achieve a more active and mobile lifestyle . we design , develop , manufacture , market and distribute medical equipment used principally by musculoskeletal medical specialists for orthopedic applications . our main products are invasive and minimally invasive spinal implant products and related human cellular and tissue based products ( hct/p products ) , non-invasive regenerative stimulation products used to enhance bone growth and the success rate of spinal fusions and to treat non-union fractures , external and internal fixation devices used in fracture repair , limb lengthening and bone reconstruction ; and bracing products used for ligament injury prevention , pain management and protection of surgical repair to promote faster healing . our products also include cold therapy , bone cement and devices for removal of bone cement used to fix artificial implants . our 2011 results and financial condition include the following items of significance : · overall our orthopedics revenue grew 11 % or $ 16.7 million dollars during 2011 as compared to 2010. spine revenues , which includes stimulation , declined $ 2.1 million in 2011 or 1 % versus 2010. the decrease was primarily the result of a 7 % decrease in sales in our spine stimulation products in 2011 partially offset by a 7 % increase in revenues from spine implants and biologics . additionally , our sports medicine revenue increased 8 % which included $ 4.7 million of incremental sales from an additional billing capability added in february 2011 . · a decrease in gross profit margin from 76.7 % in 2010 to 76 % in 2011 which was primarily a result of increased pricing pressures in the u.s. spinal implants and sports medicine markets , an unfavorable product and geographical sales mix and a negative impact of the change in foreign currency rates . · an increase in operating expenses , as a percentage of net sales as compared to prior period is primarily the result of the resolution of three outstanding u.s. government matters during the year . operating expenses were lower in 2011 versus 2010 , after excluding such expenses along with removing the gain associated with the vascular divesture in 2010. please refer to the explanation provided in our liquidity and capital resources section of the management discussion and analysis . we have administrative and training facilities in the u.s. and italy and manufacturing facilities in the u.s. , the united kingdom , italy and mexico . we directly distribute our products in the u.s. , the united kingdom , italy , germany , switzerland , austria , france , belgium , brazil , and puerto rico . in several of these and other markets , we also distribute our products through independent distributors . our consolidated financial statements include the financial results of our company and our wholly-owned and majority-owned subsidiaries and entities over which we have control . all intercompany accounts and transactions are eliminated in consolidation . our reporting currency is the u.s. dollar . all balance sheet accounts , except shareholders ' equity , are translated at year-end exchange rates , and revenue and expense items are translated at weighted average rates of exchange prevailing during the year . gains and losses resulting from foreign currency transactions are included in other income and expense . gains and losses resulting from the translation of foreign currency financial statements are recorded in the accumulated other comprehensive income component of shareholders ' equity . our financial condition , results of operations and cash flows are not significantly impacted by seasonality trends . however , sales associated with products for elective procedures appear to be influenced by the somewhat lower level of such procedures performed in the late summer . certain of the breg ® bracing products experience greater demand in the fall and winter corresponding with high school and college football schedules and winter sports . in addition , we do not believe our operations will be significantly affected by inflation . however , in the ordinary course of business , we are exposed to the impact of changes in interest rates and foreign currency fluctuations . our objective is to limit the impact of such movements on earnings and cash flows . in order to achieve this objective , we seek to balance non-dollar denominated income and expenditures . during the year , we have used derivative instruments to hedge foreign currency fluctuation exposures . see item 7aquantitative and qualitative disclosures about market risk. 38 critical accounting policies and estimates our discussion of operating results is based upon the consolidated financial statements and accompanying notes to the consolidated financial statements prepared in conformity with us gaap . the preparation of these statements necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period . these estimates and assumptions form the basis for the carrying values of assets and liabilities . on an ongoing basis , we evaluate these estimates , including those related to contractual allowances , doubtful accounts , inventories , potential intangible assets and goodwill impairment , income taxes , and share-based compensation . we base our estimates on historical experience and various other assumptions . actual results may differ from these estimates . story_separator_special_tag we assess goodwill for impairment at the reporting unit level , which is defined as an operating segment or one level below an operating segment , referred to as a component . we have identified three reporting units , which are consistent with our reporting segments ; spine , orthopedics , and sports medicine . in 2011 , we adopted accounting standards update ( asu ) no . 2011-08 , intangibles - goodwill and other ( topic 350 ) : testing goodwill for impairment . this guidance does not represent an accounting change , but rather an alternative approach to the existing guidance . under the amendment , the company is not required to calculate the fair value of a reporting unit unless the company determines that it is more likely than not that its fair value is less than the carrying amount . asu 2011-08 permits the company to assess the qualitative factors while performing this step zero analysis . in performing the annual impairment test , which is performed during the fourth quarter or more frequently when impairment indicators exist , after assessing the qualitative factors in step zero , we utilize the two-step approach prescribed . the first step requires a comparison of each reporting unit 's carrying value to the fair value of the respective unit ( see additional discussions below ) . if the carrying value exceeds the fair value , a second step is performed to measure the amount of impairment loss , if any . no impairments were recorded during 2011 and 2010. carrying value in order to calculate the respective carrying values , we record goodwill based on the purchase price allocation performed at the time of acquisition . corporate assets and liabilities that directly relate to a reporting unit 's operations are ascribed directly to that reporting unit . corporate assets and liabilities that are not directly related to a specific reporting unit , but from which the reporting unit benefits , are allocated based on the respective contribution measure of each reporting unit . fair value the fair value of each reporting unit is estimated , entirely or predominantly , using an income based approach . this income approach utilizes a discounted cash flow ( dcf ) , which estimates after-tax cash flows on a debt free basis , discounted to present value using a risk-adjusted discount rate . we believe the dcf generally provides the most meaningful fair value as it appropriately measures our income producing assets . we may consider using a cost approach but generally believe it is not appropriate , given the inability to replicate the value of the specific technology-based assets within our reporting units . in circumstances when the dcf indicator of fair value is not sufficiently conclusive to support the carrying value of a reporting unit , or when other measures provide a more appropriate indicator , we may consider a market approach in our determination of the reporting unit 's fair value . in performing a dcf calculation , we are required to make assumptions about the amount and timing of future expected cash flows , terminal value growth rates and appropriate discount rates . in connection with these estimates , we consider the following : · the determination of expected cash flows is based on our strategic plans and long-range planning forecasts which , to the extent reasonably possible , reflect anticipated changes in the economy and the industry . revenue growth rates represent estimates based on current and forecasted market conditions . the profit margin assumptions are projected by each reporting unit based on historical margins , the current cost structure and anticipated net cost reductions . · the terminal value growth rate is used to calculate the value of cash flows beyond the last projected period in the dcf . this rate reflects our estimates for stable , perpetual growth for each reporting unit . · the discount rates are based on the reporting unit 's risk-adjusted weighted average cost of capital , using assumptions consistent with publicly traded guideline companies operating within the medical device industry as well as our specific risk factors for each reporting unit . 40 management utilizes its operational and industry experience to address these assumptions with best estimates . to corroborate our calculations , we reconciled our total market capitalization value to the collective fair value of the four reporting units . we believe this analysis , for the current year , provided an implied control premium consistent with the current industry average . spine and orthopedics reporting units the fair value of for these three reporting units has been established entirely using a dcf method . these dcf results concluded the fair value for each reporting unit significantly exceeded the respective carrying values at december 31 , 2011. the methodology used to calculate assumptions in the december 31 , 2011 dcf were consistent with that in the prior year . this approach appropriately considered adjustments for changes in the economic climate . sports medicine reporting unit the estimated fair value for our sports medicine reporting unit , which accounts for $ 106.3 million of goodwill , exceeded the relating carrying value by approximately 8 % . the fair value was estimated entirely using a dcf model . this compares to the prior year , in which our fair value estimate also considered indications using a market approach . given the lack of similar circumstances and events , that provided market based indications of fair value in the prior year , we determined a dcf model most appropriately reflected the sports medicine gbu 's fair value in the current year . the projected cash flows assume revenue growth , which is consistent with historical activity and reflective of recent investments in the reporting unit . the dcf model further reflects , what we believe , to be appropriate discount and terminal growth rate assumptions .
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general and administrative expense general and administrative expense decreased $ 0.3 million , or 1 % , in 2010 to $ 88.6 million compared to $ 88.9 million in 2009. in 2010 general and administrative expense included $ 2.0 million related to employee termination benefits associated with our internal reorganization which will streamline operations and is expected to lower future operating costs . in 2010 we recorded $ 9.2 million of legal expenses associated with the doj investigation of the bone growth stimulation industry and our internal investigation into compliance with the foreign corrupt practices act at our distribution subsidiary in mexico . in 2010 , we experienced a lower than normal share-based compensation expense related to stock options and awards , as we did not grant any in 2010. in 2009 , we recorded a $ 3.6 million restructuring charge to consolidate substantially all of spinal implants and biologics ' operations previously conducted in wayne , nj and springfield , ma into the same facility housing our spine stimulation and u.s. orthopedics business in the dallas , tx area . in addition , during the first quarter of 2009 , we incurred $ 0.7 million of costs incurred in connection with a proxy contest . we also recorded an $ 0.8 million accrual during 2009 for potential royalties payable in connection with litigation . legal expenses , that are unrelated to the matters above , totaled $ 8.3 million in 2010 compared to $ 12.1 million in 2009. general and administrative expense as a percent of sales was 15.7 % in 2010 compared to 16.3 % in 2009. research and development expense research and development expense decreased $ 1.1 million in 2010 to $ 30.4 million compared to $ 31.5 million in 2009. during 2010 , we incurred $ 4.6 million in expenses related to research and development projects associated with our orthopedics business .
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as a result , a subsidiary of the company merged with rfs pharma , llc , a georgia limited liability company ( “ rfs pharma ” ) . our primary business going forward is to develop novel medicines for use in the treatment of human viral diseases . discovery has been developing novel technologies and approaches to create first-in-class and best-in-class antiviral drug candidates since its initial funding in 2008. our focus is to pursue the development and commercialization of broad-spectrum antiviral drug candidates that will transform the treatment and prophylaxis of viral diseases in humans . by concentrating our research and development efforts on viral replication inhibitors , we plan to leverage our infrastructure and expertise in these areas . 36 story_separator_special_tag the year ended december 31 , 2016 also included a gain of $ 2,603,000 due to a decrease in the fair value of our derivative liabilities , offset by an impairment loss of $ 1,177,000 related to our mortgage note receivable . income taxes for the year ended december 31 , 2017 , we recorded an income tax benefit of $ 6,880,000 , primarily as a result of reduction of our deferred tax liability which was caused by recent tax law changes lowering the corporate tax rate to 21 % . for the year ended december 31 , 2016 , we recorded an income tax benefit of $ 29,394,000 resulting from reduction of our deferred tax liability primarily stemming from the impairment loss recorded for the company 's in-process research and development . for the years ended december 31 , 2016 and december 31 , 2015 research and development expense research and development expense consists primarily of compensation-related costs for our employees dedicated to research and development activities and for our scientific advisory board members , as well as lab supplies , lab services , and facilities and equipment costs . total research and development expenses were $ 101,679,000 for the year ended december 31 , 2016 , compared with $ 47,261,000 for the year ended december 31 , 2015. this increase of $ 54,418,000 is primarily the result of recognizing an impairment loss on ipr & d of $ 92,396,000 in 2016 as compared to an impairment loss of $ 38,665,000 in 2015. excluding the impact of the ipr & d impairment charges in each period , research and development expenses were $ 9,283,000 for the year ended december 31 , 2016 , which is an increase of $ 687,000 from $ 8,596,000 for the year ended december 31 , 2015. general and administrative expense general and administrative expense includes compensation-related costs for our employees dedicated to general and administrative activities , legal fees , audit and tax fees , consultants and professional services , and general corporate expenses . general and administrative expenses were $ 4,140,000 for the year ended december 31 , 2016 , compared with $ 6,765,000 for the year ended december 31 , 2015. this decrease of $ 2,625,000 is primarily the result of lower stock option expense due to the resignation of the ceo and cmo during the year . because we had assumed a zero forfeiture rate related to these options , expense associated with these options that had been recorded in previous periods was reversed during 2016 , since none of these options had vested prior to forfeiture . interest income/expense interest income was $ 126,000 for the year ended december 31 , 2016 , compared to $ 180,000 for the year ended december 31 , 2015. these amounts primarily represent interest earned on the mortgage note we acquired in june 2015. other income/expense other income , net , was $ 1,551,000 for the year ended december 31 , 2016 compared with other expense , net of $ 11,422,000 for the year ended december 31 , 2015. other income , net for the year ended december 31 , 2016 primarily consists of a gain recognized from a decrease in the fair value of our derivative liabilities as our stock price decreased offset by an impairment loss of $ 1,177,000 related to our mortgage note receivable . other expense for the year ended december 31 , 2015 is primarily due to a loss of $ 9,916,000 associated with an increase in the fair value of our derivative liabilities as our stock price increased . 38 in the year ended december 31 , 2015 , we also recorded other expense of $ 1,686,000 related to a loss of shares that were previously held in escrow related to our sale of certain assets to musclepharm . these shares were to be held in escrow but instead were released by the escrow agent to musclepharm , which resulted in us recording a loss upon release of these shares . income taxes for the year ended december 31 , 2016 , we recorded an income tax benefit of $ 29,394,000 resulting from reduction of our deferred tax liability primarily stemming from the impairment loss recorded for the company 's in-process research and development asset . for the year ended december 31 , 2015 , we recorded an income tax benefit of $ 15,248,000 , also primarily stemming from the impairment loss recorded for the company 's in-process research and development tax asset . liquidity and capital resources for the year ended december 31 , 2017 , net cash used in operating activities was $ 6,903,000 , compared to net cash used in operating activities of $ 14,655,000 for 2016. the decrease in cash used in operating activities from 2017 to 2016 was attributable to reduced spending in research and development activities following the completion of the hcv phase 1 clinical trials . in 2017 , net cash used in investing activities consisted of $ 40,000 in capital expenditures for lab equipment . for 2016 , our net cash provided by investing activities netted to $ 3,000 , which consisted of receipts related to our mortgage note offset by capital expenditures primarily for lab equipment for our r & d facilities . story_separator_special_tag critical accounting policies and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles , or gaap . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities and expenses . on an ongoing basis , we evaluate these estimates and judgments , including those described below . we base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances . these estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results and experiences may differ materially from these estimates . while our significant accounting policies are more fully described in the accompanying notes to the consolidated financial statements included in this annual report on form 10-k for the year ended december 31 , 2017 , we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we use in the preparation of our consolidated financial statements . 40 stock-based compensation we account for stock options related to our equity incentive plans under the provisions of financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) 718 which requires the recognition of the fair value of stock-based compensation . the fair value of stock options is estimated using a black-scholes option valuation model . this model requires the input of subjective assumptions including expected stock price volatility , expected life and estimated forfeitures of each award . the fair value of equity-based awards is amortized ratably over the requisite service period of the award . due to the limited amount of historical data available to us , particularly with respect to stock-price volatility , employee exercise patterns and forfeitures , actual results could differ from our assumptions . fair value of warrants warrants are recorded either as equity instruments or derivative liabilities . in the case of warrants recorded as liabilities , they are recorded at their estimated fair value at the date of issuance . subsequent changes in estimated fair value are recorded in other income ( expense ) in the company 's statement of operations in each subsequent period . the warrants are measured at estimated fair value using the black scholes valuation model , which is based , in part , upon inputs for which there is little or no observable market data , requiring the company to develop its own assumptions . inherent in this model are assumptions related to expected stock price volatility , expected life , risk-free interest rate and dividend yield . we estimate the volatility of our common stock at the date of issuance , and at each subsequent reporting period , based on a combination of the historical implied volatility of our own stock price and that of a group of comparable companies , that matches the expected remaining life of the warrants . the risk-free interest rate is based on the u.s. treasury zero-coupon yield curve on the measurement date for a maturity similar to the expected remaining life of the warrants . the expected life of the warrants is assumed to be equivalent to their remaining contractual term . the dividend rate is based on our historical rate , which we anticipate to remain at zero . the assumptions used in calculating the estimated fair value of the warrants represent our best estimates . however , these estimates involve inherent uncertainties and the application of management judgment . as a result , if factors change and different assumptions are used , the warrant liability and the change in estimated fair value could be materially different . business combinations and intangible assets in connection with our acquisition of rfs pharma in november 2014 , we acquired a substantial amount of intellectual property . we have accounted for the intellectual property acquired as an in-process research and development ( ipr & d ) asset and have determined that asset to have an indefinite life based on the stage of development of the research projects of rfs pharma at the date of acquisition . this intangible asset , which we recorded at its estimated fair value of $ 185.0 million as of the acquisition date , will continue to have an indefinite life until the associated research and development activities are complete , at which point a determination of the asset 's useful life will be made . prior to completion of these research and development activities , the intangible asset will be subject to annual impairment tests , or more frequent tests in the event of any impairment indicators occurring . these impairment tests require significant judgment regarding the status of the research activities , the potential for future revenues to be derived from any products that may result from those activities , and other factors . the company conducts its annual impairment test related to the in-process research and development asset as of november 30 each year . the initial valuation recorded in november 2014 at the time of the rfs pharma acquisition represented the fair value of the acquired hepatitis c program acquired from rfs pharma . we perform our impairment test using the income approach ( also known as the discounted cash flow ( “ dcf ” ) method , which utilizes the present value of future cash flows to estimate fair value . ) the future cash flows for our hepatitis c assets are projected based upon our estimates of future revenues , operating income and other factors ( such as working capital and capital expenditures ) .
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results of operations for the years ended december 31 , 2017 and december 31 , 2016 as stated above , we are focused on research and development of novel medicines for use in the treatment of human viral diseases . accordingly , we had no revenue for the years ended december 31 , 2017 or 2016. for the year ended december 31 , 2017 , we had a net loss of $ 613,000 compared to a net loss of $ 74,874,000 for 2016. this net loss for the year was due to losses from ongoing operations , offset by income tax benefits . the 2016 losses were primarily due to an impairment loss of $ 92,396,000 on our ipr & d , $ 13,400,000 from ongoing operations , $ 1,177,000 impairment on our mortgage note , offset by a $ 29,394,000 deferred tax benefit associated with the impairment charge incurred on our ipr & d asset . our operating loss for the year ended december 31 , 2017 was $ 8,262,000 , compared to an operating loss of $ 105,819,000 in 2016. the operating loss for 2016 included the impairment charge of $ 92,369,000 on our ipr & d asset noted above . other income was $ 769,000 for the year ended december 31 , 2017 , which is primarily due to a $ 907,000 gain on the fair value of derivative liabilities . under accounting principles generally accepted in the united states , we record other income or expense for the change in fair value of our outstanding warrants that are accounted for as liabilities during each reporting period . if the value of the warrants decreases during a period , which occurred during the year ended december 31 , 2017 , we record other income .
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s-1 filed with the sec on february 2 , 2015 ) 10.1+ executive employment agreement dated as of march 22 , 2005 between xbiotech and john simard ( incorporated by reference to exhibit 3.1 to the company 's registration statement on form s-1 filed with the sec on february 2 , 2015 ) 10.2+ change in control agreement dated as of march 22 , 2005 between xbiotech and john simard ( incorporated by reference to exhibit 3.1 to the company 's registration statement on form s-1 filed with the sec on february 2 , 2015 ) 10.3 confidentiality and assignment of inventions agreement dated as of march 22 , 2005 between xbiotech and john simard ( incorporated by reference to exhibit 3.1 to the company 's registration statement on form s-1 filed with the sec on february 2 , 2015 ) 10.4+ xbiotech 2005 incentive stock option plan ( incorporated by reference to exhibit 3.1 to the company 's registration statement on form s-1 filed with the sec on february 2 , 2015 ) 10.5+ form of indemnification agreement between xbiotech and each director of xbiotech ( incorporated by reference to exhibit 3.1 to the company 's registration statement on form s-1 filed with the sec on february 2 , 2015 ) 10.6 agreement of lease by and between nnn met center 4-9 , lp and xbiotech usa , inc. dated january 14 , 2008 and the first amendment dated january 17 , 2008 , the second amendment dated august 2010 and the third amendment dated march 2013 and the forth amendment dated february 28 , 2015 ( incorporated by reference to exhibit 3.1 to the company 's registration statement on form s-1 filed with the sec on march 10 , 2015 ) 10.7 agreement of lease by and between nnn met center 4-9 , llp and xbiotech usa , inc. for suite 600 dated august 16 , 2010 and first amendment dated march 2013 and the second amendment dated february 28 , 2015 ( incorporated by reference to exhibit 3.1 to the company 's registration statement on form s-1 filed with the sec on march 10 , 2015 ) 10.8+ board member agreement dated november 4 , 2014 between xbiotech , inc. and daniel vasella ( incorporated by reference to exhibit 3.1 to the company 's registration statement on form s-1 filed with the sec on february 2 , 2015 ) 10.9 licensing agreement dated january 16 , 2015 between xbiotech story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes thereto 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 xbiotech inc. is a clinical-stage biopharmaceutical company engaged in discovering and developing true human monoclonal antibodies for treating a variety of different diseases . true human monoclonal antibodies are those which occur naturally in human beings—as opposed to being derived from animal immunization technologies or otherwise engineered . we believe that naturally occurring monoclonal antibodies have the potential to be safer and more effective than their non-naturally occurring counterparts . while primarily focused on bringing our lead product candidate , xilonix , to market , we have also developed a proprietary true human monoclonal antibody discovery platform and manufacturing system . we have never been profitable and , as of december 31 , 2016 , we had an accumulated deficit of $ 183.4 million . we had a net loss of $ 52.8 million for the year ended december 31 , 2016 , compared to $ 37.5 million for the year ended december 31 , 2015 , and $ 21.7 million for the year ended december 31 , 2014. we expect to incur significant and increasing operating losses for the foreseeable future as we advance our drug candidates from discovery through preclinical testing and clinical trials and seek regulatory approval and eventual commercialization . in addition to these increasing research and development expenses , we expect general and administrative costs to increase as we add personnel and operate as a public company . we will need to generate significant revenues to achieve profitability , and we may never do so . as of december 31 , 2016 , we had 106 employees . recent events : clinical trial and construction of the new manufacturing facility highlights as of march 2017 , xbiotech has achieved some significant milestones with lead product candidate and 514g3 programs . enrollment in a phase iii symptomatic colorectal cancer study has . as the study endpoints were satisfactorily met , xbiotech has proceeded with the submission of a marketing authorization application ( maa ) to the european medicines agency ( ema ) in march 2016. xbiotech also completed enrollment in a second phase iii study , a double-blind placebo controlled study for improving survival in metastatic colorectal cancer . a total of 643 patients were randomized in over twenty countries globally and the first interim analysis was successfully completed in february 2017. we have also completed a pharmacokinetics study with our lead product candidate which was conducted in connection with the maa . furthermore , xbiotech successfully completed its global staphylococcus aureus ( s. aureus ) bacteremia phase i/ ii study with 514g3 , a novel true human therapeutic antibody for treating serious infections due to s. aureus . story_separator_special_tag while our significant accounting policies are more fully described in the notes to our financial statements appearing in this annual report on form 10-k , we believe that the following accounting policies are the most critical to understanding and evaluating our reported financial results . stock-based compensation stock-based awards are measured at fair value at each grant date . we recognize stock-based compensation expenses ratably over the requisite service period of the option award . determination of the fair value of stock-based compensation grants the determination of the fair value of stock-based compensation arrangements is affected by a number of variables , including estimates of the expected stock price volatility , risk-free interest rate and the expected life of the award . we value stock options using the black-scholes option-pricing model , which was developed for use in estimating the fair value of traded options that are fully transferable and have no vesting restrictions . black-scholes option-pricing model and other option valuation models require the input of highly subjective assumptions , including the expected stock price volatility . if we made different assumptions , our stock-based compensation expenses , net loss , and net loss per common share could be significantly different . prior to our initial public offering in april 2015 , we issued common stock for cash consideration to investors . we believe that such transactions represent the best evidence of fair value of our common stock . therefore , we used the sales price of our common stock prior to our initial public offering ( ipo ) in april 2015 as the fair value of our common stock . after our ipo , we determine that the fair value of common stock is equal to the closing price of the company 's common stock as reported by nasdaq on the option grant date . the following summarizes the assumptions used for estimating the fair value of stock options granted during the periods indicated : replace_table_token_4_th we have assumed no dividend yield because we do not expect to pay dividends in the foreseeable future , which is consistent with our past practice . the risk-free interest rate assumption is based on observed interest rates for u.s. treasury securities with maturities consistent with the expected life of our stock options . the expected life represents the period of time the stock options are expected to be outstanding and is based on the simplified method when the stock option includes “ plain vanilla ” terms . under the simplified method , the expected life of an option is presumed to be the midpoint between the vesting date and the end of the agreement term . we used the simplified method due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected life of the stock options . for stock options that did not include “ plain vanilla ” terms , we used the contractual life of the stock option as the expected life . such stock options consisted primarily of options issued to our board of directors that were immediately vested at issuance . expected volatility is based on historical volatilities for publicly traded stock of comparable companies over the estimated expected life of the stock options . as part of the requirements of asc 718 , the company is required to estimate potential forfeitures of stock grants and adjust compensation cost recorded accordingly . we based our estimate of pre-vesting forfeitures , or forfeiture rate , on historical forfeiture rates . we apply the estimated forfeiture rate to the total estimated fair value of the awards , as derived from the black-scholes model , to compute the share-based compensation expenses , net of pre-vesting forfeitures , to be recognized in our consolidated statements of operations . 43 story_separator_special_tag > replace_table_token_8_th during the years ended december 31 , 2016 , 2015 and 2014 , our operating activities used net cash of $ 46.0 million , $ 33.3 million and $ 11.7 million , respectively . the use of net cash in each of these periods primarily resulted from our net losses . the increase in net loss from operations for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 and 2014 was mainly due to the increase in clinical trial and manufacturing activities , as well as , the growing size of our workforce . during the years ended december 31 , 2016 , 2015 and 2014 , our investing activities used net cash of $ 13.9 million , $ 10.4 million , and $ 1.4 million , respectively . we spent approximately $ 9.2 million on the construction of our new manufacturing facility and building during the year ended december 31 , 2016. we also spent $ 2.4 million more on purchases of scientific equipment during the year ended december 31 , 2016 , compared to $ 2.3 million during the year ended december 31 , 2015. during the years ended december 31 , 2016 , 2015 and 2014 , our financing activities provided net cash proceeds of $ 2.9 million , $ 77.5 million and $ 63.2 million , respectively . during the year ended december 31 , 2016 , employees exercised stock options to purchase a total of 204,159 shares of our common stock for approximately $ 1.1 million in net proceeds . also , we sold 144,426 shares under a common stock sales agreement with h.c. wainwright & co. llc for net proceeds of approximately $ 1.8 million . during the year ended december 31 , 2015 , we received ipo proceeds of $ 76.0 million and incurred offering costs of $ 5.4 million , which consisted of underwriters ' commission direct incremental legal , accounting and other professional service fees related to our ipo . on september 26 , 2016 , we entered into a common stock sales agreement with h.c. wainwright & co. llc , which
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results of operations revenue we did not record any revenue during the years ended december 31 , 2016 , 2015 and 2014. expenses research and development research and development costs are summarized as follows ( in thousands ) : replace_table_token_5_th we do not currently track our internal research and development costs or our personnel and related costs on an individual drug candidate basis . we use our research and development resources , including employees and our drug discovery technology , across multiple drug development programs . as a result , we can not state precisely the costs incurred for each of our research and development programs or our clinical and preclinical drug candidates . research and development expenses increased by 36 % to $ 42.5 million for year ended december 31 , 2016 compared to $ 31.3 million for the year ended december 31 , 2015. the increase in research and development expenses for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 was due to a $ 5.2 million increase of clinical trial activities and sponsored research expense , related to an expansion of clinical sites globally . in addition , there was a continued increase in laboratory and manufacturing supplies expense due to the increase of manufacturing processing development activities , research activities , quality control activities and the validation of equipment in the new manufacturing facility . the increase is also due to higher salaries and related expenses in 2016 due to the growing size of our workforce from 70 to 96. we also incurred increased allocated facility expense due to the facility expense incurred in the new manufacturing facility . stock–based compensation increased due to the issuance of stock options to new employees .
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asu 2014-15 defines when and how companies are required to disclose going concern uncertainties , which must be evaluated each interim and annual period . specifically , the asu requires management to determine whether substantial doubt exists regarding the entity 's going concern presumption . substantial doubt about an entity 's ability to continue as a going concern exists when relevant conditions and events , considered in the aggregate , indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the financial statements are issued ( or available to be issued ) . if substantial doubt exists , certain disclosures are required ; the extent of those disclosures depends on an evaluation of management 's plans ( if any ) to mitigate the going concern uncertainty . the guidance is effective for fiscal years ending after december 15 , 2016 and for interim periods within that fiscal year . the company has adopted this guidance during the year ended december 31 , 2016. in november 2015 , the fasb issued guidance on the classification of deferred taxes , asu no . 2015-17 , balance sheet classification of deferred taxes . asu 2015-17 eliminates the guidance in topic 740 , income taxes , that required an entity to separate deferred story_separator_special_tag the following discussion and analysis should be read in conjunction with the consolidated financial statements included elsewhere in this report . company overview the company was formerly incorporated in nevada under the name biozone pharmaceuticals , inc. on january 2 , 2014 , the company sold substantially all of its assets to musclepharm corporation ( “ musclepharm ” ) , and , on the same day , merged with cocrystal discovery , inc. in a transaction accounted for as a reverse merger . following the merger , the company assumed cocrystal discovery , inc. 's business plan and operations . on march 18 , 2014 , the company reincorporated in delaware under the name cocrystal pharma , inc. effective november 25 , 2014 , cocrystal pharma , inc. and affiliated entities completed a series of merger transactions as a result of which cocrystal pharma , inc. merged with rfs pharma , llc , a georgia limited liability company ( “ rfs pharma ” ) . we refer to the surviving entity of this merger as “ cocrystal ” or the “ company. ” 33 our primary business going forward is to develop novel medicines for use in the treatment of human viral diseases . cocrystal has been developing novel technologies and approaches to create first-in-class and best-in-class antiviral drug candidates since its initial funding in 2008. our focus is to pursue the development and commercialization of broad-spectrum antiviral drug candidates that will transform the treatment and prophylaxis of viral diseases in humans . by concentrating our research and development efforts on viral replication inhibitors , we plan to leverage our infrastructure and expertise in these areas . story_separator_special_tag income , net for the year ended december 31 , 2016 primarily consists of a gain recognized from a decrease in the fair value of our derivative liabilities as our stock price decreased offset by an impairment loss of $ 1,177,000 related to our mortgage note receivable . other expense for the year ended december 31 , 2015 is primarily due to a loss of $ 9,916,000 associated with an increase in the fair value of our derivative liabilities as our stock price decreased . in the year ended december 31 , 2015 , we also recorded other expense of $ 1,686,000 related to a loss shares that were previously held in escrow related to our sale of certain assets to musclepharm . these shares were to be held in escrow but instead were released by the escrow agent to musclepharm , which resulted in us recording a loss upon release of these shares . income taxes for the year ended december 31 , 2016 , we recorded an income tax benefit of $ 29,394,000 resulting from reduction of our deferred tax liability primarily stemming from the impairment loss recorded for the company 's in-process research and development . for the years ended december 31 , 2015 and december 31 , 2014 research and development expense research and development expense consists primarily of compensation-related costs for our employees dedicated to research and development activities and for our scientific advisory board members , as well as lab supplies , lab services , and facilities and equipment costs . total research and development expenses were $ 47,261,000 for the year ended december 31 , 2015 , compared with $ 4,071,000 for the year ended december 31 , 2014. this increase of $ 43,190,000 is primarily the result of recognizing an impairment loss on our ipr & d intangible asset of $ 38,665,000 as well as reporting a full year of operations reflecting the merger of rfs pharma , which occurred in november 2014. laboratory services increased $ 2,814,000 , personnel costs increased $ 1,142,000 and professional fees increased $ 569,000. general and administrative expense general and administrative expense includes compensation-related costs for our employees dedicated to general and administrative activities , legal fees , audit and tax fees , consultants and professional services , and general corporate expenses . general and administrative expenses were $ 6,765,000 for the year ended december 31 , 2015 , compared with $ 1,737,000 for the year ended december 31 , 2014. this increase of $ 5,028,000 is primarily the result of reporting a full year of operations reflecting the merger of rfs pharma , which occurred in november 2014. in addition , there were significant new expenses in 2015 for equity stock option grants to new executives of $ 2,934,000 and $ 518,000 in additional legal expenses related to the several legal proceedings cocrystal pharma , inc. is a party to . story_separator_special_tag we can give no assurances that any additional capital that we are able to obtain , if any , will be sufficient to meet our needs , or that any such financing will be obtainable on acceptable terms . if we are unable to obtain adequate capital , we could be forced to cease operations or substantially curtail our commercial activities . these conditions raise substantial doubt as to our ability to continue as a going concern . the accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities should we be unable to continue as a going concern . over the next 12 months ending december 31 , 2017 , we estimate negative cash flow from operations . management intends to fund future operations through additional private or public equity offerings , and may seek additional capital through arrangements with strategic partners or from other sources . cautionary note regarding forward looking statements this report includes forward-looking statements including statements regarding our future business development , regulatory compliance , generation of revenues , our liquidity , expectations from proposed capital raises , and the issues relating to the potential claims relating to our former pittsburg , california lease and the related bank loan guarantee . the words “ believe , ” “ may , ” “ estimate , ” “ continue , ” “ anticipate , ” “ intend , ” “ should , ” “ plan , ” “ could , ” “ target , ” “ potential , ” “ is likely , ” “ will , ” “ expect ” and similar expressions , as they relate to us , are intended to identify forward-looking statements . we have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition , results of operations , business strategy and financial needs . 37 the results anticipated by any or all of these forward-looking statements might not occur . important factors , uncertainties and risks that may cause actual results to differ materially from these forward-looking statements are contained in the risk factors in this report . we undertake no obligation to publicly update or revise any forward-looking statements , whether as the result of new information , future events or otherwise . for more information regarding some of the ongoing risks and uncertainties of our business , see the risk factors and our other filings with the sec . critical accounting policies and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles , or gaap . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities and expenses . on an ongoing basis , we evaluate these estimates and judgments , including those described below . we base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances . these estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results and experiences may differ materially from these estimates . while our significant accounting policies are more fully described in the accompanying notes to the consolidated financial statements included in this annual report on form 10-k for the year ended december 31 , 2016 , we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we use in the preparation of our consolidated financial statements . stock-based compensation we account for stock options related to our equity incentive plans under the provisions of financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) 718 which requires the recognition of the fair value of stock-based compensation . the fair value of stock options was estimated using a black-scholes option valuation model . this model requires the input of subjective assumptions including expected stock price volatility , expected life and estimated forfeitures of each award . the fair value of equity-based awards is amortized ratably over the requisite service period of the award . due to the limited amount of historical data available to us , particularly with respect to stock-price volatility , employee exercise patterns and forfeitures , actual results could differ from our assumptions . fair value of warrants warrants are recorded either as equity instruments or derivative liabilities . in the case of warrants recorded as liabilities , they are recorded at their estimated fair value at the date of issuance . subsequent changes in estimated fair value are recorded in other income ( expense ) in the company 's statement of operations in each subsequent period . the warrants are measured at estimated fair value using the black scholes valuation model , which is based , in part , upon inputs for which there is little or no observable market data , requiring the company to develop its own assumptions . inherent in this model are assumptions related to expected stock price volatility , expected life , risk-free interest rate and dividend yield . we estimate the volatility of our common stock at the date of issuance , and at each subsequent reporting period , based on historical implied volatility based on a group of comparable companies , that matches the expected remaining life of the warrants . the risk-free interest rate is based on the u.s. treasury zero-coupon yield curve on the measurement date for a maturity similar to the expected remaining life of the warrants . the expected life of the warrants is assumed to be equivalent to their remaining contractual term .
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results of operations for the years ended december 31 , 2016 and december 31 , 2015 as stated above , we are focused on research and development of novel medicines for use in the treatment of human viral diseases . accordingly , we had no revenue for the years ended december 31 , 2016 or 2015 , except for $ 78,000 in grant revenues for 2015. for the year ended december 31 , 2016 , we had a net loss of $ 74,874,000 compared to a net loss of $ 50,122,000 for 2015. this net loss for the year was due primarily to an impairment loss of $ 92,396,000 on our ipr & d , $ 13,400,000 from ongoing operations , $ 1,177,000 impairment on our mortgage note , and a ( $ 29,394,000 ) deferred tax benefit associated with the impairment charges incurred . our operating loss for the year ended december 31 , 2016 was $ 105,819,000 , compared to an operating loss of $ 53,948,000 in 2015. other income was $ 1,551,000 for the year ended december 31 , 2016 , which is primarily due to a $ 2,603,000 gain on the fair value of derivative liabilities , offset by a loss of $ 1,177,000 related to impairment of our mortgage note receivable . under accounting principles generally accepted in the united states , we record other income or expense for the change in fair value of our outstanding warrants that are accounted for as liabilities during each reporting period . if the value of the warrants decreases during a period , which occurred during the year ended december 31 , 2016 , we record other income .
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; president , second university homesites , inc. ; manager , jones-boyer , llc ; manager , boyer properties , llc ; director , mallard bay , corp. mr. boyer 's experience in land management and oil and gas leasing activities makes him qualified to serve as a director . 2016 max h. hart ( 1 ) ( 2 ) 59 principal , haas-hirsch interests . mr. hart 's experience in land management , oil and gas leasing activities , forestry , farming and rights of way makes him qualified to serve as a director . 2016 brian r. jones 57 president and chairman of the board of ckx lands , inc. since 2013 and treasurer of ckx lands , inc. since 2006 ; managing member of brian r. jones cpa , llc . mr. jones ' experience in public accounting , sec compliance and land management makes him qualified to serve as a director . 2007 10 director schedule ( continued ) : name age experience and qualifications director since eugene t. minvielle , iv ( 1 ) 44 chief financial officer and treasurer of marlin energy , llc . mr. minvielle 's experience in oil and gas and financial reporting makes him qualified to serve as a director . 2017 mary watkins savoy ( 1 ) ( 2 ) ( 3 ) 78 private investments ; director of mallard bay corp. mrs. savoy 's experience in land management and oil and gas leasing activities makes her qualified to serve as a director . 1998 charles d. viccellio 84 attorney ( retired ) , stockwell , sievert , viccellio , clements & shaddock , l.l.p . mr. viccellio 's extensive legal experience in land management and oil and gas activities makes him qualified to serve as a director . 1996 mary leach werner ( 2 ) ( 3 ) 50 vice president and director of north american land co. , inc. ; vice president and director of sweet lake land & oil co. , inc. mrs. werner 's experience in land management and oil and gas activities makes her qualified to serve as a director . 2004 michael b. white ( 3 ) 61 oil and gas ventures , farmland and timberland investments , sole manager of ottley properties , llc . mr. white 's experience in oil and gas , farmland and timberland makes him qualified to serve as a director . 2013 member of the ( 1 ) audit committee , ( 2 ) compensation committee , ( 3 ) nominating committee . stockwell , sievert , viccellio , clements & shaddock , l.l.p . is a law firm . second university homesites , inc. jones-boyer , llc , and boyer properties , llc are residential property management companies . mallard bay corp. , haas-hirsch interests , north american land co. , inc. , and sweet lake land & oil co. , inc. are all land management companies . marlin energy , llc is an upstream oil and gas company . ottley properties , llc is an investment holding company . brian r. jones cpa , llc is a cpa firm . mrs. savoy is mr. boyer 's aunt . there are no other family relationships between any of our directors and executive officers , or any arrangement or understanding between any of our executive officers and any other person pursuant to which any executive officer was appointed to his office . the board of directors has determined that director nominees boyer , hart , savoy , werner , and white are “ independent directors ” as defined under the rules of the nyse mkt . the company has adopted a code of ethics that applies to officers , directors and employees . a copy of the code of ethics will be provided by writing the president at p.o . box 1864 , lake charles , louisiana 70602 or obtained through the company 's website , www.ckxlands.com . item 11. executive compensation the information required by item 11 is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities and exchange act of 1934 and is incorporated herein by reference . 11 item 12. security ownership of certain beneficial owners and management and related stockholder matters the information required by item 12 is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities exchange act of 1934 and is incorporated herein by reference . item 13. certain relationships and related transactions the information required by item 13 is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities and exchange act of 1934 and is incorporated herein by reference . item 14. principal accountants fees and services the information required by item 14 is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities and exchange act of 1934 and is incorporated herein by reference . part iv item 15. exhibits , financial statements schedules ( a ) documents filed as part of this report : ( 1 ) financial statements . the financial statements filed as part of this report are listed in the to financial statements appearing immediately after the signature page of this form 10-k and are included herein by reference . ( 2 ) financial statement schedules . story_separator_special_tag ; president , second university homesites , inc. ; manager , jones-boyer , llc ; manager , boyer properties , llc ; director , mallard bay , corp. mr. boyer 's experience in land management and oil and gas leasing activities makes him qualified to serve as a director . 2016 max h. hart ( 1 ) ( 2 ) 59 principal , haas-hirsch interests . mr. hart 's experience in land management , oil and gas leasing activities , forestry , farming and rights of way makes him qualified to serve as a director . 2016 brian r. jones 57 president and chairman of the board of ckx lands , inc. since 2013 and treasurer of ckx lands , inc. since 2006 ; managing member of brian r. jones cpa , llc . mr. jones ' experience in public accounting , sec compliance and land management makes him qualified to serve as a director . 2007 10 director schedule ( continued ) : name age experience and qualifications director since eugene t. minvielle , iv ( 1 ) 44 chief financial officer and treasurer of marlin energy , llc . mr. minvielle 's experience in oil and gas and financial reporting makes him qualified to serve as a director . 2017 mary watkins savoy ( 1 ) ( 2 ) ( 3 ) 78 private investments ; director of mallard bay corp. mrs. savoy 's experience in land management and oil and gas leasing activities makes her qualified to serve as a director . 1998 charles d. viccellio 84 attorney ( retired ) , stockwell , sievert , viccellio , clements & shaddock , l.l.p . mr. viccellio 's extensive legal experience in land management and oil and gas activities makes him qualified to serve as a director . 1996 mary leach werner ( 2 ) ( 3 ) 50 vice president and director of north american land co. , inc. ; vice president and director of sweet lake land & oil co. , inc. mrs. werner 's experience in land management and oil and gas activities makes her qualified to serve as a director . 2004 michael b. white ( 3 ) 61 oil and gas ventures , farmland and timberland investments , sole manager of ottley properties , llc . mr. white 's experience in oil and gas , farmland and timberland makes him qualified to serve as a director . 2013 member of the ( 1 ) audit committee , ( 2 ) compensation committee , ( 3 ) nominating committee . stockwell , sievert , viccellio , clements & shaddock , l.l.p . is a law firm . second university homesites , inc. jones-boyer , llc , and boyer properties , llc are residential property management companies . mallard bay corp. , haas-hirsch interests , north american land co. , inc. , and sweet lake land & oil co. , inc. are all land management companies . marlin energy , llc is an upstream oil and gas company . ottley properties , llc is an investment holding company . brian r. jones cpa , llc is a cpa firm . mrs. savoy is mr. boyer 's aunt . there are no other family relationships between any of our directors and executive officers , or any arrangement or understanding between any of our executive officers and any other person pursuant to which any executive officer was appointed to his office . the board of directors has determined that director nominees boyer , hart , savoy , werner , and white are “ independent directors ” as defined under the rules of the nyse mkt . the company has adopted a code of ethics that applies to officers , directors and employees . a copy of the code of ethics will be provided by writing the president at p.o . box 1864 , lake charles , louisiana 70602 or obtained through the company 's website , www.ckxlands.com . item 11. executive compensation the information required by item 11 is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities and exchange act of 1934 and is incorporated herein by reference . 11 item 12. security ownership of certain beneficial owners and management and related stockholder matters the information required by item 12 is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities exchange act of 1934 and is incorporated herein by reference . item 13. certain relationships and related transactions the information required by item 13 is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities and exchange act of 1934 and is incorporated herein by reference . item 14. principal accountants fees and services the information required by item 14 is included in the registrant 's definitive proxy statement to be filed pursuant to section 14 ( a ) of the securities and exchange act of 1934 and is incorporated herein by reference . part iv item 15. exhibits , financial statements schedules ( a ) documents filed as part of this report : ( 1 ) financial statements . the financial statements filed as part of this report are listed in the to financial statements appearing immediately after the signature page of this form 10-k and are included herein by reference . ( 2 ) financial statement schedules .
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results of operations fiscal year 201 7 compared to fiscal year 201 6 total revenues for 2017 were $ 1,144,585 , an increase of 32.57 % when compared with 2016 revenues of $ 863,402. total revenue consists of oil and gas , timber , and surface revenues . oil and gas revenues were 53.22 % and 59.17 % of total revenues for 2017 and 2016 , respectively . oil and gas revenues consist of royalty revenue and lease rental revenue . oil and gas revenues changed between 2017 and 2016 as follows : replace_table_token_5_th during 2017 , reported gas production decreased by approximately 5,831 mcf , and the average gas sales price per mcf increased by approximately $ 0.87 to $ 3.42 resulting in an increase in gas revenue of $ 22,389. revenue from oil production , including plants , increased by $ 76,785. this increase was a net result from an increase in the average barrel sales price of $ 8.45 to $ 48.32 , not including plants , and a decrease in production of approximately 243 barrels , not including plants , and an increase in plants revenue of $ 17,478. the following 8 fields produced 91.72 % of the company 's oil and gas revenues in 2017. the following table shows the number of barrels of oil ( bbl oil ) and mcf of gas ( mcf gas ) produced from these fields . replace_table_token_6_th note to above schedule : ( 1 ) excludes plant products . in 201 6 , the following 6 fields produced 90.29 % of the company 's oil and gas revenues . the following table shows the number of barrels of oil ( bbl oil ) and mcf of gas ( mcf gas ) produced from these fields . replace_table_token_7_th note to above schedule : ( 1 ) excludes plant products .
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62 fair isaac corporation notes to consolidated financial statements years ended september 30 , 2018 , 2017 and 2016 share-based compensation we measure stock-based compensation cost at the grant date based on the fair value of the award and recognize it as expense , net of estimated forfeitures , over the vesting or service period , as applicable , of the stock award ( generally three to four years ) . see note 14 for further discussion of our share-based employee benefit plans . advertising and promotion costs advertising and promotion costs are expensed as incurred and are included in selling , general and administrative expenses in the accompanying consolidated statements of income and comprehensive income . advertising and promotion costs totaled $ 4.1 million , $ 3.1 million and $ 3.6 million in fiscal 2018 story_separator_special_tag our management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) includes the following : a business overview that provides a high-level summary of our strategies and initiatives , financial results and bookings trends that affect our business ; a more detailed analysis of our results of operations ; our liquidity and capital resources , which discusses key aspects of our statements of cash flows , changes in our balance sheets and our financial commitments ; and a summary of our critical accounting policies and estimates we believe are important to understanding the assumptions and judgments incorporated in our reported financial results . our md & a should be read in conjunction with item 8 , financial statements and supplementary data , of this annual report on form 10-k. the following discussion contains forward-looking statements that are subject to risks and uncertainties . actual results may differ from those referred to herein due to a number of factors , including but not limited to risks described in item 1a , risk factors , in this annual report on form 10-k. business overview strategies and initiatives during fiscal 2018 , our growth initiatives continued to generate significant free cash flow . we utilized our cash to enhance stockholder value through investments in long-term growth initiatives and our stock repurchase programs . we continued to transform our business from on-premises to recurring revenue associated with our cloud-based solutions in our applications and decision management software segments . our continued product innovation provides growth opportunities with customers that can benefit from the affordability and simplicity of these solutions . the majority of our software solutions are available through the fico ® analytic cloud , and starting fiscal 2017 we added aws as our primary cloud infrastructure provider . we have migrated several core applications , including the decision management suite , to aws and will migrate additional applications over the next couple of years . our cloud bookings accounted for 35 % and 24 % of our total bookings during fiscal 2018 and 2017 , respectively , directly demonstrating the willingness among our customers to engage our cloud-based solutions . for our scores segment , our industry leading business-to-business fico ® scores has achieved a multi-year expansion in the growing u.s. consumer market . we have launched numerous new fico ® score based products , and continue to grow our partnership with experian , a leading global information services provider . this partnership provides consumers the fico ® score that lenders most commonly use in evaluating credit when determining applicant eligibility for new credit cards , car loans , mortgages or other lines of credit and can be accessed through experian.com . the fico ® score open access program launched in 2014 , which allows our participating clients to provide their customers with a free fico ® score along with content to help them understand the fico ® score their lender uses , has more than 310 million consumer accounts with access to their free fico ® scores . during fiscal 2017 , we announced the fico financial inclusion initiative , a global effort to increase access to affordable credit for consumers and businesses with limited or no credit history , through the use of alternative data . we continue to pursue additional partners to distribute fico ® scores with their product offerings sold directly to consumers . in addition , we are pursuing opportunities to make fico ® scores available to third-parties for affinity , white-labeled programs to further penetrate and expand the markets where our scores are available . we continue to enhance stockholder value by returning cash to stockholders through our stock repurchase program . during fiscal 2018 , we repurchased approximately 1.9 million shares at a total repurchase price of $ 336.9 million . as of september 30 , 2018 , we had $ 199.3 million remaining under our current stock repurchase program . overview of financial results total revenues for fiscal 2018 were $ 1.03 billion , an increase of 11 % from $ 932.2 million in fiscal 2017 . we continue to drive growth in our scores segment . scores revenue increased 29 % to $ 342.6 million in fiscal 2018 from $ 266.4 million in fiscal 2017 , and scores operating income increased 32 % to $ 279.2 million in fiscal 2018 from $ 211.9 million in fiscal 2017. for our applications and decision management software segments , our cloud business continues to grow both in the absolute dollar value and as a percentage of revenues as we pursue our cloud-first strategy . during fiscal 2018 , cloud revenues accounted for $ 241.5 million , or 35 % of non-scores revenues , compared to $ 202.7 million , or 30 % during fiscal 2017 . 28 we derive a significant portion of revenues internationally , and 34 % and 36 % of total consolidated revenues were derived from clients outside the u.s. during fiscal 2018 and 2017 , respectively . story_separator_special_tag revenues the following tables set forth certain summary information on a segment basis related to our revenues for fiscal 2018 , 2017 and 2016 : replace_table_token_4_th replace_table_token_5_th 30 applications replace_table_token_6_th applications segment revenues increased $ 32.4 million in fiscal 2018 from 2017 primarily due to an $ 11.2 million increase in our customer communication services , a $ 9.4 million increase in our originations solutions , a $ 6.0 million increase in our compliance solutions , and a $ 4.4 million increase in our customer management solutions . the increase in customer communication services was primarily attributable to an increase in transactional revenue as a result of our continued growth in the mobile communication market . the increase in originations solutions was primarily attributable to an increase in transactional and services revenues from our saas products . the increase in compliance solutions was attributable to an increase in all revenue types . the increase in customer management solutions was primarily attributable to an increase in license and transactional revenues . applications segment revenues increased $ 20.5 million in fiscal 2017 from 2016 primarily due to a $ 10.9 million increase in our originations solutions and a $ 10.5 million increase in our customer communication services . the increase in originations solutions was primarily attributable to an increase in services and transactional revenues from our saas products . the increase in customer communication services was primarily attributable to an increase in transactional revenue as a result of our continued growth in the mobile communication market . scores replace_table_token_7_th scores segment revenues increased $ 76.3 million in fiscal 2018 from 2017 due to an increase of $ 60.8 million in our business-to-business scores revenue and $ 15.4 million in our business-to-consumer services revenue . the increase in business-to-business scores was primarily attributable to a $ 48.1 million increase in transactional scores in originations , primarily driven by a higher unit price in mortgage activities ; in addition , transactional scores in account management and prescreen increased $ 13.1 million driven by higher transactional volume . the increase in business-to-consumer services was primarily attributable to an increase in royalties derived from scores sold indirectly to consumers through credit reporting agencies . scores segment revenues increased $ 25.3 million in fiscal 2017 from 2016 due to a $ 14.2 million increase in our business-to-business scores revenues and an $ 11.1 million increase in our business-to-consumer services revenue . the increase in business-to-business scores was primarily attributable to an increase in our transactional scores driven by new originations , prescreen and account management . the increase in business-to-consumer services was primarily attributable to an increase in royalties derived from scores sold indirectly to consumers through credit reporting agencies . 31 during fiscal 2018 , 2017 and 2016 , revenues generated from our agreements with experian accounted for 11 % , 9 % and 8 % , respectively , of our total revenues , and revenues generated from our agreements with equifax and transunion together accounted for 14 % , 11 % and 11 % , respectively , of our total revenues . revenues from these customers included amounts recorded in our other segments . decision management software replace_table_token_8_th decision management software segment revenues decreased $ 8.4 million in fiscal 2018 from 2017 primarily attributable to a decrease in license revenue related to our fico ® blaze advisor ® . decision management software segment revenues increased $ 5.0 million in fiscal 2017 from 2016 primarily attributable to an increase in services revenue related to our fico ® decision optimizer , partially offset by a decrease in license revenue related to our fico ® blaze advisor ® . 32 operating expenses and other income ( expense ) , net the following tables set forth certain summary information related to our consolidated statements of income and comprehensive income for the fiscal 2018 , 2017 and 2016 : replace_table_token_9_th replace_table_token_10_th 33 cost of revenues cost of revenues consists primarily of employee salaries and benefits for personnel directly involved in developing , installing and supporting revenue products ; travel costs ; overhead costs ; outside services ; internal network hosting costs ; software royalty fees ; and credit bureau data and processing services . the fiscal 2018 over 2017 increase of $ 23.6 million in cost of revenues expenses was primarily attributable to a $ 13.4 million increase in facilities and infrastructure costs and a $ 7.7 million increase in personnel and labor costs . the increase in facilities and infrastructure costs was primarily attributable to increased resource requirement due to expansion in our cloud infrastructure operations . the increase in personnel and labor costs was primarily attributable to an increase in incentive cost and share-based compensation costs . cost of revenues as a percentage of revenues was 30 % during fiscal 2018 , materially consistent with that incurred during fiscal 2017. cost of revenues as a percentage of revenues increased to 31 % during fiscal 2017 from 30 % during fiscal 2016. the $ 22.0 million increase was primarily attributable to a $ 14.6 million increase in personnel and labor costs and a $ 7.4 million increase in allocated facilities and infrastructure costs . the increase in personnel and labor costs was primarily attributable to an increase in professional services delivery cost driven by higher services revenue and an increase in salaries and benefit costs as a result of our increased headcount . the increase in allocated facilities and infrastructure costs was primarily attributable to increased resource requirements due to our expanded investment in product delivery , support and infrastructure operations . in fiscal 2019 , we expect cost of revenues as a percentage of revenues will be consistent with those incurred during fiscal 2018 . research and development research and development expenses include the personnel and related overhead costs incurred in the development of new products and services , including the research of mathematical and statistical models and the development of new versions of our products .
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summary of cash flows replace_table_token_15_th cash flows from operating activities our primary method for funding operations and growth has been through cash flows generated from operating activities . net cash provided by operating activities totaled $ 223.1 million in fiscal 2018 compared to $ 225.6 million in fiscal 2017. the $ 2.5 million decrease was mainly attributable to a $ 43.8 million decrease that resulted from timing of receipts and payments in our ordinary course of business , partially offset by a $ 26.9 million increase in non-cash items , including a $ 31.8 million increase in non-cash deferred income taxes and $ 10 million non-operating gain related to the divestiture of a cost-method investment ; as well a $ 14.2 increase in net income . 38 net cash provided by operating activities totaled $ 225.6 million in fiscal 2017 compared to $ 210.3 million in fiscal 2016. the $ 15.3 million increase was mainly attributable to a $ 20.0 million decrease in our deferred income tax provision and an $ 18.8 million increase in net income , partially offset by a $ 24.2 million excess tax benefit related to share-based payments that was recorded as an increase to additional paid-in capital in the prior year but was recorded as a reduction of income tax expense in the current year as a result of our early adoption of asu 2016-09 effective october 1 , 2016. cash flows from investing activities net cash used in investing activities totaled $ 14.1 million in fiscal 2018 compared to $ 20.6 million in fiscal 2017. the $ 6.5 million decrease was primarily attributable to a $ 20.0 million increase in proceeds from the sale of cost method investment , partially offset by an $ 11.5 million increase in net cash used for purchases of property and equipment as well as a $ 2.8 million increase in purchases
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” unless stated otherwise , the comparisons presented in this discussion and analysis refer to the year-over-year comparison of changes in our financial condition and results of operations as of and for the fiscal years ended december 31 , 2020 and december 31 , 2019. discussion of fiscal year 2018 items and the year-over year comparison of changes in our financial condition and results of operations as of and for the fiscal years ended december 31 , 2019 and december 31 , 2018 can be found in part ii , “ item 7. management 's discussion and analysis of financial condition and results of operations ” of our annual report on form 10-k for the fiscal year ended december 31 , 2019 , which was previously filed with the sec on february 25 , 2020. business segments we manage , operate and provide our products and services in four business segments : market services , corporate platforms , investment intelligence and market technology . see note 1 , “ organization and nature of operations , ” and note 19 , “ business segments , ” to the consolidated financial statements for further discussion of our reportable segments and geographic data , as well as how management allocates resources , assesses performance and manages these businesses as four separate segments . impact of covid-19 on our business for a discussion of the impact of covid-19 on our business , see “ item 1a . risk factors - risks related to our business and industry - the covid-19 pandemic could have an adverse effect on our business , financial condition , liquidity or results of operations , ” and “ liquidity and capital resources. ” sources of revenues and transaction-based expenses see “ revenue recognition and transaction-based expenses , ” of note 2 , “ summary of significant accounting policies , ” to the consolidated financial statements for further discussion of our sources of revenues and transaction-based expenses . 34 nasdaq 's operating results key drivers the following table and charts include key drivers and other metrics for our market services , corporate platforms , investment intelligence and market technology segments . in evaluating the performance of our business , our senior management closely evaluates these key drivers . replace_table_token_2_th 35 ( 1 ) includes finnish option contracts traded on eurex for which nasdaq and eurex have a revenue sharing arrangement . ( 2 ) includes transactions executed on the nasdaq stock market 's , nasdaq bx 's and nasdaq psx 's systems plus trades reported through the finra/nasdaq trade reporting facility . ( 3 ) transactions executed on nasdaq commodities or otc and reported for clearing to nasdaq commodities measured by terawatt hours ( twh ) . ( 4 ) new listings include ipos , including issuers that switched from other listing venues , closed-end funds and separately listed etps . ( 5 ) new listings include ipos and represent companies listed on the nasdaq nordic and nasdaq baltic exchanges and companies on the alternative markets of nasdaq first north . ( 6 ) number of total listings on the nasdaq stock market at period end , including 412 etps as of december 31 , 2020 , 412 as of december 31 , 2019 and 392 as of december 31 , 2018 . ( 7 ) represents companies listed on the nasdaq nordic and nasdaq baltic exchanges and companies on the alternative markets of nasdaq first north . ( 8 ) total contract value of orders signed during the period . ( 9 ) arr for a given period is the annualized revenue of active market technology support and saas subscription contracts . arr is currently one of our key performance metrics to assess the health and trajectory of our recurring business . arr does not have any standardized definition and is therefore unlikely to be comparable to similarly titled measures presented by other companies . arr should be viewed independently of revenue and deferred revenue and is not intended to be combined with or to replace either of those items . arr is not a forecast and the active contracts at the end of a reporting period used in calculating arr may or may not be extended or renewed by our customers . the following chart summarizes our annualized recurring revenue , or arr ( in millions ) : arr for a given period is the annualized revenue derived from subscription contracts with a defined contract value . this excludes contracts that are not recurring , are one-time in nature , or where the contract value fluctuates based on defined metrics . arr is currently one of our key performance metrics to assess the health and trajectory of our recurring business . arr does not have any standardized definition and is therefore unlikely to be comparable to similarly titled measures presented by other companies . arr should be viewed independently of revenue and deferred revenue and is not intended to be combined with or to replace either of those items . arr is not a forecast and the active contracts at the end of a reporting period used in calculating arr may or may not be extended or renewed by our customers . 36 includes : ◦ trade management services business , excluding one-time service requests . ◦ u.s. and nordic annual listing fees , ir and esg products , including subscription contracts for ir insight , boardvantage and onereport , and ir advisory services . ◦ proprietary market data and index data subscriptions as well as subscription contracts for evestment , solovis , dwa tools and services , nasdaq fund network and quandl . also includes guaranteed minimum on futures contracts within the index business . ◦ active market technology support and saas subscription contracts . story_separator_special_tag the net gain on divestiture of businesses in 2018 related to the sale of the public relations solutions and digital media services business , which was part of our ir & esg services business within our corporate platforms segment . net income from unconsolidated investees net income from unconsolidated investees decreased in 2020 compared with 2019 primarily due to a decrease in income recognized from our equity method investment in occ . see “ equity method investments , ” of note 6 , “ investments , ” to the consolidated financial statements for further discussion . tax matters the following table shows our income tax provision and effective tax rate : replace_table_token_12_th for further discussion of our tax matters , see note 17 , “ income taxes , ” to the consolidated financial statements . 44 non-gaap financial measures in addition to disclosing results determined in accordance with u.s. gaap , we also have provided non-gaap net income attributable to nasdaq and non-gaap diluted earnings per share . management uses this non-gaap information internally , along with u.s. gaap information , in evaluating our performance and in making financial and operational decisions . we believe our presentation of these measures provides investors with greater transparency and supplemental data relating to our financial condition and results of operations . in addition , we believe the presentation of these measures is useful to investors for period-to-period comparisons of our ongoing operating performance . these measures are not in accordance with , or an alternative to , u.s. gaap , and may be different from non-gaap measures used by other companies . in addition , other companies , including companies in our industry , may calculate such measures differently , which reduces their usefulness as comparative measures . investors should not rely on any single financial measure when evaluating our business . this non-gaap information should be considered as supplemental in nature and is not meant as a substitute for our operating results in accordance with u.s. gaap . we recommend investors review the u.s. gaap financial measures included in this annual report on form 10-k , including our consolidated financial statements and the notes thereto . when viewed in conjunction with our u.s. gaap results and the accompanying reconciliation , we believe these non-gaap measures provide greater transparency and a more complete understanding of factors affecting our business than u.s. gaap measures alone . we understand that analysts and investors regularly rely on non-gaap financial measures , such as non-gaap net income attributable to nasdaq and non-gaap diluted earnings per share , to assess operating performance . we use non-gaap net income attributable to nasdaq and non-gaap diluted earnings per share because they highlight trends more clearly in our business that may not otherwise be apparent when relying solely on u.s. gaap financial measures , since these measures eliminate from our results specific financial items that have less bearing on our ongoing operating performance . non-gaap net income attributable to nasdaq for the periods presented below is calculated by adjusting for the following items : amortization expense of acquired intangible assets : we amortize intangible assets acquired in connection with various acquisitions . intangible asset amortization expense can vary from period to period due to episodic acquisitions completed , rather than from our ongoing business operations . as such , if intangible asset amortization is included in performance measures , it is more difficult to assess the day-to-day operating performance of the businesses , the relative operating performance of the businesses between periods , and the earnings power of nasdaq . performance measures excluding intangible asset amortization expense therefore provide investors with a useful representation of our businesses ' ongoing activity in each period . merger and strategic initiatives expense : we have pursued various strategic initiatives and completed acquisitions and divestitures in recent years that have resulted in expenses which would not have otherwise been incurred . these expenses generally include integration costs , as well as legal , due diligence and other third party transaction costs . the frequency and the amount of such expenses vary significantly based on the size , timing and complexity of the transaction . accordingly , we exclude these costs for purposes of calculating non-gaap measures which provide a more meaningful analysis of nasdaq 's ongoing operating performance or comparisons in nasdaq 's performance between periods . restructuring charges : we initiated the transition of certain technology platforms to advance our strategic opportunities as a technology and analytics provider and continue the re-alignment of certain business areas . see note 20 , “ restructuring charges , ” to the consolidated financial statements for further discussion of our 2019 restructuring plan . charges associated with this plan represent a fundamental shift in our strategy and technology as well as executive re-alignment and will be excluded for purposes of calculating non-gaap measures as they are not reflective of ongoing operating performance or comparisons in nasdaq 's performance between periods . net income from unconsolidated investee : see “ equity method investments , ” of note 6 , “ investments , ” to the consolidated financial statements for further discussion . our income on our investment in occ may vary significantly compared to prior years due to the changes in the occ 's capital management policy . accordingly , we will exclude this income from current and prior periods for purposes of calculating non-gaap measures which provide a more meaningful analysis of nasdaq 's ongoing operating performance or comparisons in nasdaq 's performance between periods . other significant items : we have excluded certain other charges or gains , including certain tax items , that are the result of other non-comparable events to measure operating performance . we believe the exclusion of such amounts allows management and investors to better understand the ongoing financial results of nasdaq .
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financial summary the following table summarizes our financial performance for the year ended december 31 , 2020 when compared to the same period in 2019 and for the year ended december 31 , 2019 when compared with the same period in 2018. for a detailed discussion of our results of operations , see “ segment operating results ” below . replace_table_token_3_th in countries with currencies other than the u.s. dollar , revenues and expenses are translated using monthly average exchange rates . impacts on our revenues less transaction-based expenses and operating income associated with fluctuations in foreign currency are discussed in more detail under “ item 7a . quantitative and qualitative disclosures about market risk. ” 37 segment operating results the following table shows our revenues by segment , transaction-based expenses for our market services segment and total revenues less transaction-based expenses : replace_table_token_4_th ( 1 ) for the year ended december 31 , 2019 and 2018 , other revenues include the revenues from the bwise enterprise governance , risk and compliance software platform , which was sold in march 2019 , and for the year ended december 31 , 2018 , other revenues also include revenues from the public relations solutions and digital media services businesses which were sold in april 2018. prior to the sale dates , these revenues were included in our ir & esg services business within our corporate platforms segment .
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you can identify these statements by the use of the words “ may , ” “ will , ” “ could , ” “ should , ” “ would , ” “ plans , ” “ expects , ” “ anticipates , ” “ continue , ” “ estimate , ” “ project , ” “ intend , ” “ likely , ” “ forecast , ” “ probable , ” “ potential ” and similar expressions . these forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected or anticipated . such risks and uncertainties include , but are not limited to , continued funding of defense programs , the timing and amounts of such funding , general economic and business conditions , including unforeseen weakness in the company 's markets , effects of continued geopolitical unrest and regional conflicts , competition , changes in technology and methods of marketing , delays in completing engineering and manufacturing programs , changes in customer order patterns , changes in product mix , continued success in technological advances and delivering technological innovations , changes in , or in the u.s. government 's interpretation of , federal export control or procurement rules and regulations , market acceptance of the company 's products , shortages in components , production delays or unanticipated expenses due to performance quality issues with outsourced components , inability to fully realize the expected benefits from acquisitions and restructurings , or delays in realizing such benefits , challenges in integrating acquired businesses and achieving anticipated synergies , changes to export regulations , increases in tax rates , changes to generally accepted accounting principles , difficulties in retaining key employees and customers , unanticipated costs under fixed-price service and system integration engagements , and various other factors beyond our control . these risks and uncertainties also include such additional risk factors as set forth under part i-item 1a ( risk factors ) in this annual report on form 10-k. we caution readers not to place undue reliance upon any such forward-looking statements , which speak only as of the date made . we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made . 29 overview mercury systems , inc. is a leading high-tech commercial provider of more affordable secure and sensor processing subsystems designed and made in u.s.a. powering today 's critical defense and intelligence applications . we deliver innovative solutions , rapid time-to-value and service and support to our defense prime contractor customers . our products and solutions have been deployed in more than 300 programs with over 25 different defense prime contractors . key programs include aegis , patriot , surface electronic warfare improvement program ( `` sewip '' ) , gorgon stare , predator , f-35 and reaper . our organizational structure allows the company to deliver capabilities that combine technology building blocks and deep domain expertise in the defense sector . we believe our total portfolio of services and solutions is unique in the industry for a commercial company . we operate across a broad spectrum of defense programs and deliver our solutions and services via two operating segments : ( i ) mercury commercial electronics ; and ( ii ) mercury defense systems . in the fourth quarter of fiscal 2014 , we initiated a plan to divest our mercury intelligence systems ( `` mis '' ) operating segment . consequently , its operating results are included in discontinued operations for all periods presented . on january 23 , 2015 , we completed the sale of the mis operating segment ( see note c to the consolidated financial statements ) . as of june 30 , 2015 , we had 629 employees . our revenue , income from continuing operations and adjusted ebitda for fiscal 2015 were $ 234.8 million , $ 14.4 million , and $ 44.4 million , respectively . see the non-gaap financial measures section for a reconciliation of our income ( loss ) from continuing operations to adjusted ebitda . our operations are organized in the following two reportable segments : ( i ) mercury commercial electronics ( `` mce '' ) and ( ii ) mercury defense systems ( `` mds '' ) . mercury commercial electronics , or mce , provides more affordable , innovative , commercially designed and developed , specialized processing subsystems for critical defense and intelligence applications . we deliver innovative solutions , rapid time-to-value and service and support to our prime defense contractor customers . our technologies and capabilities include embedded processing modules and subsystems , radio frequency ( `` rf '' ) and microwave multi-function assemblies as well as subsystems , and rf and microwave components . mce utilizes leading edge , high performance computing technologies architected by leveraging open standards and open architectures to address highly data-intensive applications that include signal , sensor and image processing ; all of this while addressing the packaging challenges , often referred to as “ swap ” ( size , weight , and power ) that are common in military applications . in addition , mce designs and builds rf and microwave components and subsystems to meet the needs of the electronic warfare ( `` ew '' ) , signal intelligence ( `` sigint '' ) and other high bandwidth communications requirements and applications . in fiscal 2015 , mce accounted for 88 % of our total net revenues . mercury defense systems , or mds , provides significant capabilities relating to pre-integrated , open , more affordable ew , electronic attack ( `` ea '' ) and electronic counter measure ( `` ecm '' ) subsystems , and sigint and electro-optical/infrared ( `` eo/ir '' ) processing technologies , and radar environment test and simulation systems . mds deploys these solutions on behalf of defense prime contractors and the department of defense ( `` dod '' ) , leveraging commercially available technologies and solutions ( or “ building blocks ” ) from our mce business and other commercial suppliers . story_separator_special_tag in addition , fiscal 2015 included a $ 0.9 million loss on disposal of discontinued operations before income taxes from the sale of our mis operating segment , which we completed on january 23 , 2015. s egment o perating r esults we use adjusted ebitda as the profitability measure for our segment reporting . adjusted ebitda for mce increased $ 21.8 million to $ 40.3 million during fiscal 2015 , as compared to $ 18.5 million during fiscal 2014 . the increase in adjusted ebitda was primarily driven by higher revenues of $ 31.3 million primarily from the patriot , sewip , and f-35 programs , coupled with higher gross margins and lower selling , general and administrative costs from our restructuring initiatives completed in fiscal 2015. adjusted ebitda for mds decreased by $ 2.3 million during fiscal 2015 to $ 3.4 million , as compared to $ 5.7 million in fiscal 2014 . the decrease in adjusted ebitda was primarily driven by lower revenues from the gorgon stare program . see note p to our consolidated financial statements for more information regarding our operating segments as well as the company 's reconciliations of income ( loss ) from continuing operations to its adjusted ebitda . 34 f iscal 2014 v s . f iscal 2013 the following tables set forth , for the periods indicated , financial data from the consolidated statement of operations : replace_table_token_7_th r evenues replace_table_token_8_th total revenues increased $ 14.5 million , or 7 % , to $ 208.7 million during fiscal 2014 compared to $ 194.2 million during fiscal 2013. the increase was driven by higher defense revenues of $ 16.9 million , partially offset by lower commercial sales of $ 2.4 million . the increase in total revenues is primarily attributed to a recovery in our higher margin digital signal processing products within mce , specifically increases in the aegis , patriot , and uav related programs , partially offset by decreases in the sewip program as well as mds 's drfm jammer and gorgon stare programs . international revenues , which consist of foreign military sales through prime defense contractor customers and direct sales to non-u.s. based customers , decreased by $ 1.7 million to $ 51.3 million during fiscal 2014 compared to $ 53.0 million during fiscal 2013. the decrease was primarily driven by lower international revenues in the asia pacific region . international revenues represented 25 % and 27 % of total revenues during fiscal 2014 and 2013 , respectively . net mce revenues increased $ 23.2 million , or 15 % , during fiscal 2014 compared to fiscal 2013. the increase in net mce revenues was primarily driven by higher net defense revenues of $ 24.2 million , partially offset by lower commercial revenues of $ 2.4 million . the increase in net mce defense revenues was driven by a recovery in our higher margin digital signal processing products , specifically increases in the aegis , patriot and uav related programs , which were partially offset by decreases in the sewip and navy multiband terminal ( `` nmt '' ) programs . defense revenue accounted for 90 % of net mce revenues during fiscal 2014 compared to 87 % in fiscal 2013. net mds revenues decreased $ 7.3 million , or 18 % , during fiscal 2014 compared to fiscal 2013. this decrease was driven by the decreases in a drfm jammer program and the gorgon stare program . 35 eliminations revenue is attributable to development programs where the revenue is recognized in both segments under contract accounting , and reflects the reconciliation to our consolidated results . g ross m argin gross margin was 45.4 % for fiscal 2014 , an increase of 520 basis points from the 40.2 % gross margin achieved in fiscal 2013. the higher gross margin in fiscal 2014 was due to a more favorable product mix , primarily driven by a recovery in our higher margin digital signal processing products within mce and facilities consolidations as part of our integration plan . in addition , fiscal 2013 included a $ 2.1 million non-recurring charge for a fair value adjustment from purchase accounting resulting from the micronetics acquisition . s elling , g eneral and a dministrative selling , general and administrative expenses decreased $ 1.1 million , or 2 % , to $ 53.7 million during fiscal 2014 compared to $ 54.8 million during fiscal 2013. the overall decrease was primarily due to lower employee compensation expenses as a result of progress achieved on our plan of integrating and consolidating facilities , systems , and processes . selling , general and administrative expenses decreased as a percentage of revenue to 25.7 % during fiscal 2014 from 28.2 % during fiscal 2013 due to higher revenues in fiscal 2014 and overall expense reductions , as compared to the comparable period in fiscal 2013. r esearch and d evelopment research and development expenses increased $ 3.1 million , or 9.5 % , to $ 35.7 million during fiscal 2014 compared to $ 32.6 million for fiscal 2013. the increase was primarily due to $ 0.8 million lower customer funded projects , $ 0.9 million higher prototype expenses , and $ 2.0 million increased employee compensation expenses , including stock compensation expense . research and development expenses accounted for 17.1 % and 16.8 % of our revenues during fiscal 2014 and fiscal 2013 , respectively . these increases were partially offset by lower depreciation expenses .
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results of operations : f iscal 2015 v s . f iscal 2014 the following tables set forth , for the periods indicated , financial data from the consolidated statements of operations : replace_table_token_5_th r evenues replace_table_token_6_th total revenues increased $ 26.1 million , or 13 % , to $ 234.8 million during fiscal 2015 compared to $ 208.7 million during fiscal 2014. the increase was driven by higher defense revenues of $ 28.4 million , partially offset by lower commercial sales of $ 2.3 million . the increase in total revenues is primarily attributed to increases in the f-35 , patriot , and sewip programs , partially offset by decreases in the aegis and gorgon stare programs . international revenues , which consist of foreign military sales through prime defense contractor customers and direct sales to non-u.s. based customers , decreased by $ 6.0 million to $ 45.3 million during fiscal 2015 compared to $ 51.3 million during fiscal 2014 . the decrease was primarily driven by lower international revenues in the asia pacific region . international revenues represented 19 % and 25 % of total revenues during fiscal 2015 and 2014 , respectively . net mce revenues increased $ 31.3 million , or 18 % , during fiscal 2015 compared to fiscal 2014. the increase in net mce revenues was primarily driven by higher defense revenues of $ 33.6 million , partially offset by lower commercial revenues of $ 2.3 million . this related to increases in the f-35 , patriot and sewip programs , partially offset by decreases in the aegis program and lower commercial revenues of $ 2.3 million . defense revenue accounted for 93 % of net mce revenues during fiscal 2015 compared to 90 % in fiscal 2014 . net mds revenues decreased $ 6.8 million , or 20 % , during fiscal 2015 compared to fiscal 2014 .
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see “ forward looking information ” below for additional discussion regarding risks associated with forward-looking statements . 32 liquidity and capital resources our net cash provided by ( used in ) operating activities , investing activities , and financing activities for the years ended december 31 , 2012 , 2011 , and 2010 are set forth in the following table . ( dollars in thousands ) replace_table_token_11_th operating activities cash provided by operating activities increased from $ 50,429,000 in 2011 to $ 64,888,000 in 2012 , a net increase of $ 14,459,000. this increase was primarily attributable to : ( i ) the timing of collections of accounts receivable , including those due from related parties ; and ( ii ) changes in our inventory levels . in 2011 , accounts receivable , including accounts receivable due from related parties , decreased cash provided by operating activities by $ 512,000. in 2012 , accounts receivable , including accounts receivable due from related parties , increased cash provided by operating activity by $ 12,895,000. this increase was primarily due to the timing and amount of receipts of customer payments . additionally , a decrease in our inventory balance increased cash provided by operating activities by $ 15,447,000 in 2012. in 2011 , changes in our inventory balance reduced cash provided by operating activities by $ 20,067,000. partially offsetting these increases in cash provided by operating activities were decreases attributable to : ( i ) accounts payable , including accounts payable to related parties ; ( ii ) income taxes payable ; and ( iii ) deferred revenue . in 2011 , accounts payable , including accounts payable to related parties , increased cash provided by operating activities by $ 6,592,000. in 2012 , accounts payable , including accounts payable to related parties , decreased cash provided by operating activities by $ 5,212,000. this change was primarily attributable to differences in the timing and amount of payments to suppliers . in 2011 , income taxes payable , combined with income taxes receivable , increased cash provided by operating activities by $ 1,642,000. in 2012 , income taxes payable decreased cash provided by operating activities by $ 503,000. this change is a result of the timing and amount of our income tax payments . in 2011 , deferred revenue increased cash provided by operating activities by $ 12,124,000. in 2012 , deferred revenue increased cash provided by operating activities by $ 941,000. this change occurred as the construction related to capital projects we undertook on behalf of certain of our customers was largely completed and payments for those capital expenditures were received . cash provided by operating activities increased from $ 17,839,000 in 2010 to $ 50,429,000 in 2011 , a net $ 32,590,000 increase . this increase was primarily attributable to : ( i ) an increase in net income ; ( ii ) the timing of collections of accounts receivable , including those receivables from related parties ; ( iii ) the timing of payments of accounts payable , including those payables to related parties ; and ( iv ) cash receipts related to deferred revenue . as will be discussed in more detail in the discussion of our results of operations , our net income increased from $ 23,094,000 in the 2010 to $ 34,509,000 in 2011 , an increase of $ 11,415,000. in 2010 , accounts receivable accounted for a $ 13,406,000 reduction in cash provided by operating activities . in 2011 , accounts receivable accounted for a $ 512,000 reduction in cash provided by operating activities despite increased consolidated revenues . the primary reason for this result was the retroactive reinstatement of the $ 1.00 per gallon biodiesel blenders tax credit in december 2010. at december 31 , 2010 , we had an outstanding receivable from the federal government related to this credit of $ 10,785,000. this receivable was collected in february 2011 , increasing the 2011 cash provided by operating activities . in 2010 , the change in accounts payable increased cash provided by operating activities by $ 272,000. in 2011 , the change in accounts payable increased cash provided by operating activities by $ 6,592,000. this increase in cash provided by operating activities is largely due to timing differences related to the receipt and payment of inventory and the timing of payment for capital expenditures . in 2010 , deferred revenue contributed $ 7,958,000 to cash provided by operating activities . in 2011 it contributed $ 12,124,000. this change is a result of progress made on capital projects we undertook on behalf of certain of our customers . partially offsetting these increases in cash provided by operating activities was an increase in inventory . in 2010 , inventory reduced cash provided by operating activities by $ 10,929,000. in 2011 , inventory reduced cash provided by operating activities by $ 20,067,000. the increase in inventory at the end of 2011 relative to year-end 2010 primarily related to increased biodiesel feedstock . 33 investing activities cash used in investing activities decreased from $ 51,367,000 in 2011 to $ 32,613,000 in 2012. this decrease was primarily attributable to a reduction in the net purchases of marketable securities in 2012 compared to 2011. such purchases totaled a net $ 47,124,000 in 2011 and decreased to total net purchases of $ 26,258,000 in 2012. additionally , capital expenditures decreased from $ 23,208,000 in 2011 to $ 9,112,000 in 2012. this decrease was attributable to the completion of certain capital projects undertaken on behalf of certain of our customers . our capital expenditures and customer reimbursements are summarized in the table below . partially offsetting these decreases in cash used in investing activities was a $ 21,086,000 change in restricted cash incurred in 2011 that was not experienced in 2012. we did not have restricted cash at december 31 , 2011 or in 2012 . story_separator_special_tag the special cash dividend amounted to $ 49,978,000. we also paid regular cash dividends aggregating $ 0.40 per share on our common stock , with record dates and payment dates as set forth above . the regular cash dividends amounted to $ 16,560,000 , for total dividends paid by us in 2012 of $ 66,538,000. in 2011 , we declared a special cash dividend aggregating $ 0.10 per share on our common stock , with a record date and payment date as previously discussed . the special cash dividend amounted to $ 3,998,000. we also declared regular cash dividends aggregating $ 0.30 per share on our common stock , with record dates and payment dates as set forth above . the regular cash dividends amounted to $ 12,256,000 , for total dividends paid by us in 2011 of $ 16,254,000. in 2010 , we declared special cash dividends aggregating $ 0.80 per share on our common stock , with record dates and payment dates as previously discussed . the special cash dividends amounted to $ 31,053,000. capital management as a result of our initial equity offering , our subsequent positive operating results , the exercise of warrants , and the issuance of shares in our at-the-market offering , we accumulated excess working capital . some of this excess working capital was paid out in 2010 , 2011 , and 2012 as a special cash dividend and in 2011 and 2012 as regular cash dividends . regular cash dividends will also be paid in 2013 as previously discussed . we intend to retain the remaining cash to fund infrastructure and capacity expansion at our batesville plant . third parties have not placed significant restrictions on our working capital management decisions . 35 a significant portion of these funds were held in cash or cash equivalents at multiple financial institutions . in 2012 and 2011 , we also had investments in certain preferred stock , trust preferred securities , and other equity instruments . we classify these investments as current assets in the accompanying consolidated balance sheets and designate them as being “ available-for-sale ” . accordingly , they are recorded at fair value , with the unrealized gains and losses , net of taxes , reported as a component of stockholders ' equity . the fair value of these preferred stock , trust preferred securities , and other equity instruments , including accrued dividends and interest , totaled $ 86,618,000 and $ 56,294,000 at december 31 , 2012 and 2011 , respectively . we also maintained a position in auction rate securities at december 31 , 2012. we have selectively made investments in certain auction rate securities that we believed offered sufficient yield along with sufficient liquidity . to date , all the auction rate securities in which we have invested have maintained a mechanism for liquidity , meaning that the respective auctions have not failed , the issuers have called the instruments , or a secondary market exists for liquidation of the securities . we have classified these instruments as current assets in the accompanying consolidated balance sheet and carried them at their estimated fair market value . the fair value of these instruments approximated their par value and , including accrued interest , totaled $ 1,150,000 at december 31 , 2012. auction rate securities are typically long term bonds issued by an entity for which there is a series of auctions over the life of the bond that serve to reset the interest rate on the bonds to a market rate . these auctions also serve as a mechanism to provide liquidity to the bond holders ; as long as there are sufficient purchasers of the auction rate securities , the then owners of the auction rate securities are able to liquidate their investment through a sale to the new purchasers . in the event of an auction failure , a situation when there are more sellers than buyers of a particular issue , the current owners of an auction rate security issue may not be able to liquidate their investment . as a result of an auction failure , a holder may be forced to hold the particular security either until maturity or until a willing buyer is found . even if a willing buyer is found , however , there is no guarantee that this willing buyer will purchase the security for its carrying value , which would result in a loss being realized on the sale . lastly , we maintain depository accounts such as checking accounts , money market accounts , and other similar accounts at selected financial institutions . story_separator_special_tag in excess of 35 million gallons of biodiesel per year . debottlenecking has increased the annual capacity to in excess of 45 million gallons per year . projects are currently in progress to further debottleneck and optimize the plant to run at higher rates . there currently is uncertainty as to whether we will produce biodiesel in the future . this uncertainty results from : ( i ) changes in feedstock prices relative to biodiesel prices ; and ( ii ) the permanency of government mandates and tax credits . see “ risk factors ” above . while biodiesel is the principal component of the biofuels segment , we also generate revenue from the sale of petrodiesel both in blends with our biodiesel and , from time to time , with no biodiesel added . petrodiesel and biodiesel blends are available to customers at our leased storage facility in north little rock , arkansas and at our batesville plant . in addition , we deliver blended product to a small group of customers within our region . we also sell refined petroleum products from time-to-time on common carrier pipelines in part to maintain our status as a shipper on the pipeline . the majority of our expenses are cost of goods sold .
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results of operations in general we break our chemicals business into two main product groups : custom manufacturing and performance chemicals . custom manufacturing consists of products made for specific customers based upon specifications provided by such customers . major products in the custom manufacturing group include : ( i ) nonanoyloxybenzene-sulfonate , a bleach activator manufactured exclusively for a customer for use in a household detergent ; ( ii ) a proprietary herbicide ( and intermediates ) manufactured exclusively for a customer ; ( iii ) chlorinated polyolefin adhesion promoters ( or cpos ) and antioxidant precursors ( or dipb ) for a customer ; and ( iv ) a biocide intermediate for another customer . the custom manufacturing group also includes agrochemicals as well as industrial and consumer products ( cosmetics and personal care products , specialty polymers , photographic and imaging chemicals , and an intermediate anode powder to be used as a component of high-performance graphite anode materials for lithium-ion batteries ) . revenues generated from the bleach activator are based on a supply agreement with the customer . the supply agreement stipulates selling price per kilogram based on volume sold , with price moving up as volumes move down , and vice-versa . on august 28 , 2012 , we signed an amendment to our existing agreement with the bleach activator customer . among other things , the amendment : ( i ) extended the term of the agreement to december 31 , 2016 ( unless terminated earlier in accordance with the provisions of the agreement ) ; and ( ii ) allows us to sell certain formulations of the bleach activator to third parties as a performance chemical . we pay for raw materials required to produce the bleach activator . the contract with the customer provides that the price received by us for the bleach activator is indexed to changes in certain items , enabling us to pass along most inflationary increases in production costs to the customer .
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the company identified story_separator_special_tag the following discussion of the financial condition and results of operations should be read in conjunction with the financial statements and the related notes included elsewhere in this report . this discussion contains forward-looking statements , which are based on assumptions about the future of the company 's business . the actual results could differ materially from those contained in the forward-looking statements . please read “ forward-looking statements ” included elsewhere in this report for additional information regarding forward-looking statements . company overview we are a healthcare company focused on the prevention of breast cancer through the commercialization of diagnostic tests that can detect precursors to breast cancer , and through the research , development , and ultimate commercialization of treatments for pre-cancerous lesions and ductal carcinoma in situ , or dcis . our diagnostic tests consist of patented medical devices that can collect fluid and tissue samples from the breast milk ducts , where , according to the national cancer institute , over 95 % of breast cancers arise . these samples are processed at our clia-certified laboratory , the national reference laboratory for breast health , which examines the specimens by microscopy for the presence of normal , pre-malignant , or malignant changes as determined by cytopathology and biomarkers that distinguish “ usual ” ductal hyperplasia , a benign condition , from atypical ductal hyperplasia , which may lead to cancer . these cytopathological results provide patients and physicians with information about the care path that should be followed , depending on the individual risk of future cancer as determined by the results . additionally , we are conducting research on the treatment of these pre-cancerous cells and dcis by using our patented microcatheters to deliver , directly into the milk ducts , pharmaceutical formulations that can be used to treat these conditions . by using this localized delivery method , patients are expected to receive high local concentrations of these drugs at the site of the pre-cancerous lesions or dcis , potentially promoting efficacy of the treatment while limiting systemic exposure , which has the potential to lower the overall toxicity of these treatments . current operations we launched our commercial operations in late 2011 and in 2012 initiated and completed the field experience trial of our first two tests , the forecyte test and the arguscyte test . in january 2013 , we announced the national launch of the forecyte test through our distributor clarity women 's health , a division of diagnostic testing services , llc . as of december 31 , 2012 , have enrolled and sold masct system kits or provided arguscyte collection kits to 37 doctors and clinics as providers of the forecyte and or arguscyte tests and have received , processed , and reported the results to physicians from 1,664 forecyte samples ( representing 832 patients ) and 41 arguscyte samples . from inception ( april 30 , 2009 ) through december 31 , 2012 , we have generated $ 483,342 in revenue from the sale of our masct system and providing laboratory services . we incurred net operating losses of $ 5,079,851 and $ 3,442,269 for the twelve months ended december 31 , 2012 and 2011 , respectively . as of december 31 , 2012 , we had an accumulated deficit of approximately $ 9.7 million . we have not yet established an ongoing source of revenue sufficient to cover our operating costs and allow us to continue as a going concern . our ability to continue as a going concern is dependent on obtaining adequate capital to fund operating losses until we become profitable . we plan to obtain additional capital resources by selling our equity securities , selling the forecyte test kits and generating laboratory service revenue from our tests , and borrowing from stockholders or others when needed . however , we can not assure you that we will be successful in accomplishing any of these plans and , if we are unable to obtain adequate capital , we could be forced to cease operations . finally , the acquisition of the acueity assets may become a complement to our current business at some point in the future . we are not currently allocating human or financial resources to these assets , with the exception of approximately $ 50,000 for patent maintenance fees and application prosecution expenses related to the acueity asset purchase . following the launch of our four diagnostic tests in the u.s. , we will then begin to allocate human and financial resources to further develop and ultimately commercialize these medical devices . we intend to complete the steps necessary to begin marketing and selling these tools , such as re-establishment of the supply chain of component parts , securing manufacturers , performing test builds and commercial scale manufacturing , in late 2013. this asset purchase is not expected to have an impact on the development and commercialization timetables of our existing product lines . we can not , however , provide any assurances that delays related to the launch of our four diagnostic tests , independent of this asset purchase , would not delay the expected development of these diagnostic tools or that we will ultimately be successful selling these tools . on march 27 , 2013 we entered into a stock purchase agreement with aspire capital fund , llc , which provides that , upon the terms and subject to the conditions and limitations set forth therein , aspire is committed to purchase up to an aggregate of $ 30 million of shares of our common stock over the three-year term of the agreement . under the agreement , aspire purchased $ 1,000,000 of our common stock on march 27 , 2013 for $ 12 per share . before we can sell any additional shares under the agreement , we must register the shares and have the registration statement declared effective by the sec . story_separator_special_tag on december 11 , 2012 , mr. kelly filed a complaint in the united states district court , western division of washington seeking compensatory damages , interest and attorneys ' fees related to the termination of mr. kelly 's consulting contract and the rescission of shares issued to him in july 2010 in connection with his resignation from the company as president and a director . the specific amount of damages sought is to be proven at trial and is not specified . on february 26 , 2013 , mr. victor cononi filed a complaint in the united states district court , western division of washington seeking compensatory damages , interest and attorneys ' fees related to the rescission of shares issued to him in july 2010 in connection with mr. kelly 's resignation from the company as president and a director . mr. cononi is the father of mr. kelly 's paramour . the specific amount of damages sought is to be proven at trial and is not specified . a hearing in the arbitration has been postponed pending certain procedures in the above western division action and may be delayed further to accommodate other third party civil and federal criminal proceedings alleging securities and wire fraud that have been brought against mr. kelly with respect to his prior employment and predating his service with the company . 42 the company is reasonably confident in its defenses to mr. kelly 's and mr. cononi 's claims . consequently , no provision or liability has been recorded for these claims as of december 31 , 2012. however , it is at least reasonably possible that the company 's estimate of liability may change in the near term . any payments by reason of an adverse determination in this matter will be charged to earnings in the period of determination . critical accounting policies and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states , or gaap . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities and expenses . on an ongoing basis , we evaluate these estimates and judgments , including those described below . we base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances . these estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results and experiences may differ materially from these estimates . while our significant accounting policies are more fully described in note 3 to our financial statements , we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we use in the preparation of our financial statements . revenue recognition overview we will recognize product and service revenue in accordance with gaap when the following overall fundamental criteria are met : ( i ) persuasive evidence of an arrangement exists , ( ii ) delivery has occurred or the service has been performed , ( iii ) our price to the customer is fixed or determinable , and ( iv ) collection is reasonably assured . product revenue we recognize revenue for sales of the masct kits and devices upon receipt of cash as we have an insufficient sales history on which to determine the collectability . shipping documents and the completion of any customer acceptance requirements , when applicable , will be used to verify product delivery . we will assess whether a price is fixed or determinable based upon the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment . once a history of sales and collectability has been established , we will recognize revenue on an accrual basis with an offsetting reserve for doubtful accounts based on the history during the initial sales period . service revenue we record revenue for diagnostic testing on an accrual basis at the medicare allowed and invoiced amount . amounts invoiced above the medicare amount , namely non-medicare , are not recognized on an accrual basis and instead are recognized on a cash basis as received . diagnostic testing revenue at the medicare rate is recognized upon completion of the test , communication of results to the patient 's physician , and when collectability is reasonably assured . customer purchase orders and or contracts will generally be used to determine the existence of an arrangement . once the company has historical sales and can determine the proper amount to recognize as uncollectible , it will then begin to recognize the entire amount , both medicare and non-medicare billing on an accrual basis , with an offsetting allowance for doubtful accounts recorded based on history . we estimate we will utilize the diagnostic testing revenue history once it reaches 12 months of collection data to determine a proper allowance for doubtful accounts . inventory the company 's inventories are stated at lower of cost or market . cost is determined on a moving-average basis . costs of inventories include purchase and related costs incurred in delivering the products to their present location and condition . market value is determined by reference to selling prices after the balance sheet date or to management 's estimates based on prevailing market conditions . inherent in the lower of cost or market calculation are several significant judgments based on a review of the aging of the inventory , inventory movement of products , economic conditions , and replacement costs .
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results of operations discussion of twelve months ended december 31 , 2012 for the twelve months ended december 31 , 2012 , we had total revenue of $ 481,842 , consisting of $ 6,440 product revenue from sales of masct systems and $ 475,402 diagnostic testing service revenue from our forecyte and arguscyte testing services performed . total cost of revenue was $ 35,745 , primarily attributable to cost of diagnostic testing services performed , which consisted of $ 35,745 in payments to doctors for their time administering the forecyte testing service . since the inventory of masct system was recorded at zero net realizable value as a result of the lower of cost or market analysis performed at december 31 , 2011 , no corresponding cost of goods sold was recorded for the sales of masct system for the twelve months ended december 31 , 2012. gross profit was $ 439,657 for the diagnostic testing service and $ 6,440 for the product sales of masct system with no corresponding cost of goods sold . loss on reduction of inventory to lower of cost or market was $ 29,884 for the twelve months ended december 31 , 2012 , primarily due to write-off of parts purchased during the year for the assembly of masct system , which was determined at zero net realizable value as a result of lower of cost or market analysis performed at december 31 , 2012. our masct system is currently sold at a price substantially lower than its cost to encourage sales and because the masct system is currently manufactured by our suppliers only in small quantities . for these reasons , the manufacturing cost allocated to each inventory unit is high .
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strategy established in 1839 , the bank is the oldest new jersey-chartered bank in the state . the bank offers a full range of retail and commercial loan and deposit products , and emphasizes personal service and convenience . the bank 's strategy is to grow profitably through a commitment to credit quality and expanding market share by acquiring , retaining and expanding customer relationships , while carefully managing interest rate risk . in recent years , the bank has focused on commercial real estate , multi-family and commercial loans as part of its strategy to diversify the loan portfolio and reduce interest rate risk . these types of loans generally have adjustable rates that initially are higher than residential mortgage loans and generally have a higher rate of risk . the bank 's credit policy focuses on quality underwriting standards and close monitoring of the loan portfolio . at december 31 , 2015 , these commercial loan types accounted for 72.1 % of the loan portfolio and retail loans accounted for 27.9 % . the company intends to continue to focus on commercial real estate , multi-family and commercial lending relationships . the company 's relationship banking strategy focuses on increasing core accounts and expanding relationships through its branch network , mobile banking , online banking and telephone banking touch points . the company continues to evaluate opportunities to increase market share by expanding within existing and contiguous markets . core deposits , consisting of savings and demand deposit accounts , are generally a stable , relatively inexpensive source of funds . at december 31 , 2015 , core deposits were 87.5 % of total deposits . the company 's results of operations are primarily dependent upon net interest income , the difference between interest earned on interest-earning assets and the interest paid on interest-bearing liabilities . changes in interest rates could have an adverse effect on net interest income to the extent the company 's interest-bearing assets and interest-bearing liabilities reprice or mature at different times or relative interest rates . an increase in interest rates generally would result in a decrease in the company 's average interest rate spread and net interest income , which could have a negative effect on profitability . the company generates non-interest income such as income from retail and business account fees , loan servicing fees , loan origination fees , loan level swap fees , appreciation in the cash surrender value of bank-owned life insurance , income from loan or securities sales , fees from wealth management services and investment product sales and other fees . the company 's operating expenses consist primarily of compensation and benefits expense , occupancy and equipment expense , data processing expense , the amortization of intangible assets , marketing and advertising expense and other general and administrative expenses . the company 's results of operations are also affected by general economic conditions , changes in market interest rates , changes in asset quality , changes in asset values , actions of regulatory agencies and government policies . 41 acquisitions on april 1 , 2015 , beacon trust company ( `` beacon '' ) , a wholly owned subsidiary of the provident bank , completed its acquisition of certain assets and liabilities of the mde group , inc. and the equity interests of acertus capital management , llc ( together `` mde '' ) , both morristown , new jersey-based registered investment advisory firms that manage assets for affluent and high net-worth clients . mde was acquired with both cash and contingent consideration . the company recognized goodwill of $ 18.3 million and a customer relationship intangible of $ 7.0 million related to the acquisition . the company recognized a contingent consideration liability at its fair value of $ 338,000. the contingent consideration arrangement requires the company to pay additional cash consideration to mde 's former stakeholders four years after the closing of the acquisition if certain revenue targets are met . the fair value of the contingent consideration was estimated using a discounted cash flow model . the acquisition agreement limits the total payment to a maximum of $ 12.5 million , to be determined based on actual future results . on october 31 , 2014 , beacon acquired the fiduciary account relationships of suffolk county national bank , a subsidiary of suffolk bancorp , in suffolk county , new york . on may 30 , 2014 , the company completed its acquisition of team capital bank ( `` team capital '' ) , which after purchase accounting adjustments added $ 964.0 million to total assets , $ 631.2 million to loans , and $ 769.9 million to deposits . total consideration paid for team capital was $ 115.1 million : $ 31.6 million in cash and 4.9 million shares of common stock valued at $ 83.5 million on the acquisition date . team capital was merged with and into the company 's subsidiary , the provident bank as of the close of business on the date of acquisition . the merger added twelve branches to the provident bank branch network , with five branches in pennsylvania and seven in new jersey . critical accounting policies the company considers certain accounting policies to be critically important to the fair presentation of its financial condition and results of operations . these policies require management to make complex judgments on matters which by their nature have elements of uncertainty . the sensitivity of the company 's consolidated financial statements to these critical accounting policies , and the assumptions and estimates applied , could have a significant impact on its financial condition and results of operations . these assumptions , estimates and judgments made by management can be influenced by a number of factors , including the general economic environment . story_separator_special_tag although management uses the best information available , the level of the allowance for loan losses remains an estimate that is subject to significant judgment and short-term change . additional critical accounting policies relate to judgments about other asset impairments , including goodwill , investment securities and deferred tax assets . goodwill is evaluated for impairment on an annual basis , or more frequently if events or changes in circumstances indicate potential impairment between annual measurement dates . management qualitatively determines whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount before performing step 1 of the goodwill impairment test . if an entity concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount , the entity would be required to perform step 1 of the assessment and then , if needed , step 2 to determine whether goodwill is impaired . however , if it is more likely than not that the fair value of the reporting unit is more than its carrying amount , the entity does not need to apply the two-step impairment test . for this analysis , the reporting unit is defined as the bank , which includes all core and retail banking operations of the company but excludes the assets , liabilities , equity , earnings and operations held exclusively at the company level . the guidance provides certain factors an entity should consider in its qualitative assessment in determining whether it is more likely than not that a reporting unit 's fair value is less than its carrying amount . the factors include : macroeconomic conditions , such as deterioration in economic condition and limited access to capital . industry and market considerations , such as increased competition , regulatory developments and decline in market-dependent multiples . cost factors , such as increased labor costs , cost of materials and other operating costs . overall financial performance , such as declining cash flows and decline in revenue or earnings . other relevant entity-specific events , such as changes in management , strategy or customers , litigation and contemplation of bankruptcy . reporting unit events , such as selling or disposing a portion of a reporting unit and a change in composition of assets . 43 the company may , based upon its qualitative assessment , or at its option , perform the two-step process to evaluate the potential impairment of goodwill . if , based upon step 1 , the fair value of the reporting unit exceeds its carrying amount , goodwill of the reporting unit is considered not impaired . however , if the carrying amount of the reporting unit exceeds its fair value , an additional test must be performed . the second step test compares the implied fair value of the reporting unit 's goodwill with the carrying amount of that goodwill . an impairment loss would be recorded to the extent that the carrying amount of goodwill exceeds its implied fair value . the company completed its annual goodwill impairment test as of september 30 , 2015. based upon its qualitative assessment of goodwill , the company concluded it is more likely than not that the fair value of the reporting unit exceeds its carrying amount , such that goodwill was not impaired and no further quantitative analysis ( step 1 ) was warranted . the company 's available for sale securities portfolio is carried at estimated fair value , with any unrealized gains or losses , net of taxes , reported as accumulated other comprehensive income or loss in stockholders ' equity . estimated fair values are based on market quotations or matrix pricing as discussed in note 16 to the consolidated financial statements . securities which the company has the positive intent and ability to hold to maturity are classified as held to maturity and carried at amortized cost . management conducts a periodic review and evaluation of the securities portfolio to determine if any declines in the fair values of securities are other-than-temporary . in this evaluation , if such a decline were deemed other-than-temporary , management would measure the total credit-related component of the unrealized loss , and recognize that portion of the loss as a charge to current period earnings . the remaining portion of the unrealized loss would be recognized as an adjustment to accumulated other comprehensive income . the fair value of the securities portfolio is significantly affected by changes in interest rates . in general , as interest rates rise , the fair value of fixed-rate securities decreases and as interest rates fall , the fair value of fixed-rate securities increases . the company determines if it has the intent to sell these securities or if it is more likely than not that the company would be required to sell the securities before the anticipated recovery . if either exists , the decline in value is considered other-than-temporary . in its evaluations , the company did not recognize an other-than-temporary impairment charge on securities for 2015 and 2014 , while in 2013 , the company recognized an other-than-temporary impairment of $ 434,000. the determination of whether deferred tax assets will be realizable is predicated on the reversal of existing deferred tax liabilities , utilization against carry-back years and estimates of future taxable income . such estimates are subject to management 's judgment . a valuation allowance is established when management is unable to conclude that it is more likely than not that it will realize deferred tax assets based on the nature and timing of these items . the company did not require a valuation allowance at december 31 , 2015 . 44 analysis of net interest income net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities . net interest income depends on the relative amounts of interest-earning assets and interest-bearing liabilities and the rates of interest earned on such assets and paid on such liabilities . average balance sheet .
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general . net income for the year ended december 31 , 2015 was $ 83.7 million , compared to $ 73.6 million for the year ended december 31 , 2014 . basic and diluted earnings per share were $ 1.33 for the year ended december 31 , 2015 , compared to basic and diluted earnings per share of $ 1.22 for 2014 . net income for the year ended december 31 , 2015 was favorably impacted by year-over-year growth in both average loans outstanding and average non-interest bearing deposits , growth in non-interest income and improved asset quality . these factors helped offset the unfavorable impact of compression in the net interest margin . net interest income . net interest income increased $ 11.0 million to $ 249.9 million for 2015 , from $ 238.9 million for 2014 . the average interest rate spread declined 11 basis point to 3.07 % for 2015 , from 3.18 % for 2014 . the net interest margin decreased 10 basis point to 3.20 % for 2015 , compared to 3.30 % for 2014 . for the year ended december 31 , 2015 , net interest income was favorably impacted by the growth in average loans outstanding and average non-interest bearing demand deposits , mitigating the effects of compression in the net interest margin . interest income increased $ 12.4 million , or 4.4 % , to $ 291.8 million for 2015 , compared to $ 279.4 million for 2014 . the increase in interest income was attributable to an increase in average earning asset balances , partially offset by a decrease in the yield on average interest-earning assets . average interest-earning assets increased $ 577.4 million , or 8.0 % , to $ 7.82 billion for 2015 , compared to $ 7.24 billion for 2014 .
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under asc 740 , story_separator_special_tag for purposes of this management 's discussion and analysis of financial condition and results of operation , references to “ we , ” “ our , ” “ us ” or similar terms when used in a historical context refer to lgi homes , inc. and its subsidiaries . story_separator_special_tag —non-gaap measures ” for reconciliations of ebitda and adjusted ebitda to net income , which is the gaap financial measure that our management believes to be most directly comparable . 33 year ended december 31 , 2019 compared to year ended december 31 , 2018 homes sales . our home sales revenues , home closings , average sales price ( asp ) , average community count , average monthly absorption rate and closing community count by reportable segment for the years ended december 31 , 2019 and 2018 were as follows ( revenues in thousands ) : replace_table_token_6_th replace_table_token_7_th replace_table_token_8_th home sales revenues for the year ended december 31 , 2019 were $ 1,838.2 million , an increase of $ 333.8 million , or 22.2 % , from $ 1,504.4 million for the year ended december 31 , 2018 . the increase in home sales revenues is primarily due to an 18.1 % increase in homes closed and an increase in the average sales price per home during the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 . we closed 7,690 homes during 2019 , as compared to 6,512 homes closed during 2018 . this increase in home closings was largely due to the increase in the number of active communities in 2019 . the average sales price per home closed during the year ended december 31 , 2019 was $ 239,032 , an increase of $ 8,012 , or 3.5 % , from the average sales price per home of $ 231,020 for the year ended december 31 , 2018 . this increase in the average sales price per home was primarily due to changes in product mix , higher price points in certain new markets and a favorable pricing environment . the increase in homes closed was largely due to our geographic expansion in the west reportable segment and deepening our presence within certain markets in the southeast reportable segment during the year ended december 31 , 2019 as compared to the year ended december 31 , 2018. we continued to diversify our operations outside of our central reportable segment during 2019 . we increased our home sales revenues in our reportable segments other than our central reportable segment by $ 232.5 million during the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 , representing a 22.7 % increase in the number of homes closed in these reportable segments during 2019 as compared to 2018 . our active selling communities at december 31 , 2019 34 increased to 106 from 88 at december 31 , 2018 . seventeen of the eighteen active selling communities added during 2019 were outside of our central reportable segment , contributing to the further geographic diversification of our business . home sales revenues in our west reportable segment increased by $ 120.1 million , or 79.5 % , primarily due to an increase in community count associated with our continued geographic expansion into our california and nevada markets . home sales revenues in our southeast reportable segment increased by $ 76.7 million , or 28.3 % , during the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 , primarily due to a 20.2 % increase in the number of homes closed in this reportable segment and partially due to increased community count stemming from the acquisition of wynn homes in 2018. all reportable segments added communities by expanding into new markets or deepening existing markets during the year ended december 31 , 2019. cost of sales and gross margin ( home sales revenues less cost of sales ) . cost of sales increased for the year ended december 31 , 2019 to $ 1,401.7 million , an increase of $ 277.2 million , or 24.7 % , from $ 1,124.5 million for the year ended december 31 , 2018 . this increase is primarily due to an 18.1 % increase in homes closed , higher lot costs recognized and , to a lesser extent , increased capitalized interest costs for homes closed during 2019 as compared to 2018 . gross margin for the year ended december 31 , 2019 was $ 436.5 million , an increase of $ 56.6 million , or 14.9 % , from $ 379.9 million for the year ended december 31 , 2018 . gross margin as a percentage of home sales revenues was 23.7 % for the year ended december 31 , 2019 and 25.3 % for the year ended december 31 , 2018 . this decrease in gross margin as a percentage of home sales revenues is primarily due to higher lot costs and higher capitalized interest costs recognized for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 and , to a lesser extent , to 583 wholesale home closings during 2019 , compared to 466 wholesale home closings during 2018 . selling expenses . selling expenses for the year ended december 31 , 2019 were $ 131.6 million , an increase of $ 22.1 million , or 20.2 % , from $ 109.5 million for the year ended december 31 , 2018 . sales commissions increased to $ 68.1 million for the year ended december 31 , 2019 from $ 57.3 million during 2018 largely due to a 22.2 % increase in home sales revenues during 2019 as compared to 2018 . selling expenses as a percentage of home sales revenues were 7.2 % and 7.3 % for the years ended december 31 , 2019 and 2018 , respectively . story_separator_special_tag the increase in average cost of sales per home is primarily due to changes in construction costs associated with product mix and lot costs . gross margin for the year ended december 31 , 2018 was $ 379.9 million , an increase of $ 59.5 million , or 18.6 % , from $ 320.4 million for the year ended december 31 , 2017. gross margin as a percentage of home sales revenues was 25.3 % for the year ended december 31 , 2018 and 25.5 % for the year ended december 31 , 2017. this decrease in gross margin as a percentage of home sales revenues is primarily due to a combination of higher construction costs and lot costs partially offset by higher average home sales price for the year ended december 31 , 2018 as compared to the year ended december 31 , 2017 and , to a lesser extent , to 466 wholesale home closings during 2018 , compared to 201 wholesale home closings during 2017. selling expenses . selling expenses for the year ended december 31 , 2018 were $ 109.5 million , an increase of $ 14.5 million , or 15.3 % , from $ 95.0 million for the year ended december 31 , 2017. sales commissions increased to $ 57.3 million for the year ended december 31 , 2018 from $ 50.2 million during 2017 largely due to a 19.6 % increase in home sales revenues during 2018 as compared to 2017. selling expenses as a percentage of home sales revenues were 7.3 % and 7.5 % for the years ended december 31 , 2018 and 2017 , respectively , and generally reflect operating leverage realized relating to advertising costs . general and administrative . general and administrative expenses for the year ended december 31 , 2018 were $ 70.3 million , an increase of $ 14.7 million , or 26.4 % , from $ 55.7 million for the year ended december 31 , 2017. the increase in the amount of general and administrative expenses is primarily due to additional general and administrative compensation costs associated with an increase of active communities and home closings during 2018 as compared to 2017. general and administrative expenses as a percentage of home sales revenues were 4.7 % and 4.4 % for the years ended december 31 , 2018 and 2017 , respectively . the increase in general and administrative expenses as a percentage of home sales revenues reflects additional costs realized from the increase in community count and one-time acquisition related transaction expenses associated with the wynn homes acquisition during the year ended december 31 , 2018 as compared to the year ended december 31 , 2017. loss on extinguishment of debt . loss on extinguishment of debt for the year ended december 31 , 2018 was $ 3.6 million , due to debt issuance costs previously capitalized that were associated with the revolving credit facility . there was no loss on extinguishment of debt for the year ended december 31 , 2017. operating income , net income before income taxes , and net income . operating income for the year ended december 31 , 2018 was $ 200.1 million , an increase of $ 30.3 million , or 17.9 % , from $ 169.8 million for the year ended december 31 , 2017. net income before income taxes for the year ended december 31 , 2018 was $ 199.1 million , an increase of $ 27.7 million , or 16.2 % , from $ 171.4 million for the year ended december 31 , 2017. our reportable segments contributed the following amounts and percentages of net income before income taxes during 2018 : central - $ 104.6 million or 52.5 % ; southeast - $ 29.1 million or 14.6 % ; northwest - $ 40.9 million or 20.5 % ; west - $ 13.6 million or 6.8 % ; and florida - $ 21.3 million or 10.7 % . net income for the year ended december 31 , 2018 was $ 155.3 million , an increase of $ 42.0 million , or 37.1 % , from $ 113.3 million for the year ended december 31 , 2017. the increases are primarily attributed to a 11.4 % increase in homes closed , a higher average sales price per home , and a decrease in the effective tax rate realized during 2018 as compared to 2017 . 37 non-gaap measures in addition to the results reported in accordance with u.s. gaap , we have provided information in this annual report on form 10-k relating to adjusted gross margin , ebitda and adjusted ebitda . gross margin and adjusted gross margin adjusted gross margin is a non-gaap financial measure used by management as a supplemental measure in evaluating operating performance . we define adjusted gross margin as gross margin less capitalized interest and adjustments resulting from the application of purchase accounting included in the cost of sales . our management believes this information is useful because it isolates the impact that capitalized interest and purchase accounting adjustments have on gross margin . however , because adjusted gross margin information excludes capitalized interest and purchase accounting adjustments , which have real economic effects and could impact our results , the utility of adjusted gross margin information as a measure of our operating performance may be limited . in addition , other companies may not calculate adjusted gross margin information in the same manner that we do . accordingly , adjusted gross margin information should be considered only as a supplement to gross margin information as a measure of our performance . the following table reconciles adjusted gross margin to gross margin , which is the gaap financial measure that our management believes to be most directly comparable ( dollars in thousands ) : replace_table_token_12_th ( 1 ) adjustments result from the application of purchase accounting for acquisitions and represent the amount of the fair value step-up adjustments included in cost of sales for real estate inventory sold after the acquisition dates .
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key results key financial results as of and for the year ended december 31 , 2019 , as compared to the year ended december 31 , 2018 , were as follows : home sales revenues increased 22.2 % to $ 1.8 billion from $ 1.5 billion . homes closed increased 18.1 % to 7,690 homes from 6,512 homes . average sales price of our homes increased $ 8,012 to $ 239,032 from $ 231,020 . gross margin as a percentage of home sales revenues decreased to 23.7 % from 25.3 % . adjusted gross margin ( non-gaap ) as a percentage of home sales revenues decreased to 25.8 % from 27.0 % . net income before income taxes increased 16.4 % to $ 231.8 million from $ 199.1 million . net income increased 15.0 % to $ 178.6 million from $ 155.3 million . ebitda ( non-gaap ) as a percentage of home sales revenues decreased to 14.6 % from 14.9 % . adjusted ebitda ( non-gaap ) as a percentage of home sales revenues decreased to 14.5 % from 15.1 % . active communities at the end of 2019 increased to 106 from 88 . total owned and controlled lots decreased 6.6 % to 48,062 lots at december 31 , 2019 from 51,442 lots at december 31 , 2018 . for reconciliations of the non-gaap financial measures of adjusted gross margin , ebitda and adjusted ebitda to the most directly comparable gaap financial measures , please see “ — non-gaap measures . ” recent developments during november 2019 , our 4.25 % convertible notes due 2019 ( the “ convertible notes ” ) matured , which resulted in the principal payment of $ 70.0 million and the issuance of 2,381,751 shares of our common stock for the premium associated with the convertible notes . 31 results of operations the following table sets forth our results of operations for the years ended december 31 , 2019 , 2018 and 2017. replace_table_token_5_th ( 1 ) gross margin is home sales revenues less cost of sales .
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series b : 999,999,990 shares of preferred stock has been designated as series b. the certificate of designation for the preferred b stock provides that as a class shall be entitled to receive dividends when , as and if declared by the board of directors , in its sole discretion . preferred series b will have liquidation rites , an amount equal to $ 1.00 per share , plus any declared but unpaid dividends for each share held . each share will have 10 votes . each share of series b preferred stock shall be convertible into common shares , at any time , and or from time to time , into the number of shares of the corporation 's common stock , par value $ 0.00001 per share , equal to the price of the series b preferred stock , divided by the par value of the common stock , subject to adjustment as may be determined by the board of directors from time to time ( the `` conversion rate `` ) . on september 17 , 2014 , the company amended its articles of incorporation . the amendment modified the terms of the preferred series a conversion exchange to common stock . as a result of this modification , the addition of a material conversion option triggered extinguishment accounting which requires the company to fair value the new instrument and consider the incremental value of the fair value of the modified preferred stock over the carrying value at the date of the modification as a reduction of income available to common stockholders . the preferred series a was deemed to have a fair value of $ 13,741,679 based upon the converted valuation approach as the primary driver of value in the instrument , its common stock equivalency . in addition , as a result of this new conversion feature , the company can not assert it has sufficient shares to settle both preferred series a and preferred series b and accordingly has re-classed such share to mezzanine equity . the preferred series a is reclassified at its modification fair value of $ 13,741,679 . at december 31 , 2015 and december 31 , 2014 there was 1 share of series a convertible preferred stock issued and outstanding . at december 31 , 2015 and december 31 , 2014 there were 76,106 and 76,133 shares of series b convertible preferred stock issued and outstanding , respectively . options and warrants there are no warrants or options outstanding to acquire any additional shares of common stock of the company . note 6. related party transactions notes payable in support of the company 's efforts and cash requirements , it has relied on advances from related parties until such time that the company can support its operations or attains adequate financing through sales of its equity or traditional debt financing . there is no formal written commitment for continued support by these related parties . amounts represent advances or amounts paid in satisfaction of liabilities of the company . the advances are considered temporary in nature and have not been formalized by a promissory note . as of december 31 , 2015 , david alexander had advanced to the company $ 67,582 ( $ 3,590-2014 ) with no stated interest rate , payment terms and is due on demand . on may 18 , 2011 david cupp loaned the company $ 100 with no stated interest rate , payment terms and is due on demand . additionally , payments were made on behalf of the company in satisfaction of liabilities , totaling $ 27,541 . the total amount due to mr. cupp , $ 27,641 , was forgiven in 2014 and recognized as a contribution to capital . no amount was due to mr. cupp as of december 31 , 2015 or 2014. f-12 north america frac sand , inc. ( fka xterra building systems , inc. ) notes to audited financial statements as of the year ending december 31 , 2015 , mr. david alexander accrued and unpaid consulting fees of $ 14,000 ( $ 9,000 – 2014 ) . amounts due to related parties at december 31 , 2015 and december 31 , 2014 totaled $ 90,582 and $ 12,590 , respectively . other the officers and directors of the company are involved in other business activities and may , in the future , become involved in other business opportunities that become available . they may face a conflict in selecting between the company and other business interests . the company has not formulated a policy for the resolution of such conflicts . the company does not own or lease property or lease office space . the company has been provided office space by a member of the board of directors at no cost . the above amounts are not necessarily indicative of the amounts that would have been incurred had comparable transactions been entered into with independent parties . note 7. commitments and contingencies from time to time the company may be a party to litigation matters involving claims against the company . management believes that there are no current matters that would have a material effect on the company 's financial position or results of operations . note 8. subsequent events on march 21 , 2016 , the company announced the resignation of mr. david cupp as director of the company . on march 21 , 2016 , the company changed its principal address to unit 9b , 218 105 th street east , saskatoon , saskatchewan , s7i 0j9 . on march 28 , 2016 , the company issued 1,250,000 of shares of common stock pursuant to the conversion of 5 series b preferred shares . the completion of the reverse merger with north america frac sand ( ca ) ltd. and the shares held in escrow will be released subject to the completion of the audited financial statements of north america frac sand ( story_separator_special_tag series b : 999,999,990 shares of preferred stock has been designated as series b. the certificate of designation for the preferred b stock provides that as a class shall be entitled to receive dividends when , as and if declared by the board of directors , in its sole discretion . preferred series b will have liquidation rites , an amount equal to $ 1.00 per share , plus any declared but unpaid dividends for each share held . each share will have 10 votes . each share of series b preferred stock shall be convertible into common shares , at any time , and or from time to time , into the number of shares of the corporation 's common stock , par value $ 0.00001 per share , equal to the price of the series b preferred stock , divided by the par value of the common stock , subject to adjustment as may be determined by the board of directors from time to time ( the `` conversion rate `` ) . on september 17 , 2014 , the company amended its articles of incorporation . the amendment modified the terms of the preferred series a conversion exchange to common stock . as a result of this modification , the addition of a material conversion option triggered extinguishment accounting which requires the company to fair value the new instrument and consider the incremental value of the fair value of the modified preferred stock over the carrying value at the date of the modification as a reduction of income available to common stockholders . the preferred series a was deemed to have a fair value of $ 13,741,679 based upon the converted valuation approach as the primary driver of value in the instrument , its common stock equivalency . in addition , as a result of this new conversion feature , the company can not assert it has sufficient shares to settle both preferred series a and preferred series b and accordingly has re-classed such share to mezzanine equity . the preferred series a is reclassified at its modification fair value of $ 13,741,679 . at december 31 , 2015 and december 31 , 2014 there was 1 share of series a convertible preferred stock issued and outstanding . at december 31 , 2015 and december 31 , 2014 there were 76,106 and 76,133 shares of series b convertible preferred stock issued and outstanding , respectively . options and warrants there are no warrants or options outstanding to acquire any additional shares of common stock of the company . note 6. related party transactions notes payable in support of the company 's efforts and cash requirements , it has relied on advances from related parties until such time that the company can support its operations or attains adequate financing through sales of its equity or traditional debt financing . there is no formal written commitment for continued support by these related parties . amounts represent advances or amounts paid in satisfaction of liabilities of the company . the advances are considered temporary in nature and have not been formalized by a promissory note . as of december 31 , 2015 , david alexander had advanced to the company $ 67,582 ( $ 3,590-2014 ) with no stated interest rate , payment terms and is due on demand . on may 18 , 2011 david cupp loaned the company $ 100 with no stated interest rate , payment terms and is due on demand . additionally , payments were made on behalf of the company in satisfaction of liabilities , totaling $ 27,541 . the total amount due to mr. cupp , $ 27,641 , was forgiven in 2014 and recognized as a contribution to capital . no amount was due to mr. cupp as of december 31 , 2015 or 2014. f-12 north america frac sand , inc. ( fka xterra building systems , inc. ) notes to audited financial statements as of the year ending december 31 , 2015 , mr. david alexander accrued and unpaid consulting fees of $ 14,000 ( $ 9,000 – 2014 ) . amounts due to related parties at december 31 , 2015 and december 31 , 2014 totaled $ 90,582 and $ 12,590 , respectively . other the officers and directors of the company are involved in other business activities and may , in the future , become involved in other business opportunities that become available . they may face a conflict in selecting between the company and other business interests . the company has not formulated a policy for the resolution of such conflicts . the company does not own or lease property or lease office space . the company has been provided office space by a member of the board of directors at no cost . the above amounts are not necessarily indicative of the amounts that would have been incurred had comparable transactions been entered into with independent parties . note 7. commitments and contingencies from time to time the company may be a party to litigation matters involving claims against the company . management believes that there are no current matters that would have a material effect on the company 's financial position or results of operations . note 8. subsequent events on march 21 , 2016 , the company announced the resignation of mr. david cupp as director of the company . on march 21 , 2016 , the company changed its principal address to unit 9b , 218 105 th street east , saskatoon , saskatchewan , s7i 0j9 . on march 28 , 2016 , the company issued 1,250,000 of shares of common stock pursuant to the conversion of 5 series b preferred shares . the completion of the reverse merger with north america frac sand ( ca ) ltd. and the shares held in escrow will be released subject to the completion of the audited financial statements of north america frac sand (
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our business overview north america frac sand , inc. is a florida corporation ( the `` company '' ) . during the year ended december 31 , 2015 , the company entered into an agreement to acquire north america frac sand ( ca ) ltd ( `` nafs-ca '' ) . , an alberta corporation . we completed the due diligence on february 29 , 2016 and have agreed to close formally upon completion of the audit of nafs-ca . the company was providing consulting services to independent aquatic farming operators and other market participants located in the midwest of the united states . historically , we conducted initial marketing and sales activities to take advantage of opportunities related to time , location and quality of aquatic farming operations . we have conducted our operations primarily in indiana . on april 25 , 2014 the company entered into a share purchase agreement to acquire the issued and outstanding shares of innovate building systems , inc. , ( `` innovate '' ) a manufacturer of modular buildings located in edmonton alberta , canada . in accordance with the agreement , the company changed its name from new found shrimp , inc. to innovate building systems , inc. in the course of the due diligence , the innovate ( the alberta company ) was unable to supply audited financial statements . for this and other reasons , the company decided not to proceed with the acquisition . on september 9 , 2014 , the company changed its name from innovate building systems inc. to xterra building systems inc. on july 10 , 2015 , the company entered into a share purchase agreement to acquire the issued and outstanding shares of north america frac sand ( ca ) ltd. ( `` nafs-ca '' ) . where the company would issue 37,800,000 shares of common stock in the company in exchange for the issued and outstanding shares of nafs-ca .
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we received aggregate proceeds of $ 92.7 million from the sale of the warrants , which is recorded in additional paid-in capital in the consolidated balance sheets . note 10. commitments and contingencies leases we lease office space under noncancelable operating leases in the u.s. and overseas with various expiration dates . certain of our office leases are with an affiliate of our co-ceo , david duffield , who is also a director story_separator_special_tag you should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financial statements and notes thereto included elsewhere in this report . the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . our actual results could differ materially from those discussed in the forward-looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this report , particularly in risk factors. overview workday provides enterprise cloud applications for human capital management ( hcm ) , payroll , financial management and analytics . we offer innovative and adaptable technology focused on the consumer internet experience and cloud delivery model . our applications are designed for global enterprises to manage complex and dynamic operating environments . we provide our customers highly adaptable , accessible and reliable applications to manage critical business functions that enable them to optimize their financial and human capital resources . we were founded in 2005 to deliver cloud applications to global enterprises . our applications are designed around the way people work today in an environment that is global , collaborative , fast-paced and mobile . our cycle of frequent updates has facilitated rapid innovation and the introduction of new applications throughout our history . we began offering our human capital management ( hcm ) application in 2006. since then we have continued to invest in innovation and have consistently introduced new services to our customers , including our financial management application in 2007 , our procurement and employee expense management applications in 2008 , our payroll and mobile applications in 2009 , our talent management application in 2010 , our native ipad application and workday integration platform in 2011 , time tracking and grants management applications in 2012 and big data analytics in 2013. we offer workday applications to our customers on an enterprise-wide subscription basis , typically with three-year terms and with subscription fees largely based on the size of the customer 's workforce . we generally recognize revenues from subscription fees ratably over the term of the contract . we currently derive a substantial majority of our subscription services revenues from subscriptions to our hcm application . we market our applications primarily through our direct sales force . we have achieved significant growth in a relatively short period of time . our diverse customer base includes large , global companies and our direct sales force targets organizations with more than 1,000 workers . as of january 31 , 2014 , we had more than 600 customers . a substantial majority of our growth comes from new customers . our current financial focus is on growing our revenues and expanding our customer base . while we are incurring losses today , we strive to invest in a disciplined manner across all of our functional areas to sustain continued near-term revenue growth and support our long-term initiatives . our operating expenses have increased significantly in absolute dollars in recent periods , primarily due to our significant growth in employees . we had more than 2,600 and more than 1,700 employees as of january 31 , 2014 and 2013 , respectively . we intend to continue investing for long-term growth . we have invested , and expect to continue to invest , heavily in our application development efforts to deliver additional compelling applications and to address customers ' evolving needs . in addition , we plan to continue to expand our sales and marketing organizations to sell our applications globally . we have made significant investments in our data center infrastructure in fiscal 2014. we expect to continue this effort in fiscal 2015 as we update our technology and plan for future customer growth . we are also investing in personnel to service our growth in customers . these investments will increase our costs on an absolute basis in the near-term . many of these investments will occur in advance of experiencing any direct benefit from them and will make it difficult to determine if we are allocating our resources efficiently . as a result of these investments , we do not expect to be profitable in the near future . we expect our product 31 development , sales and marketing , and general and administrative expenses as a percentage of revenues to decrease over time as we grow our revenues , and we anticipate that we will gain economies of scale by increasing our customer base without direct incremental development costs and by utilizing more of the capacity of our data centers . since inception , we have invested heavily in our professional services organization to help ensure that customers successfully deploy and adopt our applications . additionally , we continue to expand our professional services partner ecosystem to further support our customers . we believe our investment in professional services , as well as partners building consulting practices around workday , will drive additional customer subscriptions and continued growth in revenues . in addition , over time we expect professional services revenues and the cost of professional services as a percentage of total revenues to decline as we increasingly rely on our partners to deploy workday applications and as the number of our existing customers continues to grow . fiscal year end our fiscal year ends on january 31. references to fiscal 2014 , for example , refer to the year ended january 31 , 2014. components of results of operations revenues we primarily derive our revenues from subscription services fees and professional services fees . story_separator_special_tag over time , we expect costs of professional services as a percentage of total revenues to decline as we increasingly rely on third parties to deploy our applications and as the number of our customers continues to grow . for fiscal 2015 , we anticipate professional services margins to be lower than fiscal 2014 as we invest in deploying new customers in financial management applications , medium-size enterprise , and education and government categories , where the third party partner ecosystem is still maturing . fiscal 2013 compared to fiscal 2012. core operating expenses in costs of professional services were $ 76.0 million for fiscal 2013 , compared to $ 42.6 million for fiscal 2012 , an increase of $ 33.4 million , or 78 % . the increase was primarily due to additional costs of $ 30.7 million to staff our deployment and integration engagements . due to the large increase in demand for our professional services versus fiscal 2012 , we increased both our internal professional service staff as well as third party supplemental staff . product development fiscal 2014 compared to fiscal 2013. core operating expenses in product development were $ 158.9 million for fiscal 2014 , compared to $ 99.1 million for fiscal 2013 , an increase of $ 59.8 million , or 60 % . the increase was primarily due to increases of $ 44.9 million in employee compensation costs due to higher headcount , $ 6.4 million in facility and it-related expenses and $ 3.8 million in contracted costs for our development cloud data center . we expect that in the future , product development expenses will continue to increase in absolute dollars as we improve and extend our applications and develop new technologies . fiscal 2013 compared to fiscal 2012. core operating expenses in product development were $ 99.1 million for fiscal 2013 , compared to $ 60.9 million for fiscal 2012 , an increase of $ 38.2 million , or 63 % . the increase was primarily due to an increase of $ 28.0 million in employee-related costs due to higher headcount and a $ 2.6 million increase in contractor costs as we supplemented our internal development professionals . sales and marketing fiscal 2014 compared to fiscal 2013. core operating expenses in sales and marketing were $ 184.4 million for fiscal 2014 , compared to $ 120.7 million for fiscal 2013 , an increase of $ 63.7 million , or 53 % . the increase was primarily due to increases of $ 47.2 million in employee compensation costs due to higher headcount and higher commissionable sales volume , $ 5.9 million in advertising , marketing and event costs , $ 4.2 million in travel expenses and $ 4.2 million in facility and it-related expenses . we expect that sales and marketing expenses will continue to increase in absolute dollars in the future as we continue to invest in sales and marketing by expanding our domestic and international selling and marketing activities , building brand awareness and attracting new customers . 36 fiscal 2013 compared to fiscal 2012. core operating expenses in sales and marketing were $ 120.7 million for fiscal 2013 , compared to $ 69.5 million for fiscal 2012 , an increase of $ 51.2 million , or 74 % . the increase was primarily due to increases of $ 35.9 million in employee-related costs driven by higher headcount , $ 5.0 million in advertising , marketing and event costs , and $ 3.2 million in travel expenses . general and administrative fiscal 2014 compared to fiscal 2013. core operating expenses in general and administrative were $ 43.8 million for fiscal 2014 , compared to $ 30.5 million for fiscal 2013 , an increase of $ 13.3 million , or 44 % . the increase was primarily due to $ 10.6 million in higher compensation costs due to higher headcount and $ 2.1 million in higher professional services costs including consulting , legal and audit . we expect general and administrative expenses will increase in absolute dollars as we invest in our infrastructure and incur additional employee-related costs , professional fees and insurance costs related to the growth of our business and international expansion . fiscal 2013 compared to fiscal 2012. core operating expenses in general and administrative were $ 30.5 million for fiscal 2013 , compared to $ 13.5 million for fiscal 2012 , an increase of $ 17.0 million , or 126 % . the increase was primarily due to $ 10.0 million in higher employee-related costs driven by higher headcount . also contributing to the change was a $ 4.9 million increase in professional services costs as we transitioned to being a public company . share-based compensation expenses share-based compensation expenses were $ 61.9 million , $ 15.3 million and $ 4.2 million in fiscal 2014 , 2013 and 2012 , respectively . the increase in share-based compensation expenses for fiscal 2014 compared to fiscal 2013 was primarily due to grants of restricted stock units to existing and new employees during fiscal 2014. during fiscal 2014 , we realized $ 0.3 million excess tax benefits related to share-based compensation expenses . the increase in share-based compensation expenses for fiscal 2013 compared to fiscal 2012 was primarily due to equity grants in fiscal 2013 when the market value of our common stock was significantly higher than when the fiscal 2012 grants were made . many of the fiscal 2014 grants occurred in august 2014 and thus we expect share-based compensation expenses in fiscal 2015 to increase as we will have a full year of expense recognition related to these grants and we expect to make additional share grants in fiscal 2015. other operating expenses other operating expenses , which consist of employer payroll tax on employee stock transactions for fiscal 2014 and a one-time charge related to our contribution of 500,000 shares of common stock to the workday foundation in fiscal 2013 , were $ 4.4 million and $ 11.3 million , respectively .
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results of operations revenues our total revenues for fiscal 2014 , 2013 and 2012 were as follows : replace_table_token_7_th 33 fiscal 2014 compared to fiscal 2013. total revenues were $ 468.9 million for fiscal 2014 , compared to $ 273.7 million for fiscal 2013 , an increase of $ 195.2 million , or 71 % . subscription services revenues were $ 354.2 million for fiscal 2014 , or 76 % of total revenues , compared to $ 190.3 million , or 70 % of total revenues , for fiscal 2013 , an increase of $ 163.9 million or 86 % . the increase in subscription services revenues was due primarily to the addition of new customers as compared to the prior year period . we had more than 600 customers as of january 31 , 2014 compared to more than 400 customers as of january 31 , 2013. professional services revenues were $ 114.8 million for fiscal 2014 , compared to $ 83.3 million for fiscal 2013 , an increase of $ 31.5 million , or 38 % . the increase in professional services revenues was due primarily to the addition of new customers and a greater number of customers requesting deployment and integration services . fiscal 2013 compared to fiscal 2012. total revenues were $ 273.7 million for fiscal 2013 , compared to $ 134.4 million for fiscal 2012 , an increase of $ 139.2 million , or 104 % . subscription services revenues were $ 190.3 million , or 70 % of total revenues , for fiscal 2013 , compared to $ 88.6 million , or 66 % of total revenues , for fiscal 2012. the increase in subscription services revenues was due primarily to the addition of new and larger customer contracts as compared to the prior year . we had more than 400 customers as of january 31 , 2013 compared to more than 250 customers as of january 31 , 2012. professional services revenues were $ 83.3
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story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements appearing elsewhere herein and is based primarily on our consolidated financial statements for the years ended december 31 , 2018 , 2017 and 2016. this report including the following discussion , contains forward-looking statements , which we intend to be covered by the safe-harbor provisions of section 27a of the securities act of 1933 , as amended and section 21e of the securities exchange act of 1934 , as amended . the words “ anticipate , ” “ believe , ” “ estimate , ” “ expect , ” “ intend , ” “ will , ” “ should ” and similar expressions , as they relate to us , are intended to identify forward-looking statements . although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions , we can give no assurance that our expectations will be achieved . these forward-looking statements are inherently uncertain , and actual results may differ from expectations . “ see “ forward-looking statements ” immediately before part i of this report . 45 overview we are a self-administered and self-managed reit that provides leasing , property management , development , redevelopment , acquisition and other tenant-related services for a portfolio of office , residential , retail and mixed-use properties . as of december 31 , 2018 , we owned 97 properties that contained an aggregate of approximately 16.8 million net rentable square feet ( collectively , the properties ) . our core portfolio of operating properties , as of december 31 , 2018 , excludes one development property and three redevelopment properties under construction or committed for construction ( collectively , the core properties ) . the properties were comprised of the following as of december 31 , 2018 : replace_table_token_15_th in addition , as of december 31 , 2018 , we owned economic interests in ten unconsolidated real estate ventures ( collectively , the “ real estate ventures ” ) , six of which own properties that contain an aggregate of approximately 5.8 million net rentable square feet of office space ; two of which own , in aggregate , 1.4 acres of land held for development ; one that owns 1.3 acres in active development ; and one that owns a residential tower that contains 321 apartment units . in addition to our properties , as of december 31 , 2018 , we owned land held for development , comprised of 237.4 acres of undeveloped land , of which 37.9 acres were held for sale , 1.8 acres related to leasehold interests in two land parcels each acquired through prepaid 99-year ground leases , and held options to purchase approximately 55.5 additional acres of undeveloped land . as of december 31 , 2018 , the total potential development that these land parcels could support under current zoning and entitlements , including the parcels under option , amounted to an estimated 14.3 million square feet , of which 0.4 million square feet relates to 37.9 acres held for sale . the properties and the properties owned by the real estate ventures are located in or near philadelphia , pennsylvania ; austin , texas ; metropolitan washington , d.c. ; southern new jersey ; and wilmington , delaware . we conduct our third-party real estate management services business primarily through wholly-owned management company subsidiaries . as of december 31 , 2018 , the management company subsidiaries were managing properties containing an aggregate of approximately 24.8 million net rentable square feet , of which approximately 16.8 million net rentable square feet related to properties that we own and consolidate and approximately 8.0 million net rentable square feet related to properties owned by third parties and the real estate ventures . unless otherwise indicated , all references in this form 10-k to “ square feet ” represent the rentable area . we do not have any foreign operations and our business is not seasonal . our operations are not dependent on a single tenant or a few tenants and no single tenant accounted for more than 10 % of our total 2018 revenue . during the twelve months ended december 31 , 2018 , we owned and managed properties within five markets : ( 1 ) philadelphia central business district ( “ philadelphia cbd ” ) , ( 2 ) pennsylvania suburbs , ( 3 ) austin , texas , ( 4 ) metropolitan washington , d.c. , and ( 5 ) other . the philadelphia cbd segment includes properties located in the city of philadelphia in pennsylvania . the pennsylvania suburbs segment includes properties in chester , delaware and montgomery counties in the philadelphia suburbs . the austin , texas segment includes properties in the city of austin , texas . the metropolitan washington , d.c. segment includes properties in northern virginia , washington , d.c. and southern maryland . the other segment includes properties in camden county in new jersey and properties in new castle county in delaware . in addition to the five markets , our corporate group is responsible for cash and investment management , development of certain real estate properties during the construction period , and certain other general support functions . we generate cash and revenue from leases of space at our properties and , to a lesser extent , from the management of properties owned by third parties and from investments in the real estate ventures . factors that we evaluate when leasing space include rental rates , costs of tenant improvements , tenant creditworthiness , current and expected operating costs , the length of the lease term , vacancy levels and demand for office and industrial space . we also generate cash through sales of assets , including assets that we do not view as part of our core properties , either because of location or expected growth potential , and assets that are commanding premium prices from third party investors . story_separator_special_tag 47 financial and operating performance our financial and operating performance is dependent upon the demand for office , residential and retail space in our markets , our leasing results , our acquisition , disposition and development activity , our financing activity , our cash requirements and economic and market conditions , including prevailing interest rates . adverse changes in economic conditions could result in a reduction of the availability of financing and potentially in higher borrowing costs . vacancy rates may increase , and rental rates may decline , during 2019 and possibly beyond as the current economic climate may negatively impact tenants . overall economic conditions , including but not limited to higher unemployment and deteriorating financial and credit markets , could have a dampening effect on the fundamentals of our business , including increases in past due accounts , tenant defaults , lower occupancy and reduced effective rents . these adverse conditions would negatively affect our future net income and cash flows and could have a material adverse effect on our financial condition . we believe that the quality of our assets and our strong balance sheet will enable us to raise debt capital , if necessary , in various forms and from different sources , including a traditional term or secured loans from banks , pension funds and life insurance companies . however , there can be no assurance that we will be able to borrow funds on terms that are economically attractive or at all . the table below summarizes selected operating and leasing statistics of our wholly owned operating properties for the year ended december 31 , 2018 : replace_table_token_16_th ( 1 ) includes all core properties and does not include properties under development , redevelopment or held for sale or sold . ( 2 ) includes leasing related to completed developments and redevelopments , as well as sold properties . ( 3 ) rental rates include base rent plus reimbursement for operating expenses and real estate taxes . ( 4 ) calculated on a weighted average basis . in seeking to increase revenue through our operating , financing and investment activities , we also seek to minimize operating risks , including ( i ) tenant rollover risk , ( ii ) tenant credit risk and ( iii ) development risk . tenant rollover risk : we are subject to the risk that tenant leases , upon expiration , will not be renewed , that space may not be relet , or that the terms of renewal or reletting ( including the cost of renovations ) may be less favorable to us than the current lease terms . leases that accounted for approximately 7.1 % of our aggregate final annualized base rents as of december 31 , 2018 ( representing approximately 7.4 % of the net rentable square feet of the properties ) are scheduled to expire without penalty in 2019. we maintain an active dialogue with our tenants in an effort to maximize lease renewals . if we are unable to renew leases or relet space under expiring leases , at anticipated rental rates , or if tenants terminate their leases early , our cash flow would be adversely impacted . 48 tenant credit risk : in the event of a tenant default , we may experience delays in enforcing our rights as a landlord and may incur substantial costs in protecting our investment . our management regularly evaluates our accounts receivable reserve policy in light of our tenant base and general and local economic conditions . our accounts receivable allowance was $ 12.9 million or 6.6 % of total receivables ( including accrued rent receivable ) as of december 31 , 2018 compared to $ 17.1 million or 8.4 % of total receivables ( including accrued rent receivable ) as of december 31 , 2017. if economic conditions deteriorate , we may experience increases in past due accounts , defaults , lower occupancy and reduced effective rents . this condition would negatively affect our future net income and cash flows and could have a material adverse effect on our financial condition . development risk : development projects are subject to a variety of risks , including construction delays , construction cost overruns , inability to obtain financing on favorable terms , inability to lease space at projected rates , inability to enter into construction , development and other agreements on favorable terms , and unexpected environmental and other hazards . as of december 31 , 2018 , the following development and redevelopment projects remain under construction in progress and we were proceeding on the following activity ( dollars , in thousands ) : replace_table_token_17_th ( a ) the project is pre-leased to a single tenant . total estimated costs include $ 2.1 million of land basis existing at project inception . ( b ) total project costs include $ 37.8 million of building basis , representing the acquisition cost . the amount funded , as of december 31 , 2018 , includes $ 1.2 million related to an $ 8.0 million funding commitment required through the ground lease . see below in item 7. , `` liquidity and capital resources – contractual obligations '' for further information regarding this commitment . ( c ) the property was vacated during the third quarter of 2017. current plans are to renovate this building . total project costs include $ 4.9 million of existing property basis . other development services in addition to the projects above , as of december 31 , 2018 , we were engaged in the development of the projects at schuylkill yards in philadelphia , pennsylvania and at 4040 wilson venture , the unconsolidated real estate venture in which we own a 50 % interest , constructing a mixed-use building in arlington , virginia . see item 1. , “ business – developments , ” for further information .
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results of operations comparison of the year ended december 31 , 2017 to the year ended december 31 , 2016 the table below shows selected operating information for the “ same store property portfolio ” and the “ total portfolio. ” the same store property portfolio consists of 83 properties containing an aggregate of approximately 14.3 million net rentable square feet , and represents properties that we owned for the twelve-month periods ended december 31 , 2017 and 2016. the same store property portfolio includes properties acquired or placed in service on or prior to january 1 , 2016 and owned through december 31 , 2017. the total portfolio includes the effects of other properties that were either placed into service , acquired or redeveloped after january 1 , 2016 or disposed prior to december 31 , 2017. a property is excluded from our same store property portfolio and moved into development/redevelopment in the period that we determine to proceed with development/redevelopment for a future development strategy . this table also includes a reconciliation from the same store property portfolio to the total portfolio net income ( i.e. , all properties owned by us during the twelve-month periods ended december 31 , 2017 and 2016 ) by providing information for the properties which were acquired , placed into service , under development or redevelopment and administrative/elimination information for the twelve-month periods ended december 31 , 2017 and 2016. during the year ended december 31 , 2017 , the same store property portfolio was reduced by 14 properties , containing 934,961 rentable square feet , due to sales . the office property , containing 62,991 rentable square feet , at 426 west lancaster avenue in devon , pennsylvania was removed from the same store property portfolio and placed into redevelopment . three properties , containing 98,388 rentable square feet , located in gibbsboro , new jersey were removed from the same store property portfolio because they were taken out of service with no plan to relet .
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overview we develop and market low power customizable semiconductor and software algorithm solutions that enable customers to differentiate their products by adding new features , extending battery life , becoming more contextually aware , and improving the visual experience with their mobile , consumer and enterprise products . our targeted mobile market segments include smartphones , wearables , tablets , iot and mobile enterprise . our solutions typically fall into one of three categories : sensor hubs , display and visual enhancement , and smart connectivity . we are a fabless semiconductor company that designs , markets , and supports primarily silicon solutions , and , secondarily , field programmable gate arrays , or fpgas , sensor software algorithms , software drivers , associated design software and programming hardware . our solutions are created from our new silicon platforms including our eos , arcticlink ® iii , polarpro ® 3 , polarpro ii , polarpro , and eclipse ii products ( which together comprise our new product category ) . our mature products include primarily pasic ® 3 and quickram ® as well as programming hardware and design software . our customer-specific solutions include a unique combination of our silicon platforms , proven system blocks , or psbs , custom logic , sensor software algorithms , software drivers , and in some cases , firmware , and application software . all of our silicon platforms are standard devices and must be programmed to be effective in a system . our psbs range from intellectual property , or ip , which enables always-on context aware sensor applications , such as our flexible fusion engine , or ffe , and our sensor manager and communications manager technologies ; to ip that improves multimedia content , such as our visual enhancement engine , or vee technology , and display power optimizer technology , or dpo ; to ip which implements commonly used mobile system interfaces , such as low voltage differential signaling , or lvds , mobile industry processor interface , or mipi , secure digital input output , or sdio . we provide complete solutions by first architecting the solution jointly with our customer 's or ecosystem partner 's engineering group , selecting the appropriate solution platform and psbs , providing custom logic , integrating the logic , programming the device with the psbs and or firmware , providing software drivers or application software required for the customer 's application , and participating with the customer on-site during integration , verification and testing . in many cases , we may deliver sensor software algorithms that have been optimized for use in a quicklogic silicon platform . we also work with mobile processor manufacturers , sensor manufacturers , and or sensor fusion and context awareness algorithm developers in the development of reference designs , qualified vendor lists , or qvls , or “ catalog ” solutions . through reference designs that incorporate our solutions , we believe mobile processor manufacturers , sensor manufacturers , and sensor algorithm companies can expand the served available market for their respective products . furthermore , should a solution development for a processor manufacturer or sensor and or sensor algorithm company be applicable to a set of common oems or odms , we can amortize our r & d investment over that set of oems/odms . we call this type of solution a catalog solution and we are placing a greater emphasis on developing and marketing these solutions . in order to grow our revenue from its current level , we depend upon increased revenue from our new products including existing new product platforms and platforms currently in development . we expect our business growth to be driven by silicon solutions and our solutions revenue growth needs to be strong enough to enable us to sustain profitability while we continue to invest in the development , sales and marketing of our new solution platforms and psbs . the gross margin associated with our solutions is generally lower than the gross margin of our fpga products , due primarily to the price sensitive nature of the higher volume mobile consumer opportunities that we are pursuing with our solutions . during 2015 , we generated total revenue of $ 19.0 million which represents a 32 % decrease from 2014 . our new product revenue was $ 12.0 million which represents a 38 % decrease from 2014 while our mature product revenue was $ 6.9 million which represents a 19 % decrease from 2014 . we shipped our new products into four of our targeted mobile market segments : smartphones , wearables , mobile enterprise , and tablets . overall , we reported a net loss of $ 17.8 million for 2015 compared to a net loss of $ 13.1 million for 2014. we have experienced net losses in the past years and expect such losses to continue through at least the year ending january 1 , 2017 as we continue to develop new products , applications and technologies . whether we can achieve cash flow 26 levels sufficient to support our operations can not be accurately predicted . unless such cash flow levels are achieved in addition to the proceeds that we expect to receive from our recent sale of our equity securities , which is expected to close on or about march 21 , 2016 , we may need to borrow additional funds or sell debt or equity securities , or some combination thereof , to provide funding for our operations , such additional funding may not be available on commercially reasonable terms , or at all . critical accounting policies and estimates the methods , estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our consolidated financial statements . story_separator_special_tag using the black-scholes pricing model requires us to develop highly subjective assumptions including the expected term of awards , expected volatility of our stock , expected risk-free interest rate and expected dividend rate over the term of the award . our expected term of awards is based primarily on our historical experience with similar grants . our expected stock price volatility for both stock options and espp shares is based on the historic volatility of our stock , using the daily average of the opening and closing prices and measured using historical data appropriate for the expected term . the risk-free interest rate assumption approximates the risk-free interest rate of a treasury constant maturity bond with a maturity approximately equal to the expected term of the stock option or espp shares . in addition to the assumptions used in the black-scholes pricing model , the amended authoritative guidance requires that we recognize compensation expense only for awards ultimately expected to vest ; therefore we are required to develop an estimate of the historical pre-vest forfeiture experience and apply this to all stock-based awards . the fair value of restricted stock awards , or rsas , and restricted stock units , or rsus , is based on the closing price of our common stock on the date of grant . rsa and rsu awards which vest with service are expensed over the requisite service period . rsas and rsu awards which are expected to vest based on the achievement of a performance goal are expensed over the estimated vesting period . we regularly review the assumptions used to compute the fair value of our stock-based awards and we revise our assumptions as appropriate . in the event that assumptions used to compute the fair value of our stock-based awards are later determined to be inaccurate or if we change our assumptions significantly in future periods , stock-based compensation expense and our results of operations could be materially impacted . see note 11 to the consolidated financial statements . accounting for income taxes as part of the process of preparing our financial statements , we are required to estimate our income taxes in each of the jurisdictions in which we operate . this process involves estimating our actual current tax exposure together with assessing temporary differences resulting from different tax and accounting treatment of items , such as deferred revenue , allowance for doubtful accounts , the impact of equity awards , depreciation and amortization , and employee related accruals . these differences result in deferred tax assets and liabilities , which are included on our balance sheets . we must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely , we must establish a valuation allowance . to the extent we establish a valuation allowance or increase this allowance in a period , we must include an expense within the tax provision in the statements of operations . significant management judgment is required in determining our provision for income taxes , deferred tax assets , liabilities and any valuation allowance recorded against our net deferred tax assets . our deferred tax assets , consisting primarily of net operating loss carryforwards , amounted to $ 69.4 million , tax effected as of the end of 2015 . in evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise , we consider all available positive and negative evidence , including schedule reversals of deferred tax liabilities , uncertainty of projecting future taxable income and results of recent operations . as of january 3 , 2016 , we have federal and state income tax net operating loss ( nol ) and credit carryforwards of $ 134.4 million and $ 50.8 million , which will expire at various dates from 2015 through 2035. we believe that 28 it is more likely than not that the deferred tax assets and benefits from these federal and state nol and credit carryforwards will not be realized . in recognition of this risk , we have recorded a valuation allowance of $ 69.3 million , tax effected as of the end of 2015 due to uncertainties related to our ability to utilize our u.s. deferred tax assets before they expire . 29 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 2014 . we conduct a portion of our research and development activities in canada and india and we have sales and marketing activities in various countries outside of the united states . our canadian operations were closed in december 2015. most of these international expenses are incurred in local currency . foreign currency transaction gains and losses are included in interest and other income ( expense ) , net , as they occur . we do not use derivative financial instruments to hedge our exposure to fluctuations in foreign currency and , therefore , our results of operations are and will continue to be susceptible to fluctuations in foreign exchange gains or losses . provision for income taxes . the table below sets forth the changes in provision for income taxes in 2015 as compared to 2014 ( in thousands , except percentage data ) : replace_table_token_10_th the income tax expense for 2015 and 2014 is primarily from our foreign operations which are cost-plus entities . as of the end of 2015 , our ability to utilize our u.s. deferred tax assets in future periods is uncertain and , accordingly , we have recorded a full valuation allowance against the related u.s. tax asset . we will continue to assess the realizability of deferred tax assets in future periods . comparison of fiscal years 2014 and 2013 revenue . the table below sets forth the changes in revenue for fiscal year 2014 as compared to fiscal year 2013 ( in thousands , except percentage data ) : replace_table_token_11_th _ ( 1 ) for all periods presented : new products include all products manufactured on 180 nanometer or smaller semiconductor processes .
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results of operations the following table sets forth the percentage of revenue for certain items in our statements of operations for the periods indicated : replace_table_token_5_th 30 comparison of fiscal years 2015 and 2014 revenue . the table below sets forth the changes in revenue for fiscal year ended january 3 , 2016 , as compared to fiscal year ended december 28 , 2014 ( in thousands , except percentage data ) : replace_table_token_6_th _ ( 1 ) for all periods presented : new products include all products manufactured on 180 nanometer or smaller semiconductor processes . mature products include all products produced on semiconductor processes larger than 180 nanometers . the decrease in new product revenue was primarily due to lower shipments to samsung which had designed our arcticlink iii vx product into its tablet platform and also due to lower shipments of connectivity product eclipse ii . in 2015 shipments of arcticlink iii were $ 8.3 million compared to $ 15.0 million in 2014. revenue generated from samsung accounted for 68 % of our new product revenue and 43 % of our total revenue in 2015. eclipse ii revenue in 2015 was $ 1.2 million compared to $ 2.6 million in 2014. the decrease in revenue from arcticlink iii and eclipse ii products was partially offset by revenue from other new products . the decrease in mature product revenue is due primarily to decreased orders from our customers in the aerospace , test and instrumentation sectors . we anticipate that our revenue from tablets and mature products will decline over time .
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we discuss factors that we believe could cause or contribute to these differences below and elsewhere in this form 10-k , including those set forth under “ risk factors ” and “ special note regarding forward-looking statements. ” overview veeva is the leading provider of industry cloud solutions for the global life sciences industry . we were founded in 2007 on the premise that industry-specific cloud solutions could best address the operating challenges and regulatory requirements of life sciences companies . our solutions are designed to meet the unique needs of our customers and their most strategic business functions—from research and development to commercialization . our solutions are designed to help life sciences companies develop and bring products to market faster and more efficiently , market and sell more effectively , and maintain compliance with government regulations . in our fiscal year ended january 31 , 2020 , we derived approximately 52 % and 48 % of our subscription services revenues and 49 % and 51 % of our total revenues from our veeva commercial cloud solutions and veeva vault solutions , respectively . the contribution of subscription services revenues and total revenues associated with our veeva vault solutions are expected to continue to increase as a percentage of subscription services revenues and total revenues in the future . please note that revenues attributable to our recently acquired businesses will be classified under veeva commercial cloud , which will , therefore , impact the mix of revenues between veeva commercial cloud and veeva vault . we also offer certain of our veeva vault solutions to three industries outside the life sciences industry primarily in north america and europe . for our fiscal years ended january 31 , 2020 , 2019 , and 2018 , our total revenues were $ 1,104.1 million , $ 862.2 million and $ 690.6 million , respectively , representing year-over-year growth in total revenues of 28 % in fiscal year ended january 31 , 2020 and 25 % in fiscal year ended january 31 , 2019 . for our fiscal years ended january 31 , 2020 , 2019 , and 2018 , our subscription services revenues were $ 896.3 million , $ 694.5 million , and $ 559.4 million , respectively , representing year-over-year growth in subscription services revenues of 29 % in fiscal year ended january 31 , 2020 and 24 % in fiscal year ended january 31 , 2019 . we expect the growth rate of our total revenues and subscription services revenues to decline in the future . we generated net income of $ 301.1 million , $ 229.8 million , and $ 151.2 million for our fiscal years ended january 31 , 2020 , 2019 , and 2018 , respectively . as of january 31 , 2020 , 2019 , and 2018 , we served 861 , 719 , and 625 customers , respectively . as of january 31 , 2020 and 2019 , we had 390 and 335 veeva commercial cloud customers , respectively , and 715 and 574 veeva vault customers , respectively . the combined customer counts for veeva commercial cloud and veeva vault exceed the total customer count in each year because some customers subscribe to products in both areas . veeva commercial cloud customers are those customers that have at least one of the following products : veeva crm , veeva clm , veeva crm approved email , veeva crm engage , veeva align , veeva crm events management , veeva nitro , veeva andi , veeva opendata , veeva oncology link , or veeva network customer master . note that net new customers from crossix and physicians world are included in veeva commercial cloud . veeva vault customers are those customers that have at least one vault product . many of our veeva vault applications are used by smaller , earlier stage pre-commercial companies , some of which may not reach the commercialization stage . thus , the potential number of veeva vault customers is significantly higher than the potential number of veeva commercial cloud customers . on november 1 , 2019 , we completed our acquisition of crossix , a provider of privacy-safe patient data and analytics . crossix brings veeva additional depth in patient data and data analytics , and we are integrating crossix with our veeva crm and opendata products . further , on november 7 , 2019 , we completed our acquisition of physicians world , a provider of speakers bureau services for healthcare professionals . acquiring physicians world makes it easier for our customers to get industry leading cloud software and services from a single vendor . while we expect these acquisitions to support the continued growth of our commercial cloud solutions , we may encounter difficulties integrating these businesses and we may not retain existing crossix and physicians world customers and key crossix and physicians world employees to the extent we expect , which could adversely affect our business . for further details on our recently acquired businesses , please refer to note 2 to the notes of our consolidated financial statements . 39 veeva systems inc. | form 10-k the world health organization has declared the outbreak of covid-19 , which began in december 2019 , to be a pandemic , and the u.s. federal government has declared it a national emergency . the extent of the impact of covid-19 on our operational and financial performance will depend on certain developments , including the duration and spread of the outbreak , impact on our customers and our sales cycles , impact on our customer , employee or industry events , and effect on our vendors and partners , all of which are uncertain and can not be predicted . for example , in response to the covid-19 outbreak , we have shifted certain of our customer events to virtual-only experiences , and we may be forced to or may deem it advisable to similarly alter , postpone , or cancel entirely additional customer , employee , or industry events in the future . story_separator_special_tag for purposes of determining customers of physicians world , we count each entity for which we recognize services revenue as a distinct customer if such entity is not otherwise a customer of ours . new subscription orders for our core veeva crm application generally have a one-year term . if a customer adds end users or additional veeva commercial cloud applications to an existing order for our core veeva crm application , such additional orders will generally be coterminous with the anniversary date of the core veeva crm order , and as a result , orders for additional end users or additional veeva commercial cloud applications will commonly have an initial term of less than one year . with respect to applications other than our core veeva crm application and particularly with respect to our veeva vault applications , we have entered into a number of orders that are several years in duration , ranging from two to eight years . the fees associated with such orders are typically not based on the number of end-users and typically escalate over the term of such orders at a pre-agreed rate to account for , among other factors , implementation and adoption timing and planned increased usage by the customer . there are timing differences between billings and revenue recognition with respect to certain of our multi-year orders with escalating fees which will result in fluctuations in deferred revenue and unbilled accounts receivable balances that did not occur prior to our adoption of topic 606. for instance , when the amounts we are entitled to invoice in any period pursuant to multi-year orders with escalating fees are less than the revenue we are required to recognize pursuant to topic 606 , we will accrue an unbilled accounts receivable balance related to such orders . in the same scenario , the net deferred revenue we would record in connection with such orders will be less than it would have been prior to the adoption of topic 606 because we will be recognizing more revenue earlier in the term of such multi-year orders . our subscription orders are generally billed at the beginning of the subscription period in annual or quarterly increments , which means the annualized value of such orders may not be completely reflected in deferred revenue at any single point in time . also , particularly with respect to our veeva commercial cloud orders , because the term of orders for additional end users or applications is commonly less than one year , the annualized value of such orders may not be completely reflected in deferred revenue at any single point in time . we have also agreed from time to time , and may agree in the future , to allow customers to change the renewal dates of their orders to , for example , align more closely with a customer 's annual budget process or to align with the renewal dates of other orders placed by other entities within the same corporate control group , or to change payment terms from annual to quarterly , or vice versa . such changes typically result in an order of less than one year as necessary to align all orders to the desired renewal date and , thus , may result in a lesser increase to deferred revenue than if the adjustment had not occurred . additionally , changes in renewal dates may change the fiscal quarter in which deferred revenue associated with a particular order is booked . accordingly , we do not believe that changes on a quarterly basis in deferred revenue , unbilled accounts receivable , or calculated billings , a metric commonly cited by financial analysts , are accurate indicators of future revenues for any given period of time . we define the term calculated billings for any period to mean revenue for the period plus the change in deferred revenue from the immediately preceding period minus the change in unbilled accounts receivable from the immediately preceding period . veeva systems inc. | form 10-k 41 subscription services revenues are recognized ratably over the respective non-cancelable subscription term because of the continuous transfer of control to the customer . our subscription services agreements are generally non-cancelable during the term , although customers typically have the right to terminate their agreements for cause in the event of material breach . our agreements typically provide that orders will automatically renew unless notice of non-renewal is provided in advance . subscription services revenues are affected primarily by the number of customers , the scope of the subscription purchased by each customer ( for example , the number of end users or other subscription usage metric ) and the number of solutions subscribed to by each customer . we utilize our own professional services personnel and , in certain cases , third-party subcontractors to perform our professional services engagements with customers . the majority of our professional services arrangements are billed on a time and materials basis and revenues are recognized over time based on time incurred and contractually agreed upon rates . certain professional services revenues are billed on a fixed fee basis and revenues are typically recognized over time based on the proportion of total services performed . data services and training revenues are generally recognized as the services are performed . professional services revenues are affected primarily by our customers ' demands for implementation services , configuration , data services , training , speakers bureau logistics , and managed services in connection with our solutions . allocated overhead and equity compensation we accumulate certain costs such as building depreciation , office rent , utilities , and other facilities costs and allocate them across the various departments based on headcount . we refer to these costs as “ allocated overhead.
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results of operations the following tables set forth selected consolidated statements of operations data and such data as a percentage of total revenues for each of the periods indicated : replace_table_token_6_th ( 1 ) includes stock-based compensation as follows : replace_table_token_7_th revenues replace_table_token_8_th 44 veeva systems inc. | form 10-k fiscal 2020 compared to fiscal 2019. total revenues increased $ 241.9 million , of which $ 201.8 million was from growth in subscription services revenues . the increase in subscription services revenues consisted of $ 128.3 million of subscription services revenue attributable to veeva vault solutions and $ 73.6 million of subscription services revenue attributable to veeva commercial cloud solutions , which includes the contribution from crossix . the geographic mix of subscription services revenues was 54 % from north america and 27 % from europe in fiscal year ended january 31 , 2020 as compared to subscription services revenues of 54 % from north america and 26 % from europe in fiscal year ended january 31 , 2019 . subscription services revenues were 81 % of total revenues for fiscal years ended january 31 , 2020 and 2019 . professional services and other revenues increased $ 40.0 million . the increase in professional services revenues was due primarily to new customers requesting implementation and deployment related professional services and existing customers requesting professional services related to expanding deployments or the deployment of newly purchased solutions , and , to a lesser extent , professional services revenues associated with our recently acquired businesses . the increased demand for professional services and the resulting increase in professional services revenues was weighted heavily towards implementation and deployments of our veeva vault solutions .
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our consolidated financial statements and the accompanying notes included elsewhere in this annual report on form 10-k contain additional information that should be referred to when reviewing this material . prior year financial statements are not comparable to our current year financial statements due to the adoption of fresh-start accounting . references to `` successor '' or `` successor company '' relate to the financial position and results of operations of the reorganized company subsequent to september 9 , 2016. references to `` predecessor '' or `` predecessor company '' relate to the financial position and results of operations of the company prior to , and including , september 9 , 2016. statements in this discussion may be forward-looking . these forward-looking statements involve risks and uncertainties , including those discussed below , which could cause actual results to differ from those expressed . overview we are an independent energy company focused on the acquisition , production , exploration and development of onshore liquids-rich oil and natural gas assets in the united states . as discussed below in more detail under `` recent developments , '' we have recently acquired certain properties in the delaware basin and divested our assets located in the williston basin in north dakota and in the el halcón area of east texas . as a result , our properties and drilling activities are currently focused in the delaware basin , where we have an extensive drilling inventory that we believe offers more attractive economics . the williston divestiture discussed under `` recent developments , '' improved our liquidity and significantly reduced our debt , better enabling us to accelerate development of our delaware basin properties and execute our growth plans in the basin . at december 31 , 2017 , our estimated total proved oil and natural gas reserves , as prepared by our independent reserve engineering firm , netherland , sewell & associates , inc. ( netherland , sewell ) , using securities and exchange commission ( sec ) prices for crude oil and natural gas , which are based on the west texas intermediate crude oil spot price of $ 51.34 per bbl and henry hub natural gas spot price of $ 2.976 per mmbtu , were approximately 51.1 mmboe , consisting of 34.1 mmbbls of oil , 9.2 mmbbls of natural gas liquids , and 46.7 bcf of natural gas . approximately 31 % of our proved reserves were classified as proved developed as of december 31 , 2017. we maintain operational control of approximately 99 % of our proved reserves . substantially all of our proved reserves and production at december 31 , 2017 are associated with our delaware basin properties . our total operating revenues for 2017 were approximately $ 378.0 million . our total operating revenues for the period of september 10 , 2016 through december 31 , 2016 and the period of january 1 , 2016 through september 9 , 2016 were approximately $ 153.4 million and $ 266.8 million , respectively , or $ 420.2 million combined . full year 2017 production averaged 27,397 boe/d . during the period of september 10 , 2016 through december 31 , 2016 and the period of january 1 , 2016 through september 9 , 2016 , production averaged 37,637 boe/d and 36,787 boe/d , respectively , or 37,049 boe/d combined . the decrease in total operating revenues and average daily production year over year was driven by our divestitures in 2017. in 2017 , we participated in the drilling of 124 gross ( 33.7 net ) wells , none of which were dry holes . our financial results depend upon many factors , but are largely driven by the volume of our oil and natural gas production and the price that we receive for that production . our production volumes will decline as reserves are produced unless we expend capital in successful development and exploration activities or acquire properties with existing production . the amount we realize for our 52 production depends predominantly upon commodity prices and our related commodity price hedging activities , which are affected by changes in market demand and supply , as impacted by overall economic activity , weather , pipeline capacity constraints , inventory storage levels , basis differentials and other factors . accordingly , finding and developing oil and natural gas reserves at economical costs is critical to our long-term success . in 2017 , we incurred capital expenditures for drilling and completions of approximately $ 309.6 million . we expect to spend approximately $ 280 million to $ 320 million on drilling and completion capital expenditures during 2018. in addition , we expect to spend approximately $ 30 million to $ 40 million on infrastructure , seismic and other in 2018. our 2018 drilling and completion budget currently contemplates running an average of three operated rigs in the delaware basin during the year , and is subject to change . after the pending acquisition of the west quito draw properties closes , discussed below under `` recent developments , '' our 2018 capital budget will be revised . we expect to fund our budgeted 2018 capital expenditures with cash on hand , cash flows from operations , proceeds from debt and equity issuances and borrowings under our senior credit agreement . we strive to maintain financial flexibility and may access capital markets as necessary to maintain adequate borrowing capacity under our senior credit agreement , facilitate drilling on our large undeveloped acreage position and permit us to selectively expand our acreage position and infrastructure projects . in the event our cash flows are materially less than anticipated and other sources of capital we historically have utilized are not available on acceptable terms , we may reduce our capital spending , however significant or prolonged reductions in capital spending will adversely impact our production and may negatively affect our future cash flows . story_separator_special_tag the net proceeds from the sale of the additional 2025 notes were approximately $ 203.0 million after deducting initial purchasers ' premiums , commissions and estimated offering expenses and will be used to fund the cash consideration for the acquisition of the west quito draw properties , if consummated , and for general corporate purposes , including to fund our 2018 drilling program . these notes were issued under the indenture , dated as of february 16 , 2017 , among us , certain of our subsidiaries and u.s. bank national association , as trustee , which governs our 6.75 % senior notes due 2025 that were issued on february 16 , 2017 ( the 2025 notes ) . the additional 2025 notes are treated as a single class with , and have the same terms as , the 2025 notes , except that the additional 2025 notes will initially be subject to transfer restrictions and have the benefit of certain registration rights and provisions for the payment of additional interest in the event of a breach with respect to such registration rights . in connection with the additional 2025 notes issued , on february 15 , 2018 , we , our subsidiary guarantors and j.p. morgan securities , llc , on behalf of itself and the initial purchasers , entered into a registration rights agreement , pursuant to which we and our subsidiary guarantors agreed to , 54 among other things , use reasonable best efforts to file a registration statement under the securities act and complete an exchange offer for the additional 2025 notes within 180 days after closing . the additional 2025 notes were sold pursuant to the exemption from registration under the securities act and applicable state securities laws , including rule 144a and regulation s under the securities act . issuance of common stock on february 9 , 2018 , we sold 9.2 million shares of common stock , par value $ 0.0001 per share , in a public offering at a price of $ 6.90 per share . the net proceeds to us from the offering were approximately $ 60.8 million , after deducting underwriters ' discounts and estimated offering expenses . amended and restated senior secured revolving credit agreement on september 7 , 2017 , we entered into the senior credit agreement by and among us , as borrower , jpmorgan chase bank , n.a. , as administrative agent , and certain other financial institutions party thereto , as lenders . the senior credit agreement amends and restates in its entirety the original senior secured revolving credit agreement entered into on september 9 , 2016. pursuant to the senior credit agreement , the lenders party thereto have agreed to provide us with a $ 1.0 billion senior secured reserve-based revolving credit facility with a current borrowing base of $ 100.0 million . the maturity date of the senior credit agreement is september 7 , 2022. the borrowing base will be redetermined semi-annually , with the lenders and us each having the right to one interim unscheduled redetermination between any two consecutive semi-annual redeterminations . the next scheduled redetermination date is may 2018. the borrowing base takes into account the estimated value of our oil and natural gas properties , proved reserves , total indebtedness , and other relevant factors consistent with customary oil and natural gas lending criteria . amounts outstanding under the senior credit agreement bear interest at specified margins over the base rate of 1.25 % to 2.25 % for abr-based loans or at specified margins over libor of 2.25 % to 3.25 % for eurodollar-based loans . these margins fluctuate based on our utilization of the facility . on february 2 , 2018 , we entered into the second amendment ( the second amendment ) to the senior credit agreement which among other things , for certain fiscal quarters in 2018 , provided flexibility with respect to certain financial covenants as specified in the senior credit agreement . the second amendment provides for ( i ) the use of annualized financial data in determining ebitda ( as defined in the senior credit agreement ) for the fiscal quarters ending june 30 , 2018 , september 30 , 2018 and december 31 , 2018 , ( ii ) an increase in the ratio of our consolidated total net debt ( as defined in the senior credit agreement ) to ebitda of 4.50:1.00 for the fiscal quarter ending june 30 , 2018 , and a ratio of 4.00:1.00 for any fiscal quarter thereafter , ( iii ) a waiver of compliance with the covenant relating to the total net indebtedness leverage ratio ( as defined in the senior credit agreement ) for the fiscal quarter ending march 31 , 2018 , and ( iv ) a waiver of the automatic reduction to the borrowing base that would otherwise have resulted from our issuance of the additional 2025 notes . the senior credit agreement also contains a financial covenant to maintain a current ratio ( as defined in the senior credit agreement ) not to be less than 1.00:1.00. recent acquisition of additional properties in monument draw ( ward and winkler counties , texas ) on december 13 , 2017 , certain of our wholly owned subsidiaries acquired 4,093 net acres and related assets in the delaware basin in an area contiguous to the western and southern areas of our existing monument draw properties in ward county , texas ( the additional monument draw properties ) from a private company for a total purchase price of approximately $ 101.6 million . the effective date of the acquisition was september 1 , 2017. we estimate that at the time of acquisition the additional monument draw properties include a 88 % average working interest , with approximately 99 % held by production .
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comparison of results of operations year ended december 31 , 2017 compared to year ended december 31 , 2016 the table included below sets forth financial information for the periods presented . the period of september 10 , 2016 through december 31 , 2016 and the period of january 1 , 2016 through september 9 , 2016 are distinct reporting periods as a result of our application of fresh-start accounting upon our emergence from chapter 11 bankruptcy on september 9 , 2016 and are not comparable to prior periods . refer to the paragraphs following the table below for a discussion around our results of operations . replace_table_token_15_th ( 1 ) natural gas reserves are converted to oil reserves using a ratio of six mcf to one bbl of oil . this ratio does not assume price equivalency and , given price differentials , the price for a barrel of oil equivalent for natural gas may differ significantly from the price for a barrel of oil . ( 2 ) amounts exclude the impact of cash paid/received on settled contracts as we did not elect to apply hedge accounting . 73 oil , natural gas and natural gas liquids revenues were $ 375.8 million , $ 152.6 million and $ 265.5 million for the year ended december 31 , 2017 , the period of september 10 , 2016 through december 31 , 2016 and the period of january 1 , 2016 through september 9 , 2016 , respectively . our average daily oil and natural gas production decreased in 2017 when compared to the prior year due to our divestitures during 2017. this decrease was partially mitigated by the production associated with our assets located in the hackberry draw and monument draw areas of the delaware basin and our drilling activities since acquiring the assets . for the year ended december 31 , 2017 , production averaged 27,397 boe/d .
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level 3 : inputs reflect management 's best estimates and assumptions of what market participants would use in pricing the asset or liability at the measurement date . the inputs are unobservable in the market and significant to the valuation of the instruments . fair value on a recurring basis : the company periodically invests excess cash in money-market funds not insured by the fdic . the company believes that the investments in money market funds are on deposit with creditworthy financial institutions and that the funds are highly liquid . the fair values of the company 's investments in money-market funds are based on the daily quoted market prices for the net asset value of the various money market funds . these money-market funds are considered level 1 assets and totaled approximately $ 32,358 and $ 20,682 as of december 31 , 2013 and 2012 , respectively , and are included in cash and cash equivalents in the consolidated balance sheets . the fair value of the contingent consideration liability described in note 3 was estimated using a discounted cash flow method with significant inputs that are not observable in the market and thus represents a level 3 fair value measurement as defined in the 65 envestnet , inc. notes to consolidated financial statements ( continued ) ( in thousands , except share and per share amounts ) fasb 's asc 820 , fair value measurements . the significant inputs in the level 3 measurement story_separator_special_tag except where we have otherwise indicated or the context otherwise requires , dollar amounts presented in this form 10-k are in thousands , except for item 9 , exhibits and per share amounts . overview we are a leading provider of unified wealth management software and services to financial advisors and institutions . by integrating a wide range of investment solutions and services , our web-based platform provides financial advisors with the flexibility to address their clients ' needs . envestnet empowers financial advisors to deliver fee-based advice to their clients . we work with both independent advisors ( rias ) , as well as advisors associated with financial institutions ( broker-dealers , banks ) . the services we offer and market to financial advisors address advisors ' ability to grow their practice as well as operate more efficiently the envestnet platform spans from the initial meeting an advisor has with a prospective client to the ongoing day-to-day operations of managing an advisory practice . our centrally-hosted technology platform , which we refer to as having open architecture because of its flexibility , provides financial advisors with access to a series of integrated services to help them better serve their clients . these services include risk assessment and selection of investment strategies and solutions , asset allocation models , research and due diligence , portfolio construction , proposal generation and paperwork preparation , model management and account rebalancing , account monitoring , customized fee billing , overlay services covering asset allocation , tax management and socially responsible investing , aggregated multi-custodian performance reporting and communication tools , as well as access to a wide range of leading third-party asset custodians . we offer these solutions principally through the following product and services suites : · envestnet 's wealth management software empowers advisors to better manage client outcomes and strengthen their practice . our software unifies the applications and services advisors use to manage their practice and advise their clients , including financial planning ; capital markets assumptions ; asset allocation guidance ; research and due diligence on investment managers and funds ; portfolio management , trading and rebalancing ; multi-custodial , aggregated performance reporting ; and billing calculation and administration . · envestnet | pmc ® , our portfolio management consultants group , primarily engages in consulting services aimed at providing financial advisors with additional support in addressing their clients ' needs , as well as the creation of proprietary investment solutions and products . envestnet | pmc 's investment solutions and products include managed account and multi-manager portfolios , mutual fund portfolios and etf portfolios . envestnet | pmc also offers prima premium research , comprising institutional-quality research and due diligence on investment managers , mutual funds , etfs and liquid alternatives funds . · envestnet | tamarac tm provides leading portfolio accounting , rebalancing , trading , performance reporting and crm software , principally to high-end rias . · vantage reporting solution tm software aggregates and manages investment data , provides performance reporting and benchmarking , giving advisors an in-depth view of clients ' various investments , empowering advisors to give holistic , personalized advice . · envestnet | wms tm offers financial institutions access to an integrated wealth platform , which helps construct and manage sophisticated portfolio solutions across an entire account life cycle , particularly in the area of uma trading . envestnet | wms 's overlay portfolio management console helps wealth managers efficiently build customized client portfolios that consider both proprietary and open-architecture investment solutions . we believe that our business model results in a high degree of recurring and predictable financial results . revenues overview we earn revenues primarily under two pricing models . first , a majority of our revenues is derived from fees charged as a percentage of the assets that are managed or administered on our technology platform by financial advisors . these revenues are recorded under revenues from assets under management ( aum ) or administration ( aua ) or collectively ( aum/a ) . our asset-based fees vary based on the types of investment solutions and services that financial advisors utilize . asset-based fees accounted for approximately 83 % , 81 % and 81 % of our total revenues for the years ended december 31 , 2013 , 2012 and 2011 , respectively . in future periods , the percentage of our total revenues attributable to asset-based fees is expected to vary based on fluctuations in securities markets , whether we enter into significant license agreements , the mix of aum or aua , and other factors . story_separator_special_tag the largest component of cost of revenues is paid to third party investment managers . clearing , custody and brokerage services are performed by third-party providers . these expenses are typically calculated based upon a contractual percentage of the market value of assets held in customer accounts measured as of the end of each fiscal quarter and are recognized ratably throughout the quarter based on the number of days in the quarter . also included in cost of revenues are vendor specific expenses related to the direct support of revenues associated with the envestnet | tamarac products . compensation and benefits compensation and benefits expenses primarily relate to employee compensation , including salaries , commissions , non-cash stock-based compensation , incentive compensation , benefits and employer-related taxes . general and administration general and administration expenses include occupancy costs and expenses relating to communications services , research and data services , website and system development , marketing , professional and legal services and travel and entertainment . depreciation and amortization depreciation and amortization expenses include depreciation and amortization related to : · fixed assets , including computer equipment and software , leasehold improvements , office furniture and fixtures and other office equipment ; · internally developed software ; and · intangible assets , primarily related to customer lists , proprietary technology and trade names , the value of which are capitalized in connection with our acquisitions . furniture and equipment are depreciated using the straight-line method based on the estimated useful lives of the depreciable assets . leasehold improvements are amortized using the straight-line method over their estimated economic useful lives or the remaining lease term , whichever is shorter . improvements are capitalized , while repairs and maintenance costs are recorded as expenses in the period they are incurred . assets are tested for recoverability whenever events or circumstances indicate that the carrying value of the assets may not be recoverable . internally developed software is amortized on a straight-line basis over its estimated useful life . we evaluate the useful lives of these assets on an annual basis and test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets . intangible assets are depreciated using an accelerated basis over their estimated economic useful lives and are reviewed for possible impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets . general conditions and trends affecting our business our exposure to market risk is directly related to the market value of assets on our platform , as we earn revenues from assets under management ( aum ) or administration ( aua ) based upon a contractual percentage of aum or aua . as a result , our net flows , revenues and profitability have been and could be impacted negatively or positively by changes in overall market conditions going forward . the broad equity markets improved during 2013 compared to 2012 , as the nasdaq composite index , standard & poor 's 500 index , msci world index , and dow jones industrial average increased 38 % , 30 % , 24 % , and 27 % , respectively . the barclays u.s. aggregate index decreased 2 % over the same period . during the year ended december 31 , 2013 , our aum and aua increased by $ 15.7 billion due to the overall favorable market impact . market trends the wealth management industry has experienced significant growth in terms of assets invested by retail investors in the past several years . according to the federal reserve , u.s. household and non-profit organization financial assets totaled $ 63.9 trillion as of september 30 , 2013 , up 17 % from $ 54.4 trillion at december 31 , 2012. as a leading provider of unified wealth management software and services to financial advisors , we believe we are well positioned to take advantage of favorable secular trends in the wealth management industry , including those described below : increase in independent financial advisors . based on industry news reports , we believe that over the past several years an increasing number of financial advisors have elected to leave large financial institutions and start their own financial advisory practices or move to smaller , more independent firms . according to an analysis done by cerulli associates , the number of rias and dually-registered advisors increased 5 % annually from 36,000 in 2007 to 46,000 in 2012 . 32 increased reliance on technology among independent financial advisors . in order to compete effectively in the marketplace , independent financial advisors are increasingly relying on technology service providers to help them provide comparable services cost effectively and efficiently . increased use of fee-based investment solutions . based on our industry experience , we believe that in order for financial advisors to effectively manage their clients ' assets , they are seeking account types that offer the flexibility to choose among the widest range of investment solutions . financial advisors typically charge their fees for these types of flexible accounts based on a percentage of assets rather than on a commission or other basis . our growth strategy we serve the fastest growing segments of the wealth management industry . we intend to grow by increasing our advisor base , increasing the share of our clients ' business on the envestnet platform , expanding our services utilized by each advisor and obtaining new enterprise clients through the use of marketing and internal sales personnel . in addition , we intend to selectively pursue acquisitions , investments and other relationships that we believe can enhance the attractiveness of our technology platform or expand our client base . acquisitions involve a number of risks , including our ability to integrate acquired companies into ours in an effective and timely manner . we have historically financed our acquisitions with available cash ; however , the financing of future acquisitions could result in dilution from issuing equity securities or a weakening of our balance sheet from using available cash or incurring debt .
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results of operations year ended december 31 , 2013 compared to year ended december 31 , 2012 replace_table_token_9_th revenues total revenues increased 54 % from $ 157,266 in 2012 to $ 242,535 in 2013. the increase was primarily due to an increase in revenues from assets under management or administration of $ 73,355. revenues from assets under management or administration comprised 83 % and 81 % of total revenues in 2013 and 2012 , respectively . assets under management or administration revenues earned from assets under management or administration increased 58 % from $ 127,213 in 2012 to $ 200,568 in 2013. the increase was primarily due to an increase in asset values applicable to our quarterly billing cycles in 2013 , relative to the corresponding period in 2012. in 2013 , revenues were positively affected by new account growth and positive net flows of aum or aua during 2012 and 2013 , as well as an increase in revenues related to the wms acquisition , on july 1 , 2013. the number of financial advisors with aum or aua on our technology platform increased from 16,085 as of december 31 , 2012 to 22,838 as of december 31 , 2013 and the number of aum or aua client accounts increased from approximately 450,000 as of december 31 , 2012 to approximately 736,000 as of december 31 , 2013. licensing and professional services licensing and professional services revenues increased 40 % from $ 30,053 in 2012 to $ 41,967 in 2013. this increase was primarily due to an increase in licensing revenue of $ 12,978 , primarily due to a full year of tamarac operations in 2013 , and a decrease in professional services revenue of $ 1,056. cost of revenues cost of revenues increased 76 % from $ 56,119 in 2012 to $ 98,970 in 2013 , primarily due to the corresponding increase in revenues from aum or aua , inclusive of an increase related to
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upon completion of the assessment , the company recognized a goodwill impairment charge of $ 100,412 during fiscal 2014. other intangible assets other intangible assets include patents , tradenames , customer relationships , non-compete agreements and other intangible assets with finite lives being amortized in accordance with the accounting guidance for other intangible assets . the net book value of these assets was as follows : replace_table_token_21_th the value of goodwill and other intangible assets in the consolidated balance sheets at july 31 story_separator_special_tag overview in fiscal 2014 , the company posted sales of $ 1,225.0 million and a net loss from continuing operations of $ 48.1 million . sales increased by 5.8 % from fiscal 2013 . organic sales increased by 0.2 % , currency fluctuations decreased sales by 0.1 % and the acquisition of pdc increased sales by 5.7 % . fiscal 2014 sales growth was driven by the id solutions segment which grew by 11.6 % from 2013 to 2014 primarily due to the acquisition , which was partially offset by the decline in sales in the workplace safety segment of 4.5 % . the fiscal 2014 net loss from continuing operations of $ 48.1 million was primarily due to non-cash impairment charges of $ 148.6 million and restructuring charges of $ 15.0 million . the fiscal 2014 operating loss from continuing operations was $ 41.2 million . excluding the impairment charges of $ 148.6 million and restructuring charges of $ 15.0 million , the company generated operating income from continuing operations of $ 122.4 million in fiscal 2014 . fiscal 2013 operating loss from continuing operations was $ 82.6 million . excluding the impairment charges of $ 204.4 million and restructuring charges of $ 26.0 million , the company generated operating income from continuing operations of $ 147.9 million in fiscal 2013 . this decline of $ 25.5 million was primarily due to the decrease in segment profit in the wps business segment . the decline in operating results within the wps business segment was primarily due to a 4.6 % organic sales decline , incremental investment to drive key initiatives and growth , and increased costs from facility consolidation projects . 16 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > $ 18.2 million in goodwill in the ids apac reporting unit $ 10.6 million in tradenames in the wps segment $ 3.3 million in fixed assets in the ids apac reporting unit operating loss was $ 41.2 million in fiscal 2014 . excluding the impairment charges of $ 148.6 million and restructuring charges of $ 15.0 million , the company generated operating income from continuing operations of $ 122.4 million in fiscal 2014 . the fiscal 2013 operating loss was $ 82.6 million . excluding the impairment charges of $ 204.4 million and restructuring charges of $ 26.0 million , the company generated operating income of $ 147.9 million in fiscal 2013 . the decrease was mainly due to the decline in segment profit of the wps business , which is discussed in further detail within the business segment operating results section . operating loss was $ 82.6 million in fiscal 2013. excluding impairment charges of $ 204.4 million and restructuring charges of $ 26.0 million , the company generated operating income of $ 147.9 million in fiscal 2013 . the fiscal 2012 operating income was $ 157.7 million . excluding restructuring charges of $ 6.1 million , the company generated income of $ 163.7 million in fiscal 2012 . the decrease was mainly due to the decline in segment profit of the wps business.this decline was partially offset by a decrease in variable incentive compensation of approximately $ 10 million in fiscal 2013 as compared to fiscal 2012 . 18 operating income to net income replace_table_token_7_th investment and other income these amounts primarily consist of interest income and gains and losses on foreign currency and securities held in executive deferred compensation plans . income of $ 2.4 million in fiscal 2014 , $ 3.5 million in fiscal 2013 and $ 2.1 million in fiscal 2012 has remained relatively consistent with no material changes year over year . interest expense interest expense decreased to $ 14.3 million in fiscal 2014 compared to $ 16.6 million in fiscal 2013 and $ 19.1 million in fiscal 2012 . the decline since 2012 was due to the company 's declining principal balance under its outstanding debt agreements , along with changes in debt structure resulting in a reduction in the weighted average interest rate . income taxes the company 's effective tax rate from continuing operations was 9.3 % in fiscal 2014 , compared to the effective tax rate from continuing operations of ( 44.5 ) % in fiscal 2013 . the income tax rate in fiscal 2014 was significantly impacted by the goodwill impairment and restructuring charges recorded in fiscal 2014. the income tax rate in fiscal 2013 was impacted by the goodwill impairment charge and a tax charge associated with the funding of the pdc acquisition . excluding these items , the effective tax rate from continuing operations would have been approximately 28 % in fiscal 2014 compared to 24.5 % in fiscal 2013. the increase was due to several factors including increased valuation allowances and fluctuations in geographic profit mix . the effective tax rate from continuing operations for fiscal 2013 was ( 44.5 ) % as compared to 26.4 % in fiscal 2012 . the lower rate in fiscal 2013 was significantly impacted by the goodwill impairment charge recorded on the wps americas and ids asia reporting units in fiscal 2013 , as well as a tax charge of $ 29.0 million primarily associated with the funding of the pdc acquisition . excluding these items , our fiscal 2013 effective tax rate from continuing operations would have been 24.5 % , slightly lower than the fiscal 2012 rate of 26.4 % due mainly to fluctuation in geographic profit mix . story_separator_special_tag as a percent of sales , segment profit was 21.3 % in fiscal 2014 , compared to 23.6 % in the prior year . the decline in segment profit as a percent of sales was due to lower gross margin in fiscal 2014 as a result of product mix and increased costs associated with the facility consolidations . the main contributor to the product mix is a full year of pdc sales at lower gross margin than the existing business , as well as an increase in lower-margin printer sales . the peopleid reporting unit consists primarily of the company 's acquisition of pdc from fiscal 2013 , as well as the existing brady peopleid business . organic sales within the pdc business declined in the low single digit percentages from fiscal 2013 to fiscal 2014. hospital admission rates are the primary driver of pdc 's sales under its existing strategy , and there was a decline of approximately 2 % in these rates during fiscal 2014. management has revisited its planned growth and profit for the pdc business and concluded that the growth may not materialize as expected given slower than anticipated industry growth and fewer sales 21 synergies than originally planned . as a result , management is implementing a modified strategy within the pdc business that will focus on the full continuum of care in the healthcare industry . management believes that the strategy modifications noted above will improve organic sales and profit within the peopleid reporting unit in future years , but there is inherent risk in the revised strategy and the changing healthcare industry . as such , the company 's annual goodwill impairment analysis ( `` step one '' ) reflected the risk in the strategy and the decline in fiscal 2014 sales and profitability , which occurred during a period of time in which hospital admission rates were declining and the healthcare industry was reacting to healthcare reform . in addition , the pdc business fell short of internal forecasts , resulting in the conclusion that the peopleid reporting unit failed step one as the resulting fair value was less than the carrying value of the reporting unit . upon completion of the impairment assessment , the company recognized a goodwill impairment charge of $ 100.4 million during fiscal 2014. in conjunction with the goodwill impairment test of the peopleid reporting unit , finite and indefinite-lived intangibles associated with the reporting unit were revalued and analyzed for impairment . as a result , other intangibles in the amount of $ 48.2 million primarily associated with the peopleid reporting unit were impaired during fiscal 2014. fiscal 2013 vs. 2012 net sales increased by 16.1 % from fiscal 2012 to 2013 , which consisted of organic growth of 0.8 % , currency impact of a negative 1.0 % and growth from acquisitions of 8.9 % . acquisition growth within the ids segment was almost entirely generated by the acquisition of pdc in december 2012 , with a small portion contributed by the acquisition of grafo in march 2012. the pdc acquisition contributed more than $ 100 million in sales in fiscal 2013 and provides an entry for the company into the healthcare identification space . organic sales in the ids segment grew by 0.8 % primarily due to growth within the americas of approximately 1 % , which was partially offset by modest declines in europe and apac . within the americas , north america growth was partially offset by a 10 % decline in brazil . sales over the internet increased by more than 15 % , and we experienced a positive response to our fiscal 2013 product launches . in europe , the decline in the ids business platform was mainly driven by the economy , partially offset by our increased presence in emerging geographies , new and differentiated product launches , and our strategy to increase share in specific vertical markets . in apac , sales growth was modest , as the de-consolidation of certain business units from the asia die-cut disposal group impacted sales growth negatively . overall , sales globally were driven by new product launches and growth within vertical markets . new products launched included the bbp85 printer , which is a continuous-sleeving wire identification system for high volume applications in the electrical and aerospace markets , and three new high performance materials to address the changing requirements for identification of printed circuit boards and electronic components . vertical market growth was focused within the chemical , oil , and gas industries , as well as our targeted strategic account management programs . segment profit increased to $ 174.4 million in fiscal 2013 from $ 160.7 million in fiscal 2012 , an increase of $ 13.7 million or 8.5 % . the primary driver of the profit increase was the acquisition of pdc . this profit was partially offset by a decline in profitability in brazil and western europe . brazil 's decline was due to a combination of sales decline , cost increases and expenses associated with the implementation of a new erp system . in western europe , the largest decline in sales and profit was in italy , where we experienced a 25.0 % sales decline partially due to one-time sales in the prior year . in addition , italy 's profitability was impacted by product quality issues associated with a printer introduced in fiscal 2012. the company performed its annual goodwill impairment assessment for fiscal 2013 on may 1 , 2013 , and subsequently concluded that the ids apac reporting unit was impaired . although sales grew from 2012 to 2013 , profit declined and neither were as high as anticipated . specifically , fourth quarter fiscal 2013 gross margin and segment profit declined compared to the prior year , while results were anticipated to increase over the prior year fourth quarter . in addition , projections were not sufficient to support the balance of goodwill remaining within the reporting unit .
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results of operations a comparison of results of operating ( loss ) income from continuing operations for the fiscal years ended july 31 , 2014 , 2013 , and 2012 is as follows : replace_table_token_6_th during fiscal 2014 , net sales increased 5.8 % from fiscal 2013 , which consisted of organic growth of 0.2 % , currency impact of a negative 0.1 % , and growth from acquisitions of 5.7 % . the acquisition growth was from the acquisition of pdc within the ids segment in fiscal 2013. organic sales within the ids segment were up 2.9 % , while organic sales within the wps segment declined by 4.6 % . during fiscal 2013 , net sales increased 8.1 % from fiscal 2012 , which consisted of an organic decline of 2.4 % , currency impact of a negative 0.8 % and growth from acquisitions of 11.3 % . over 90 % of the acquisition growth was from the acquisition of pdc in fiscal 2013 , with the remainder attributable to the acquisitions of grafo in the ids segment and runelandhs and pervaco in the wps segment in fiscal 2012. organic sales within the ids segment were up 0.8 % , while organic sales within the wps platform declined by 7.0 % . gross margin as a percentage of sales declined to 49.8 % in fiscal 2014 from 52.6 % in fiscal 2013 . the decline was primarily due to the sales decline and increased pricing actions in the wps business , and an increase in facility consolidation costs in both segments . in the wps segment , gross margin declined due to increased costs for facility consolidation projects , growth initiatives , and reduced sales as compared to the same period in the prior year . in the ids segment , gross margin was negatively impacted by facility consolidation related expenses and product mix .
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general our most restrictive debt agreement ( the revolving credit facility ( as defined in note 5 ) ) generally requires our ratio of earnings before interest , taxes , depreciation and amortization ( `` ebitda `` ) to interest expense not to story_separator_special_tag the following discussion and analysis is intended to provide a summary of significant factors relevant to our financial performance and condition . the discussion and analysis should be read together with our consolidated financial statements and related notes in item 8 , financial statements and supplementary data . results for the fiscal year ended may 31 , 2020 are not necessarily indicative of results that may be attained in the future . forward-looking statements the information contained in this report includes forward-looking statements within the meaning of the federal securities laws . examples of forward-looking statements include statements regarding our expected future financial performance or position , results of operations , business strategy , plans and objectives of management for future operations , and other statements that are not historical facts . you can identify forward-looking statements by their use of forward-looking words , such as `` may '' , `` will '' , `` anticipate '' , `` expect '' , `` believe '' , `` estimate '' , `` intend '' , `` plan '' , `` should '' , `` seek '' , or comparable terms . readers of this report should understand that these forward-looking statements are not guarantees of performance or results . forward-looking statements provide our current expectations and beliefs concerning future events and are subject to risks , uncertainties , and factors relating to our business and operations , all of which are difficult to predict and could cause our actual results to differ materially from the expectations expressed in or implied by such forward-looking statements . these risks , uncertainties , and factors include , among other things : the risk that the cost savings and any other synergies from the acquisition of pinnacle foods inc. ( the `` pinnacle acquisition '' ) may not be fully realized or may take longer to realize than expected ; the risk that the pinnacle acquisition may not be accretive within the expected timeframe or to the extent anticipated ; the risks that the pinnacle acquisition and related integration will create disruption to the company and its management and impede the achievement of business plans ; the risk that the pinnacle acquisition will negatively impact the ability to retain and hire key personnel and maintain relationships with customers , suppliers , and other third parties ; risks related to our ability to successfully address pinnacle 's business challenges ; risks related to our ability to achieve the intended benefits of other recent acquisitions and divestitures ; risks associated with general economic and industry conditions ; risks associated with our ability to successfully execute our long-term value creation strategies , including those in place for specific brands at pinnacle before the pinnacle acquisition ; risks related to our ability to deleverage on currently anticipated timelines , and to continue to access capital on acceptable terms or at all ; risks related to our ability to execute operating and restructuring plans and achieve targeted operating efficiencies from cost-saving initiatives , related to the pinnacle acquisition and otherwise , and to benefit from trade optimization programs , related to the pinnacle acquisition and otherwise ; risks related to the effectiveness of our hedging activities and ability to respond to volatility in commodities ; risks related to the company 's competitive environment and related market conditions ; risks related to our ability to respond to changing consumer preferences and the success of its innovation and marketing investments ; risks related to the ultimate impact of any product recalls and litigation , including litigation related to the lead paint and pigment matters , as well as any securities litigation , including securities class action lawsuits ; risk associated with actions of governments and regulatory bodies that affect our businesses , including the ultimate impact of new or revised regulations or interpretations ; risks related to the impact of the recent coronavirus ( covid-19 ) pandemic on our business , suppliers , consumers , customers and employees ; risks related to the availability and prices of raw materials , including any negative effects caused by inflation , weather conditions , or health pandemics ; disruptions or inefficiencies in our supply chain and or operations , including from the recent covid-19 pandemic ; risks and uncertainties associated with intangible assets , including any future goodwill or intangible assets impairment charges , related to the pinnacle acquisition or otherwise ; the costs , disruption , and diversion of management 's attention due to the integration of the pinnacle acquisition ; and other risks described in our reports filed from time to time with the securities and exchange commission ( the `` sec '' ) . we caution readers not to place undue reliance on any forward-looking statements included in this report , which speak only as of the date of this report . we undertake no responsibility to update these statements , except as required by law . the discussion that follows should be read together with the consolidated financial statements and related notes contained in this report . results for fiscal 2020 are not necessarily indicative of results that may be attained in the future . executive overview conagra brands , inc. ( the `` company '' , `` conagra brands '' , `` we '' , `` us '' , or `` our '' ) , headquartered in chicago , is one of north america 's leading branded food companies . guided by an entrepreneurial spirit , the company combines a rich heritage of making great food with a sharpened focus on innovation . the company 's portfolio is evolving to satisfy people 's changing food preferences . story_separator_special_tag the assets and liabilities of this business have been reclassified as assets and liabilities held for sale within our consolidated balance sheets for all periods presented prior to the divestiture . during the second quarter of fiscal 2020 , we completed the sale of our direct store delivery ( `` dsd '' ) snacks business , for net proceeds of $ 137.5 million , including final working capital adjustments . the results of operations of the divested dsd snacks business were included in our grocery & snacks segment for the periods preceding the completion of the transaction . the assets and liabilities of this business have been reclassified as assets and liabilities held for sale within our consolidated balance sheets for all periods presented prior to the divestiture . during the fourth quarter of fiscal 2019 , we completed the sale of our italian-based frozen pasta business , gelit , for proceeds net of cash divested of $ 80.1 million , including final working capital adjustments . the results of operations of the divested gelit business were primarily included in our refrigerated & frozen segment for the periods preceding the completion of the transaction . during the fourth quarter of fiscal 2019 , we also completed the sale of our wesson ® oil business for net proceeds of $ 168.3 million , including final working capital adjustments . the results of operations of the divested wesson ® oil business were primarily included in our grocery & snacks segment , and to a lesser extent within the foodservice and international segments , for the periods preceding the completion of the transaction . during the first quarter of fiscal 2019 , we completed the sale of our del monte ® processed fruit and vegetable business in canada for combined proceeds of $ 32.2 million . the results of operations of the divested del monte ® business were included in our international segment for the periods preceding the completion of the transaction . restructuring plans in december 2018 , our board of directors ( the `` board '' ) approved a restructuring and integration plan related to the ongoing integration of the recently acquired operations of pinnacle ( the `` pinnacle integration restructuring plan '' ) for the purpose of achieving significant cost synergies between the companies , as a result of which we expect to incur material charges for exit and disposal activities under u.s. generally accepted accounting principles ( `` u.s. gaap '' ) . we have approved the incurrence of up to $ 360.0 million ( $ 255.0 million of cash charges and $ 105.0 million of non-cash charges ) in connection with operational expenditures under the pinnacle integration restructuring plan . 25 although we remain unable to make good faith estimates relating to the entire pinnacle integration restructuring plan , we are reporting on actions initiated through the end of fiscal 20 20 , including the estimated amounts or range of amounts for each major type of cost expected to be incurred , and the charges that have resulted or will result in cash outflows . we have incurred or expect to incur approximately $ 360.2 million of charges ( $ 2 77.2 million of cash charges and $ 83.0 million of non-cash charges ) for actions identified to date under the pinnacle integration restructuring plan . w e recognized charges of $ 73.8 million and $ 168.2 million in connection with the pinnacle integration restructuring plan in fiscal 2020 and 2019 , respectively . we expect to incur costs related to the pinnacle integration restructuring plan through fiscal 2022 . in fiscal 2019 , management initiated a restructuring plan ( the `` conagra restructuring plan '' ) for costs in connection with actions taken to improve selling , general and administrative ( `` sg & a '' ) expense effectiveness and efficiencies and to optimize our supply chain network . although we remain unable to make good faith estimates relating to the entire conagra restructuring plan , we are reporting on actions initiated through the end of fiscal 2020 , including the estimated amounts or range of amounts for each major type of cost expected to be incurred , and the charges that have resulted or will result in cash outflows . as of may 31 , 2020 , we have approved the incurrence of $ 131.1 million ( $ 38.2 million of cash charges and $ 92.9 million of non-cash charges ) for several projects associated with the conagra restructuring plan . we have incurred or expect to incur $ 129.5 million of charges ( $ 40.1 million of cash charges and $ 89.4 million of non-cash charges ) for actions identified to date under the conagra restructuring plan . we recognized charges of $ 64.4 million and $ 2.2 million in connection with the conagra restructuring plan in fiscal 2020 and 2019 , respectively . covid-19 we are closely monitoring the impact of the outbreak of the novel coronavirus ( covid-19 ) on all aspects of our business . we experienced significantly higher sales during the fourth quarter of fiscal 2020 for our products in both of our grocery & snacks and refrigerated & frozen segments due to the covid-19 pandemic , as consumers increased their at-home consumption . we continue to see increased orders from retail customers in north america subsequent to the end of fiscal 2020 in response to increased consumer demand for food at home and expect that trend to continue for at least a portion of fiscal 2021 as work-from-home arrangements are extended in response to the continued spread of covid-19 . however , the increased consumer demand may reverse in the coming months as consumer purchasing behavior changes as a result of the economic downturn . during the fourth quarter of fiscal 2020 , we experienced reduced demand for our foodservice products across all of our major markets as consumer traffic in away-from-home food outlets decreased as a result of the covid-19 pandemic .
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fiscal 2020 results fiscal 2020 performance compared to fiscal 2019 reflected an increase in net sales , including the impact of recent acquisitions , with organic ( excludes the impacts of foreign exchange , divested businesses and acquisitions , including the pinnacle acquisition ( until the anniversary date of the acquisitions ) , as well as the impact of the 53 rd week of our fiscal year ) increases in all of our operating segments with the exception of our foodservice segment , in each case compared to fiscal 2019. organic net sales for our retail segments ( inclusive of grocery & snacks , refrigerated & frozen , and international ) were positively impacted by the increase in at-home food consumption as a result of the covid-19 pandemic , with sales declines in our foodservice segment due to lower traffic in away-from-home food outlets . overall gross margin increased with the addition of pinnacle 's gross profit , organic net sales growth , supply chain realized productivity , cost synergies , and the inclusion of the 53rd week of our fiscal year . these benefits were partially offset by higher input and transportation costs , lost profits due to divested businesses , pandemic-related costs , and the impact of foreign exchange rates . overall segment operating profit increased in all of our operating segments with the exception of our foodservice segment . corporate expenses decreased due to items impacting comparability , as discussed below . we experienced a slight decrease in equity method investment earnings , a decrease in income tax expense , and an increase in interest expense , in each case compared to fiscal 2019. diluted earnings per share in fiscal 2020 were $ 1.72. diluted earnings per share in fiscal 2019 were $ 1.52 , including earnings of $ 1.53 per diluted share from continuing operations and a loss of $ 0.01 per diluted share from discontinued operations .
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as a result of many factors , such as those set forth under `` risk factors , '' actual results may differ materially from those anticipated in these forward-looking statements . executive overview we are a science-driven biopharmaceutical company focused on developing new therapeutics for patients with osteoporosis as well as other serious endocrine-mediated diseases . our lead development candidate is the investigational drug abaloparatide ( ba058 ) , a bone anabolic for potential use in the 80 reduction of fracture risk in postmenopausal women with severe osteoporosis delivered via subcutaneous injection , which we refer to as abaloparatide-sc . we announced the 18-month top-line data from our phase 3 clinical trial evaluating abaloparatide-sc for potential use in the reduction of fracture risk in postmenopausal women with severe osteoporosis in december 2014. patients from the abaloparatide and placebo groups from our phase 3 clinical trial are eligible to continue in the activextend trial , in which they are receiving an approved alendronate therapy for osteoporosis management . we currently anticipate the first results from the first six months of the activextend trial to be available in the second quarter of 2015. following completion of the first six months of the extension study , we plan to submit a new drug application , or nda , in the united states , and a marketing authorization application , or maa , in europe , during the second half of 2015. we hold worldwide commercialization rights to abaloparatide-sc , other than in japan , and subject to a regulatory review and favorable regulatory outcome , we anticipate our first commercial sales of abaloparatide-sc will take place in 2016. we are leveraging our investment in abaloparatide-sc to develop a line extension that is designed to improve patient convenience by enabling administration of abaloparatide through an investigational short-wear-time transdermal patch , which we refer to as abaloparatide-td . we hold worldwide commercialization rights for abaloparatide-td . our current clinical product portfolio also includes the investigational drug rad1901 , a selective estrogen receptor down regulator/degrader , or serd , and the investigational drug rad140 , a nonsteroidal selective androgen receptor modulator , or sarm . we are developing rad1901 at higher doses for potential use in the treatment of metastatic breast cancer , and intend to advance its development with the initiation of phase 1 clinical trials , including a maximum tolerated dose study that has commenced patient dosing and a phase 1 clinical trial in metastatic breast cancer patients which commenced in late 2014. at lower doses , rad1901 acts as a selective estrogen-receptor modulator , or serm . low-dose rad1901 has shown potential to be effective for the treatment of vasomotor symptoms such as hot flashes in a successful phase 2 proof of concept study . we intend to commence a phase 2b clinical trial in vasomotor symptoms in the second half of 2015. abaloparatide abaloparatide is a novel synthetic peptide analog of parathyroid hormone-related protein , or pthrp , that we are developing as a bone anabolic treatment for potential use in the reduction of fracture risk in postmenopausal women with severe osteoporosis . osteoporosis is a disease that affects nearly 10 million people , with an additional approximately 43 million people at increased risk for the disease , in the united states . it is characterized by low bone mass and structural deterioration of bone tissue , which leads to greater fragility and an increase in fracture risk . anabolic agents , like forteo ( teriparatide ) , are used to increase bone mineral density , or bmd , and to reduce the risk of fracture . we believe abaloparatide has the potential to increase bmd and bone quality to a greater degree , at more sites , at a faster rate , and in more patients , than other approved drugs for the treatment of osteoporosis . we are developing two formulations of abaloparatide : abaloparatide-sc is an injectable subcutaneous formulation of abaloparatide . our phase 3 study of abalopartatide-sc is designed to evaluate whether abaloparatide-sc is superior to placebo for prevention of vertebral fracture . the study is also designed to evaluate whether abaloparatide-sc is superior to open-label teriparatide for greater bmd improvement at major skeletal sites and for a lower occurrence of hypercalcemia , a condition in which the calcium level in a patient 's blood is above normal . on december 21 , 2014 , we announced positive top-line data from the phase 3 clinical trial ( active ) of the investigational drug abaloparatide-sc , or the active trial , evaluating the investigational drug abaloparatide-sc for potential use in the reduction of fractures in postmenopausal osteoporosis . on the primary endpoint , abaloparatide-sc ( n=690 , fracture rate 0.72 % ) achieved a statistically significant 83 % reduction of incident vertebral fractures ( defined as new and worsening vertebral fractures ) as compared 81 to the placebo-treated group ( n=711 , fracture rate 4.36 % ) ( p < 0.0001 ) . the active trial included an open-label teriparatide [ rdna origin ] injection treatment group ( n=717 , fracture rate 0.98 % ) that showed a statistically significant 78 % reduction of incident vertebral fractures as compared to the placebo-treated group ( p < 0.0001 ) . on the secondary endpoints , as compared to placebo , abaloparatide-sc achieved : a statistically significant fracture-rate reduction of 43 % in the adjudicated non-vertebral fracture subset of patients ; a statistically significant reduction of 45 % in the adjudicated clinical fracture group , which includes both vertebral and non-vertebral fractures ; and a statistically significant difference in the time to first incident of nonvertebral fracture in both the adjudicated non-vertebral fracture ( p=0.0489 ) and the clinical fracture subset of patients ( p=0.0112 ) . the open-label teriparatide injection treatment group , as compared to placebo , achieved a fracture-rate reduction of 28 % in the adjudicated non-vertebral fracture subset of patients and a reduction of 29 % in the adjudicated clinical fracture group ; these differences were not statistically significantly different as compared to the placebo group . story_separator_special_tag rad1901 rad1901 is a serd that we believe crosses the blood-brain barrier and that we are evaluating for potential use in the treatment of metastatic breast cancer and other estrogen receptor mediated oncology applications . rad1901 has been shown to bind with good selectivity to the estrogen receptor and to have both estrogen-like and estrogen-antagonistic effects in different tissues . in many cancers , hormones , like estrogen , stimulate tumor growth and a desired therapeutic goal is to block this estrogen-dependent growth while inducing apoptosis of the cancer cells . serds are an emerging class of endocrine therapies that directly induce estrogen receptor , or er , degradation , enabling them to remove the estrogen growth signal in er-dependent tumors without allowing ligand-independent resistance to develop . there is currently only one serd , faslodex ( fulvestrant ) , approved for the treatment of hormone-receptor positive metastatic breast cancer . in 2014 , the worldwide market for faslodex was $ 720.0 million . for patients with brain metastases , there are no approved targeted therapies that cross the blood-brain barrier . in december 2014 , we commenced a phase 1 clinical trial of rad1901 in the united states for the treatment of metastatic breast cancer . the phase 1 study is a multicenter , open-label , two-part , dose-escalation study of rad1901 in postmenopausal women with advanced estrogen receptor positive 83 and her2-negative breast cancer that is designed to determine the recommended dose for a phase 2 clinical trial and includes a preliminary evaluation of the potential anti-tumor effect of rad1901 . we expect to report progress on this study in the first half of 2015 and to initiate additional phase 1 clinical trials in the european union in 2015. in june 2014 , we initiated a phase 1 maximum tolerated dose , or mtd , study of rad1901 in healthy volunteers . the study is designed to evaluate the tolerability , safety and pharmacokinetics of rad1901 , and also to use 18f-estradiol positron emission tomography , or fes-pet , imaging to provide a pharmacodynamic assessment of estrogen receptor turnover following administration of rad1901 . levels of rad1901 in cerebrospinal fluid samples taken from study subjects will be measured to confirm that rad1901 has crossed the blood-brain barrier . based upon initial study results , fes-pet imaging of rad1901 has shown potent serd activity . as of december 31 , 2014 , 40 subjects had completed dose escalation in the ongoing mtd study , and fes-pet imaging had been completed in a total of five subjects across two different doses . each of these five subjects showed , based on fes-pet imaging , suppression of the fes-pet signal to background levels after six days of dosing . in addition , rad1901 , at the doses that showed suppression of the fes-pet signal , was well tolerated in these patients . in march 2014 , we submitted to the fda an application for orphan drug designation of rad1901 for the treatment of breast cancer brain metastases . in june 2014 , we received a response to our application from the fda requesting additional data with respect to our orphan drug designation application . we plan to meet with the fda and are working to provide them with the data requested to support orphan drug designation of rad1901 . we are also developing rad1901 at lower doses as a serm , for the potential treatment of vasomotor symptoms . historically , hormone replacement therapy , or hrt , with estrogen or progesterone has been considered the most efficacious approach to relieving menopausal symptoms such as hot flashes . however , because of the concerns about the potential long-term risks and contraindications associated with hrt , we believe a significant need exists for new therapeutic treatment options to treat vasomotor symptoms . in a phase 2 proof of concept study , rad1901 at lower doses showed a reduction in the frequency and severity of moderate and severe hot flashes . we intend to commence a phase 2b clinical trial in vasomotor symptoms in the second half of 2015. our efforts and resources are focused primarily on developing abaloparatide-sc , abaloparatide-td , rad1901 and our other pharmaceutical investigational product candidates , raising capital and recruiting personnel . we have no product sales to date and we will not receive any revenue from product sales unless and until we receive regulatory approval for abaloparatide-sc from the fda , or equivalent foreign regulatory authorities . however , developing pharmaceutical products is a lengthy and very expensive process . accordingly , our success depends not only on demonstrating the safety and efficacy of abaloparatide , but also on our ability to finance the development of these product candidates , which will require substantial additional funding to complete development and submit applications seeking marketing approval . our ability to raise this additional financing will depend on our ability to execute on the abaloparatide development plan , manage and coordinate , on a cost-effective basis , the required components of the nda submission for abaloparatide-sc and scale-up abaloparatide-sc and abaloparatide-td manufacturing capacity . in addition , we currently have no sales or distribution capabilities and thus our ability to market abaloparatide once approved may depend in part on our ability to enter into and maintain collaborative relationships , which will depend on the strength of our clinical data , our access to capital and other factors . 84 financial overview research and development expenses research and development expenses consist primarily of clinical testing costs , including payments in cash and stock made to contract research organizations , or cros , salaries and related personnel costs , fees paid to consultants and outside service providers for regulatory and quality assurance support , licensing of drug compounds and other expenses relating to the manufacture , development , testing and enhancement of our investigational product candidates . we expense our research and development costs as they are incurred . none of the research and development expenses in relation to our investigational product candidates are currently borne by third parties .
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results of operations the following discussion summarizes the key factors our management team believes are necessary for an understanding of our financial statements . years ended december 31 , 2014 and december 31 , 2013 replace_table_token_8_th research and development expenses for the year ended december 31 , 2014 , research and development expense was $ 45.7 million compared to $ 60.5 million for the year ended december 31 , 2013 , a decrease of $ 14.8 million , or 24 % . this decrease is primarily a result of a decrease in the total professional contract service costs associated with the development of abaloparatide-sc and abaloparatide-td , partially offset by an increase in professional contract services costs associated with the development of rad1901 . during the year ended december 31 , 2014 , we incurred professional contract service costs associated with the development of abaloparatide-sc , abaloparatide-td and rad1901 of $ 32.0 million , $ 1.5 million and $ 2.3 million , respectively , compared to $ 46.0 million , $ 11.5 million and zero , respectively , for the year ended december 31 , 2013. the decrease in contract service costs associated with the development of abaloparatide-sc is primarily a result of the completion of the phase 3 18-month fracture study in october 2014. additionally , fewer patients were enrolled in the 6-month extension study as of december 31 , 2014 , as compared to the year ended december 31 , 2013 , as certain patients completed treatment . we expect that costs associated with the development of abaloparatide-sc will continue to decrease over the course of the clinical trial as patients complete treatment under the 18-month fracture study and first six months of the extension study . in addition , there will be variability from quarter to quarter in the costs for abaloparatide-sc , driven primarily by the euro/dollar exchange rate , which is more fully described below under `` research and development agreements . ''
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111 gfi group inc. and subsidiaries notes to consolidated financial statements ( continued ) ( in thousands except share and per share amounts ) 7. goodwill and intangible assets ( continued ) at december 31 , 2009 , expected amortization expense for the definite lived intangible assets is as follows : replace_table_token_32_th 8. other assets other assets consisted of 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 thereof in part ii-item 8 hereof . this discussion contains forward-looking statements . actual results could differ materially from the results discussed in these forward-looking statements . please see `` forward-looking statements '' and `` risk factors '' for a discussion of some of the uncertainties , risks and assumptions associated with these statements . business environment as a wholesale broker , our results of operations are impacted by a number of external market factors , including market volatility , the organic growth or contraction of the derivative and cash markets in which we provide our brokerage services , the particular mix of transactional activity in our various products , the competitive and regulatory environment in which we operate and the financial condition of the dealers , asset managers , hedge funds and other market participants to whom we provide our services . outlined below are management 's observations of these external market factors during the most recent fiscal period . the factors outlined below are not the only factors that have impacted our results of operations for the most recent fiscal period , and additional or other factors may impact , or have different degrees of impact , on our results of operations in future periods . market volatility as a general rule , our business typically benefits from volatility in the markets that we serve , as periods of increased volatility often coincide with more robust trading by our clients and a higher volume of transactions . however , periods of extreme volatility may result in significant market dislocations that can result in reduced trading volumes . market volatility is driven by a range of external factors , some of which are market specific and some of which correlate to general macro-economic conditions . during 2009 , many of the markets in which we operate experienced lower volatility than in 2008 , which was characterized by a global recession , a widespread credit crisis , the lehman brothers bankruptcy and the subsequent government interventions to rescue the financial systems . in 2009 , global stock markets rallied as the federal reserve and other central banks kept interest rates low , the financial sector stabilized and the global recession appeared to ease ; however , many market participants committed less capital in certain markets and geographic regions , resulting in lower trading volumes in many of the markets in which we operate . in addition , many of the otc derivative markets in which we provide our services experienced relatively depressed trading activity as the legislative debate over how to regulate and possibly limit trading activity in certain otc markets continued throughout the year and may have dampened demand for such products . growth or decline in underlying markets and new product offerings until the global credit crisis and recession of the last few years , our business historically benefited from growth in the otc derivatives markets due to either the expansion of existing markets , including increased notional amounts outstanding and transaction volumes , or the development of new products or classes of products . the level of growth in these markets is difficult to measure for any period as there are only a few independent , objective measures of growth in outstanding notional amount of otc derivatives , all of which are published retrospectively and do not measure transactional volumes . therefore , to help gauge growth in any particular period , management also looks to the published results of large otc derivatives dealers and certain futures exchanges as potential indicators of transactional activity in the related otc derivative markets . 57 according to the bank of international settlements ( `` bis '' ) market review for the first half of 2009 , both the otc and exchange-traded derivative markets experienced contraction in 2009 versus the same period in 2008. according to the bis , as of june 30 , 2009 , the latest period reported , notional amounts outstanding for all otc derivatives was $ 604.6 trillion , down 11.6 % compared to $ 683.8 trillion in june 2008 , while the notional amounts outstanding for all exchange traded derivatives was $ 63.4 trillion on june 30 , 2009 , down 22.6 % from $ 82.0 trillion on june 30 , 2008. these declines compare to compound annual growth rates of 32.2 % and 16.5 % for notional amounts outstanding in otc and exchange-traded derivative markets , respectively , from june 30 , 2003 through june 30 , 2008. all otc product categories were down in notional amounts outstanding year-over-year according to the bis study , with credit default swaps down 37.2 % , commodities down 71.8 % , equity-linked derivatives down 35.0 % , foreign exchange derivatives down 22.6 % and interest rate derivatives down 4.6 % . interest rate derivatives represent the largest product category with $ 437.2 trillion outstanding as of june 30 , 2009. similarly , all exchange-traded derivative categories also realized significant declines in notional amounts outstanding year-over-year . we believe that the declines in notional amounts outstanding can be attributed , in large part , to macroeconomic and industry factors such as the general global economic climate , the deleveraging undertaken by certain market participants and regulatory uncertainty . additionally , industry efforts to net derivative exposure , especially in credit derivatives , has been a significant factor in bringing down notional amounts outstanding . story_separator_special_tag in addition , there were several factors which benefited our revenues during the year ended december 31 , 2009 which only partially offset the decline in revenues during 2009 , including : substantial growth in our global cash fixed income business due , in large part , to our recent investments in this area ; the acquisition of trayport limited in january of 2008 ; growth in our chile and dubai brokerage operations ; 59 new brokerage desks and targeted hires of key brokers for certain equity , financial and commodity products ; the continued development and expansion of our hybrid brokerage platforms , including creditmatch® , energymatch® and gfi forexmatch® ; and $ 3.5 million in realized and unrealized gains in foreign currency hedges in 2009 versus a $ 16.7 million loss in 2008. the main factors contributing to our increase in revenues for the year ended december 31 , 2008 from the year ended december 31 , 2007 are set forth below under `` year ended december 31 , 2008 compared to the year ended december 31 , 2007 . '' the most significant component of our cost structure is employee compensation and employee benefits , which includes salaries , sign-on bonuses , incentive compensation and related employee benefits and taxes . our employee compensation and employee benefits have decreased from $ 604.8 million for the year ended december 31 , 2007 to $ 583.3 million for the year ended december 31 , 2009. the main factor contributing to the decline in the amount of employee compensation and employee benefits was lower brokerage revenues resulting in lower broker performance bonuses , which was partially offset by a charge of $ 34.4 million primarily related to the renegotiation of certain employment agreements and severance in 2009. our compensation and employee benefits for all employees have both a fixed and variable component . base salaries and benefit costs are primarily fixed for all employees while bonuses constitute the variable portion of our compensation and employee benefits . within overall compensation and employee benefits , the employment cost of our brokerage personnel is the key component . bonuses for brokerage personnel are primarily based on the operating results of their related brokerage desk as well as their individual performance . additionally , a portion of our bonus expense is subject to contractual guarantees that may require us to make bonus payments to brokers regardless of their performance in any particular period . for many of our brokerage employees , their bonus constitutes a significant component of their overall compensation . broker performance bonuses decreased from $ 335.3 million for the year ended december 31 , 2007 to $ 241.9 million for the year ended december 31 , 2009. further , we grant sign-on bonuses for certain newly-hired brokers or for certain of our existing brokers who agree to long-term employment agreements . expense related to sign-on bonuses paid to brokerage personnel increased from $ 25.3 million for the year ended december 31 , 2007 to $ 67.3 million for the year ended december 31 , 2009. the increase was largely due to charges related to the renegotiation of certain employment agreements in the fourth quarter of 2009 combined with the additional costs we incurred to rebuild our north american credit operations following the defection of two dozen credit brokers to a competitor in april of 2008. sign-on bonuses may be paid in the form of cash , rsus or forgivable loans and are typically amortized over the term of the related employment agreement , which is generally two to four years . these employment agreements typically contain repayment or forfeiture provisions for unvested rsus or all or a portion of the sign-on bonus and forgivable loan should the employee voluntarily terminate his or her employment or if the employee 's employment is terminated for cause during the initial term of the agreement . 60 results of consolidated operations the following table sets forth our consolidated results of operations for the periods indicated : replace_table_token_6_th 61 the following table sets forth our consolidated results of operations as a percentage of our total revenues for the periods indicated : replace_table_token_7_th year ended december 31 , 2009 compared to the year ended december 31 , 2008 net income net income for the year ended december 31 , 2009 was $ 16.3 million as compared to net income of $ 53.1 million for the year ended december 31 , 2008 , a decrease of approximately $ 36.8 million or 69.3 % . total revenues decreased by $ 196.8 million , or 19.4 % , to $ 818.7 million for the year ended december 31 , 2009 from $ 1,015.5 million for 2008. our decreased revenues were primarily due to decreased revenues across all brokerage product categories and geographical regions due , in part , to dealer and hedge fund deleveraging , lower credit and equity market volatility , regulatory uncertainty in certain markets and a general trend away from derivative instruments to cash products over the year . in addition , our revenues in europe were negatively impacted by a weakening of the euro and the british pound sterling relative to the u.s. dollar . also , we were adversely affected by the full year effect of the defection of over two dozen of our credit brokers to a competitor in april 2008 and the expenses associated with rebuilding our north american credit operations . our total brokerage personnel headcount was 1,082 employees at december 31 , 2009 , compared to 1,037 at december 31 , 2008. total expenses decreased by $ 137.1 million , or 14.7 % , to $ 795.4 million for 2009 from $ 932.5 million in 2008. expenses decreased primarily because of decreased compensation expense for the year-ended december 31 , 2009 , which was attributable to a decrease in performance-based bonus 62 expense as a result of lower brokerage revenues . this decrease was partially offset by a charge of $ 34.4 million primarily related to the renegotiation of certain employment agreements and severance .
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results of segment operations our operations are managed along three operating segments : americas brokerage , europe , middle east & africa ( `` emea '' ) brokerage and asia brokerage . these operations provide brokerage services in four broad product categories : credit , financial , equity and commodity . we present our operating segments in four reportable segments : americas brokerage , emea brokerage , asia brokerage and all other . the all other segment captures costs that are not directly assignable to any of the three brokerage segments and primarily consists of our corporate business activities and results of operations from our software , analytics and market data businesses . in prior periods , asia brokerage was included within the all other segment as it did not meet the quantitative threshold for separate disclosure under accounting standards codification ( `` asc '' ) 280-10 segment reporting ( formerly statement of financial accounting standard ( `` sfas '' ) no . 131 , disclosures about segments of an enterprise and related information ) . however , as a result of the growth experienced in asia and the changes in the economic characteristics of the americas and the emea brokerage operations , for the year ended december 31 , 2008 and thereafter , the company has determined to change its reportable segments . prior period results have been adjusted to reflect the changes in the reporting structure .
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the following is a summary of the company 's cash and restricted cash total as presented in the combined consolidated statements of cash flows for the years ended december 31 , 2016 , 2015 and 2014 ( in thousands ) : replace_table_token_37_th in february 2015 , the fasb issued asu 2015-02 , amendments to the consolidation analysis , which changes the way reporting enterprises evaluate whether ( 1 ) they should consolidate limited partnerships and similar entities , ( 2 ) fees paid to a decision maker or service provider are variable interests in a vie , and ( 3 ) variable interests in a vie held by related story_separator_special_tag the following is a discussion and analysis of our financial condition and our historical results of operations . the following should be read in conjunction with our financial statements and accompanying notes . this discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those projected , forecasted , or expected in these forward-looking statements as a result of various factors , including , but not limited to , those discussed below and elsewhere in this annual report . see “ cautionary statement regarding forward-looking statements ” and “ risk factors ” in this annual report . our management believes the assumptions underlying the company 's financial statements and accompanying notes are reasonable . however , the company 's financial statements and accompanying notes may not be an indication of our financial condition and results of operations in the future . story_separator_special_tag roman ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > 42 advisory and administrative fees . advisory and administrative fees include the fees paid to our adviser pursuant to the advisory agreement ( see note 8 to our combined consolidated financial stat ements ) . corporate general and administrative expenses . corporate general and administrative expenses include , but are not limited to , payments of reimbursements to the adviser for operating expenses , audit fees , legal fees , listing fees , board of director fees , equity-based compensation expense and investor relations costs . corporate general and administrative expenses and the advisory and administrative fees paid to our adviser ( including advisory and administrative fees on properties defined in the advisory agreement as new assets ) will not exceed 1.5 % of average real estate assets per calendar year ( or part thereof that the advisory agreement is in effect ) , calculated in accordance with the advisory agreement , or the expense cap . the expense cap does not limit the reimbursement by the company of expenses related to securities offerings paid by the adviser . the expense cap also does not apply to legal , accounting , financial , due diligence , and other service fees incurred in connection with mergers and acquisitions , extraordinary litigation , or other events outside the company 's ordinary course of business or any out-of-pocket acquisition or due diligence expenses incurred in connection with the acquisition or disposition of real estate assets . property general and administrative expenses . property general and administrative expenses include the costs of marketing , professional fees , general office supplies , and other administrative related costs of each property . depreciation and amortization . depreciation and amortization costs primarily include depreciation of our multifamily properties and amortization of acquired in-place leases . other income and expense interest expense . interest expense primarily includes the cost of interest expense on debt , the amortization of deferred financing costs , any prepayment penalties we may incur on the early retirement of debt , and the related impact of interest rate derivatives used to manage the company 's interest rate risk . gain on sales of real estate . gain on sales of real estate includes the gain recognized upon sales of properties . gain on sales of real estate is calculated by deducting the carrying value of the real estate and costs incurred to sell the properties from the sales prices of the properties . results of operations for the years ended december 31 , 2016 , 2015 and 2014 the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 the following table sets forth a summary of our operating results for the years ended december 31 , 2016 and 2015 ( in thousands ) : replace_table_token_15_th the change in our net income ( loss ) for the year ended december 31 , 2016 as compared to the net income ( loss ) for the year ended december 31 , 2015 primarily relates to the gain on sales of real estate we recognized on the seven properties we sold in 2016 and the timing of the sales ( we sold one property on may 10 , 2016 , two properties on june 6 , 2016 , two properties on august 31 , 2016 , one property on september 15 , 2016 and one property on september 30 , 2016 ) , increases in same store operating results , and the acquisition of four properties in 2016 and the timing of the acquisitions ( we acquired one property on july 27 , 2016 , one property on october 11 , 2016 and two properties on december 29 , 2016 ) . also , 10 of the 42 properties owned as of december 31 , 2015 were acquired in 2015 and therefore contributed to net income ( loss ) for less than a full period in 2015 versus the entire period in 2016 . 43 revenues rental income . rental income was $ 115.4 million for the year ended december 31 , 2016 compared to $ 103.8 million for the year ended december 31 , 2015 , which was an increase of approximately $ 11.6 million . story_separator_special_tag the amount incurred during the years ended december 31 , 2016 and 2015 represents the maximum fee allowed on properties defined as contributed assets under the advisory agreement plus approximately $ 1.4 million and $ 0.2 million , respectively , of advisory and administrative fees incurred on certain properties defined as new assets . the increase in advisory and administrative fees on new assets between the periods was due to the acquisition of additional properties classified as new assets after the spin-off , for which our adviser has elected to receive fees on , and the timing of the acquisitions ( we acquired two properties in august 2015 , one property 44 in october 2015 , one property in july 2016 , and one property in october 2016 that incurred advisory and administrative fees ) . our advi ser has elected to voluntarily waive the advisory and administrative fees incurred on the two properties we acquired in december 2016 as the properties were financed solely with debt ; h owever , it is not contractually obligated to waive fees on new assets i n the future and may cease waiving fees on new assets at its discretion . advisory and administrative fees may increase in future periods as the company acquires additional properties , which will be classified as new assets . corporate general and administrative expenses . corporate general and administrative expenses were $ 4.0 million for the year ended december 31 , 2016 compared to $ 2.5 million for the year ended december 31 , 2015 , which was an increase of approximately $ 1.5 million . the increase between periods primarily relates to approximately $ 0.8 million of equity-based compensation expense recognized during the year ended december 31 , 2016 related to the grant of restricted stock units to our directors and officers pursuant to our long-term incentive plan ( see note 7 to our combined consolidated financial statements ) . additionally , prior to the completion of the spin-off on march 31 , 2015 , the company did not incur any corporate general and administrative expenses . corporate general and administrative expenses may increase in future periods as the company acquires additional properties . property general and administrative expenses . property general and administrative expenses were $ 5.9 million for the year ended december 31 , 2016 compared to $ 5.4 million for the year ended december 31 , 2015 , which was an increase of approximately $ 0.5 million . the increase between the periods was primarily due to the acquisition of four properties during the period in 2016 , partially offset by the disposition of seven properties during the period in 2016. also , 10 of the 42 properties owned as of december 31 , 2015 were acquired in 2015 and therefore contributed to property general and administrative expenses for less than a full period in 2015 versus the entire period in 2016. depreciation and amortization . depreciation and amortization costs were $ 35.6 million for the year ended december 31 , 2016 compared to $ 40.8 million for the year ended december 31 , 2015 , which was a decrease of approximately $ 5.2 million . the decrease between the periods was primarily due to the amortization of intangible lease assets of $ 1.4 million related to five properties for the year ended december 31 , 2016 compared to $ 12.1 million related to 32 properties for the year ended december 31 , 2015 , which was a decrease of approximately $ 10.7 million , as well as the disposition of seven properties in 2016. the amortization of intangible lease assets over a six-month period from the date of acquisition is expected to increase the amortization expense during the initial year of operations for each property . the decrease between the periods was partially offset by the additional depreciation expense related to the acquisition of four properties in 2016 and capitalized expenditures primarily related to our value-add program . also , 10 of the 42 properties owned as of december 31 , 2015 were acquired in 2015 and therefore contributed to depreciation costs for less than a full period in 2015 versus the entire period in 2016. other income and expense interest expense . interest expense was $ 21.9 million for the year ended december 31 , 2016 compared to $ 18.5 million for the year ended december 31 , 2015 , which was an increase of approximately $ 3.4 million . the increase between the periods was primarily due to the amortization of deferred financing costs and prepayment penalties related to the disposition of seven properties during the period in 2016 ( see table below ) , interest expense costs incurred on our interest rate swap derivatives ( see “ liquidity and capital resources – interest rate swap agreements ” below ) , and increases in libor , which is the index for our floating rate indebtedness . the increase between the periods was partially offset by approximately $ 1.7 million of gain recognized related to the ineffective portion of changes in the fair value of our derivatives designated as cash flow hedges . also , 10 of the 42 properties owned as of december 31 , 2015 were acquired in 2015 and therefore contributed to interest expense for less than a full period in 2015 versus the entire period in 2016. the following is a table that details the various costs included in interest expense for the years ended december 31 , 2016 and 2015 ( in thousands ) : replace_table_token_16_th ( 1 ) we wrote off deferred financing costs of approximately $ 0.7 million due to our disposition of seven properties during the period . 45 gain on sales of real estate . gain on sales of real estate was $ 25.9 million for the year ended december 31 , 2016. during the year ended december 31 , 2016 , we sold seven properties .
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overview as of december 31 , 2016 , our portfolio consisted of 39 multifamily properties primarily located in the southeastern and southwestern united states encompassing 12,965 units of apartment space that was approximately 93.4 % leased with a weighted average monthly effective rent per occupied apartment unit of $ 880. with the exception of two properties considered parked assets as legal title was held by the eat to complete a reverse 1031 exchange ( see notes 2 and 4 to our combined consolidated financial statements ) , we own all or a majority interest in the properties in the portfolio through the op . on february 1 , 2017 , we purchased an additional multifamily property , hollister place , located in houston , texas , which encompasses 260 units of apartment space ( see note 10 to our combined consolidated financial statements ) . 41 we are primarily focused on directly or indirectly acquiring , owning , and operating well-located multifamily properties with a value-add compo nent in large cities and suburban submarkets of large cities , primarily in the southeastern and southwestern united states . we generate revenue primarily by leasing our multifamily properties . we intend to employ targeted management and a value-add program at a majority of our properties in an attempt to improve rental rates and the noi at our properties and achieve long-term capital appreciation for our stockholders . we are externally managed by our adviser through the advisory agreement , by and among the op , the adviser and us . the advisory agreement has a term of two years and was renewed on march 13 , 2017 for a one-year term that expires on march 16 , 2018. the adviser is wholly owned by nexpoint advisors , l.p. and is an affiliate of our sponsor .
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our commercial stage products include exparel and depocyt ( e ) . exparel is a liposome injection of bupivacaine , an amide-type local anesthetic , indicated for administration into the surgical site to produce postsurgical analgesia and was approved by the united states food and drug administration , or fda , in october 2011. it is marketed by our sales force entirely dedicated to commercializing exparel . we commercially launched exparel in april 2012. as a result of our first commercial sale of exparel , we triggered a $ 10.0 million payment obligation to skyepharma holding , inc. , or skyepharma , in connection with the acquisition of our california operating subsidiary , which we refer to as the acquisition . depocyt ( e ) is a sustained release liposomal formulation of the chemotherapeutic agent cytarabine and is indicated for the intrathecal treatment of lymphomatous meningitis . depocyt ( e ) was granted accelerated approval by the fda in 1999 and full approval in 2007. we sell depocyt ( e ) to our commercial partners located in the u.s. and europe . initially , through our relationship with quintiles , we outsourced our dedicated exparel field sales force , consisting of approximately 60 representatives . on january 28 , 2013 , this field force transitioned from quintiles to pacira . they are supported by our current marketing team as well as teams of healthcare professionals , including medical affairs , scientific affairs and nursing teams , who support our formulary approval and customer education initiatives . in july 2012 , we received an inspection letter from the mhra noting certain critical and major deficiencies in the depocyt ( e ) manufacturing line , which is located in a separate building from the exparel manufacturing site . as a result of the findings , the european medicines agency issued an assessment report which recommended that , until corrective actions were taken allowing new supply to enter the market , alternative medicines be used in european union member countries where there are suitable alternatives . the assessment report also recommended a selective recall of depocyt ( e ) in european union member countries where depocyt ( e ) was not considered to be an `` essential medicinal product . '' we temporarily ceased manufacturing depocyt ( e ) in order to implement a remediation plan and address the failures noted in the mhra inspection report . we completed the implementation of our remediation plan and , in december 2012 , the mhra re-inspected our depocyt ( e ) manufacturing facility to review progress in the implementation of our remediation commitments arising from the july 2012 inspection . we received notice in january 2013 from the mhra that our remediation efforts were successful and that we could resume production of depocyt ( e ) for sale in europe . we advised the fda of the mhra 's inspectional findings after we received the july inspection report , and the fda indicated it had no issue with continued distribution of depocyt ( e ) in the u.s. market pending our remediation efforts . we plan to resume production of depocyt ( e ) for sales in europe and the united states in the first quarter of 2013 . 66 the selective recall contributed to a reduction in product sales and royalty revenue of depocyt ( e ) in the second half of 2012. though we do not expect new depocyt ( e ) product to be available to the european market until the second quarter of 2013 , we do not currently expect an out of stock situation in either the united states or europe as a result of the interruption in manufacturing of depocyt ( e ) . we also partner with other companies who desire access to our proprietary depofoam extended release drug delivery technology to conduct research , feasibility and formulation work with their products . on december 5 , 2012 we entered into an exclusive license , development and commercialization agreement and related supply agreement with aratana therapeutics , inc , or aratana . under the agreements , we granted aratana an exclusive royalty-bearing license , including the limited right to grant sublicenses , for the development and commercialization of our bupivacaine liposome injectable suspension product for animal health indications . under the agreement , aratana will develop and seek approval for the use of the product in veterinary surgery to manage postsurgical pain , focusing initially on developing it for cats , dogs and other companion animals . in connection with its entry into the agreement , we received a one-time payment of $ 1.0 million and are eligible to receive up to an additional aggregate $ 42.5 million upon the achievement of development and commercial milestones . once the product has been approved by the food and drug administration for sale in the united states , aratana will pay us a tiered double digit royalty on net sales made in the united states . if the product is approved by foreign regulatory agencies for sale outside of the united states , aratana will pay us a tiered double digit royalty on such net sales . royalty rates will be reduced by a certain percentage upon the entry of a generic competitor for animal health indications into a jurisdiction or if aratana must pay royalties to third parties under certain circumstances . on june 29 , 2012 , we received a notice of termination from novo nordisk as , or novo , of a development and license agreement , dated january 14 , 2011. pursuant to the terms of the agreement , the termination of the agreement is effective 60 days from the date of the notice , or august 28 , 2012. under the agreement , we granted exclusive rights to novo under certain of our patents and know-how to develop , manufacture and commercialize formulations of a novo proprietary drug using our depofoam drug delivery technology . the agreement was terminated due to novo 's decision to discontinue development of the proprietary drug subject to the agreement . story_separator_special_tag ; and allocated rent and utilities , depreciation and amortization , and other related expenses . clinical trial expenses for our product candidates are a significant component of our current research and development expenses . product candidates in later stage clinical development , generally have higher research and development expenses than those in earlier stages of development , primarily due to the increased size and duration of the clinical trials . we coordinate clinical trials through a number of contracted investigational sites and recognize the associated expense based on a number of factors , including actual and estimated subject enrollment and visits , direct pass-through costs and other clinical site fees . from the acquisition date through december 31 , 2012 , we incurred research and development expenses of $ 123.6 million , of which $ 119.5 million is related to the development of exparel . we expect to incur additional research and development expenses as we accelerate the development of exparel in additional indications . in 2012 we began two pivotal nerve block studies , an intercostal block study in posterolateral thoracotomy patients and a femoral nerve block in total knee arthroplasty ( tka ) patients . we expect the studies to be completed in 2013 , and we expect to file an snda in 2014. completion of clinical trials may take several years or more and the length of time generally varies according to the type , complexity , novelty and intended use of a product candidate . we are currently unable to determine our future research and development expenses related to exparel because the requirements of any additional clinical trials of exparel for additional indications have yet to be determined . for example , the fda has required that we complete a post-approval clinical trial for exparel in pediatric patients . the cost of clinical development may vary significantly due to factors such as the scope , rate of progress , expense and outcome of our clinical trials and other development activities . 69 selling , general and administrative expenses selling , general and administrative expenses consist primarily of salaries , benefits and other related costs , including stock-based compensation , for personnel serving in our sales and marketing , executive , finance , legal , information technology , compliance and human resource functions . our selling , general and administrative expenses also include facility and related costs , professional fees for legal , patent expenses , consulting , tax and accounting services , insurance , depreciation and general corporate expenses . our selling , general and administrative costs have increased significantly since we have focused significant resources on building our commercial team for the launch and commercial sale of exparel . following approval of exparel in october 2011 , we hired and trained our quintiles sales force which is comprised of approximately 60 representatives , which we transitioned as our employees on january 28 , 2013. we also ran prospective outcome studies designed for commercial purposes , which do not have any regulatory endpoints and are included in selling , general and administrative expenses . we expect to continue to incur significant selling , general and administrative expenses as we continue to execute our marketing and sales strategies for exparel and implement a variety of marketing programs to educate customers about exparel . interest income ( expense ) interest income consists of interest earned on our cash and cash equivalents and short-term investments . interest expense primarily consists of cash and non-cash interest costs related to our debt holdings . we capitalize interest based on the construction costs for our expanded exparel suite c manufacturing line . during 2010 and 2011 , we also incurred interest expense associated with our secured and unsecured notes issued to certain of our investors that converted into common stock upon completion of our initial public offering and negotiated rent deferral payments . royalty interest obligation our royalty interest obligation is due under an amended and restated royalty interests assignment agreement , further discussed in `` liquidity and capital resources , '' which provides paul capital a right to receive an interest in end user sales relating to depocyt ( e ) and depodur . the obligations under the agreement are composed of ( i ) the difference in the revaluation of our obligations between each reporting period and ( ii ) the actual royalty interest payments payable for such reporting period . we record our royalty interest obligation as a liability in our consolidated balance sheets in accordance with asc 470-10-25 , sales of future revenues . we impute interest expense associated with this liability using the effective interest rate method . the effective interest rate may vary during the term of the agreement depending on a number of factors including the actual sales of depocyt ( e ) and depodur and a significant estimation , performed quarterly , of certain of our future cash flows related to these products during the remaining term of the amended and restated royalty interests assignment agreement which terminates on december 31 , 2014. the effect of the change in the estimates is reflected in our consolidated statements of operations as royalty interest obligation . in addition , such cash flows are subject to foreign exchange movements related to sales of depocyt ( e ) and depodur denominated in currencies other than u.s. dollars . critical accounting policies and use of estimates we have based our management 's discussion and analysis of our financial condition and results of operations on our financial statements that have been prepared in accordance with generally accepted 70 accounting principles , or gaap , in the united states . the preparation of these financial statements requires us to make estimates 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 , we evaluate our estimates and judgments , including those related to clinical trial expenses and stock-based compensation .
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results of operations comparison of years ended december 31 , 2012 , 2011 and 2010 revenues the following table provides information regarding our revenues during the periods indicated , including changes as a percentage ( dollar amounts in thousands ) : replace_table_token_4_th total revenues increased $ 23.4 million , or 149 % , in the year ended december 31 , 2012 as compared to 2011. net product sales increased $ 11.3 million , or 164 % , in the year ended december 31 , 2012 as compared to 2011. in april 2012 , we commercially launched exparel resulting in $ 14.6 million of net product sales during 2012. we report product sales net of allowances for sales returns , prompt pay discounts , volume rebates and distribution service fees payable to wholesalers . we ship products directly to the end user based on orders placed to wholesalers or directly to us and have no product held by wholesalers . the increase in exparel product sales was partially offset by a $ 3.3 million decrease in depocyt ( e ) product sales primarily driven by a selective recall of depocyt ( e ) recommended by the european medicines agency for european union member countries where depocyt ( e ) is not considered to be an `` essential medicinal product . '' the increase in collaborative licensing and development revenue of $ 13.3 million , or 262 % , in the year ended december 31 , 2012 as compared to 2011 was primarily driven by the recognition of deferred revenue in connection with the termination of certain licensing agreements , which included increases of ( i ) $ 10.7 million for ekr , ( ii ) $ 1.1 million for novo nordisk and ( iii ) $ 1.5 million for flynn pharma .
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our business units have been aggregated into three complementary segments : reservoir description : encompasses the characterization of petroleum reservoir rock , fluid and gas samples . we provide analytical and field services to characterize properties of crude oil and petroleum products to the oil and gas industry . production enhancement : includes services and products relating to reservoir well completions , perforations , stimulations and production . we provide integrated services to evaluate the effectiveness of well completions and to develop solutions aimed at increasing the effectiveness of enhanced oil recovery projects . reservoir management : combines and integrates information from reservoir description and production enhancement services to increase production and improve recovery of oil and gas from our clients ' reservoirs . general overview we provide services and design and produce products which enable our clients to evaluate reservoir performance and increase oil and gas recovery from new and existing fields . these services and products are generally in higher demand when our clients are investing capital in their field development programs that are designed to increase productivity from existing fields or when exploring for new fields . our clients ' investment in capital expenditure programs tends to correlate over the longer term to oil and natural gas commodity prices . during periods of higher , stable prices , our clients generally invest more in capital expenditures and , during periods of lower or volatile commodity prices , they tend to invest less . consequently , the level of capital expenditures by our clients impacts the demand for our services and products . average prices for west texas intermediate ( `` wti '' ) crude oil and natural gas increased during 2013 while the average brent crude oil price per barrel and the average rig count both in north america and worldwide decreased during 2013. the following table summarizes the average worldwide and u.s. rig counts for the years ended december 31 , 2013 , 2012 and 2011 , as well as the annual average spot price of a barrel of wti crude , europe brent crude and an mmbtu of natural gas : replace_table_token_2_th ( 1 ) twelve month average rig count as reported by baker hughes incorporated - worldwide rig count . ( 2 ) year-end rig count as reported by baker hughes incorporated - worldwide rig count . ( 3 ) average daily west texas intermediate crude spot price as reported by the u.s. energy information administration . ( 4 ) average daily europe brent crude spot price as reported by the u.s. energy information administration . ( 5 ) average daily henry hub natural gas spot price as reported by the u.s. energy information administration . beginning in the third quarter of 2012 , certain operators in north america reduced activity levels in response to lower commodity prices which had begun to impact their project economics . while the average u.s. rig count reported by baker hughes increased in 2012 over the average rig count in 2011 , by the end of 2013 the active rigs working were less than the 2012 average rig count . this decrease in activity led to virtually no growth in activity levels in north america . outside of the u.s. , the worldwide rig count at the end of 2013 was up versus the end of 2012 , while activity in certain parts of the world such as west africa , east africa , the middle east and the asia pacific region continued to exhibit some strength . 16 as a result of slow global economic growth from 2009 through 2013 , in conjunction with moderate commodity prices , our clients did not materially increase their activity levels . in spite of this , our revenue increased more than 9 % over 2012 , with operating income increasing over 12 % . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > in 2013 compared to 2012 , after decreasing by $ 0.4 million in 2012 compared to 2011 . the increase during 2013 is a result of growth in our client-directed capex program resulting from continued improvement in industry activity , particularly internationally and in the deepwater environment . other income , net the components of other income , net , were as follows ( in thousands ) : replace_table_token_4_th we incurred property losses during hurricane isaac in 2012. during 2013 , our insurance claim for property losses and business interruption was fully settled for a gain of $ 1.6 million . during 2012 , we incurred legal , accounting and other fees in connection with the realignment of certain of our legal entities into a more cost effective structure and the listing of our shares on the nyse euronext amsterdam . as a result of a supply disruption in 2011 from a key vendor that provided certain high performance specialty steel tubulars used with the company 's perforating systems , we filed a claim under our business interruption insurance policy which was fully settled during 2012 for $ 4.4 million . as a result of reaching a settlement on a property damage claim we filed in 2010 , we recorded an insurance recovery gain of $ 1.0 million in 2011 . 19 foreign exchange gains and losses are summarized in the following table ( in thousands ) : replace_table_token_5_th loss on early extinguishment of debt in 2006 , core laboratories lp , an entity 100 % indirectly owned by core laboratories n.v. , issued $ 300 million aggregate principal amount of senior exchangeable notes ( the `` exchangeable notes '' ) which were fully and unconditionally guaranteed by core laboratories n.v. and matured on october 31 , 2011. during 2011 , 156,301 exchangeable notes were extinguished resulting in a loss of $ 1.0 million . interest expense interest expense increased by $ 0.5 million in 2013 compared to 2012 primarily due to increased borrowings on our revolving credit facility . story_separator_special_tag we utilize the non-gaap financial measure of free cash flow to evaluate our cash flows and results of operations . free cash flow is defined as net cash provided by operating activities ( which is the most directly comparable gaap measure ) less cash paid for capital expenditures . management believes that free cash flow provides useful information to investors regarding the cash that was available in the period that was in excess of our needs to fund our capital expenditures and operating activities . free cash flow is not a measure of operating performance under gaap , and should not be considered in isolation nor construed as an alternative to operating profit , net income ( loss ) or cash flows from operating , investing or financing activities , each as determined in accordance with gaap . free cash flow does not represent residual cash available for distribution because we may have other non-discretionary expenditures that are not deducted from the measure . moreover , since free cash flow is not a measure determined in accordance with gaap and thus is susceptible to varying interpretations and calculations , free cash flow , as presented , may not be comparable to similarly titled measures presented by other companies . the following table reconciles this non-gaap financial measure to the most directly comparable measure calculated and presented in accordance with u.s. gaap for the years ended december 31 , 2013 , 2012 and 2011 ( in thousands ) : replace_table_token_7_th free cash flow has increased each year primarily due to the growth of the company , with the increases in net income leading to the increases in cash provided by operations . during these periods of growth , capital expenditures also increased each year . cash flows the following table summarizes cash flows for the years ended december 31 , 2013 , 2012 and 2011 ( in thousands ) : 22 replace_table_token_8_th the increase in cash flow from operating activities in 2013 compared to 2012 was primarily due to an increase in net income and a decrease to income tax receivables , while the increase in 2012 compared to 2011 was attributable to increased net income . cash flow used in investing activities increased $ 9.2 million in 2013 over 2012 primarily due to an increase in capital expenditures and an increase in the premiums on life insurance policies and decreased $ 18.0 million in 2012 over 2011 as a result of an acquisition in 2011. cash flow used in financing activities in 2013 increased $ 35.8 million compared to 2012 . cash flow used in financing activities in 2012 decreased $ 43.4 million compared to 2011 . during 2013 , we spent $ 227.2 million to repurchase our common shares and $ 58.6 million to pay dividends , offset by a net increase in our debt balance of $ 33.0 million . during 2012 , we spent $ 175.7 million to repurchase our common shares and $ 52.9 million to pay dividends , offset by a net increase in our debt balance of $ 11.0 million . during 2011 , we spent $ 61.8 million to repurchase our common shares , $ 46.0 million to pay dividends and $ 219.4 million to settle our warrants , offset by a net increase of $ 73.0 million in the balance of our credit facility . during the year ended december 31 , 2013 , we repurchased 1,482,198 shares of our common stock for an aggregate amount of $ 227.2 million , or an average price of $ 153.30 per share . the repurchase of shares in the open market is at the discretion of management pursuant to shareholder authorization . we regard these treasury shares as a temporary investment which may be used to fund restricted shares that vest or to finance future acquisitions . under dutch law and subject to certain dutch statutory provisions and shareholder approval , we can hold a maximum of 50 % of our issued shares in treasury . we currently have shareholder approval to hold 10 % of our issued share capital in treasury . on may 16 , 2013 at our annual shareholders meeting , our shareholders authorized the extension of our share repurchase program until november 16 , 2014 to purchase up to 10 % of our issued share capital which may be used for any legal purpose . we believe this share repurchase program has been beneficial to our shareholders . our share price has increased from $ 4.03 per share in 2002 , when we began to repurchase shares , to $ 190.95 per share on december 31 , 2013 , an increase of over 4,638 % . credit facility and available future liquidity in 2011 , we issued two series of senior notes with an aggregate principal amount of $ 150 million in a private placement transaction . series a consists of $ 75 million in aggregate principal amount of notes that bear interest at a fixed rate of 4.01 % and are due in full on september 30 , 2021 . series b consists of $ 75 million in aggregate principal amount of notes that bear interest at a fixed rate of 4.11 % and are due in full on september 30 , 2023 . interest on each series of the senior notes is payable semi-annually on march 30 and september 30. we maintain a revolving credit facility with an aggregate borrowing capacity of $ 300 million at december 31 , 2013 . the credit facility provides an option to increase the commitment under the credit facility to $ 350 million , if certain conditions are met . the credit facility bears interest at variable rates from libor plus 1.5 % to a maximum of libor plus 2.25 % . any outstanding balance under the credit facility is due on september 28 , 2016 when the credit facility matures . interest payment terms are variable depending upon the specific type of borrowing under this facility .
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results of operations results of operations as a percentage of applicable revenue are as follows ( dollars in thousands ) : replace_table_token_3_th operating results for the year ended december 31 , 2013 compared to the years ended december 31 , 2012 and 2011 we evaluate our operating results by analyzing revenue , operating income and net income margin ( defined as net income divided by total revenue ) . since we have a relatively fixed cost structure , increases in revenue generally translate into higher operating income results as well as net income margin percentages . results for the years ended december 31 , 2013 , 2012 and 2011 are summarized in the following chart : 17 income and margin analysis services revenue services revenue increased to $ 765.4 million for 2013 from $ 693.9 million for 2012 and $ 621.8 million for 2011 . the increase in services revenue from 2012 to 2013 was primarily due to our continued focus on existing fields and fields under development , as opposed to increasingly volatile and downward trends in exploration efforts . the increase in services revenue from 2011 to 2012 was primarily due to our continued focus on worldwide crude-oil related and large natural gas plays for liquefaction projects , especially those related to the development of deepwater fields offshore west and east africa , eastern south america , the eastern mediterranean , and the gulf of mexico . product sales revenue product sales revenue increased to $ 308.1 million for 2013 , from $ 287.2 million for 2012 and $ 285.9 million for 2011 .
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, performance guarantee story_separator_special_tag results of operations general we are one of the largest diversified heavy civil contractors and construction materials producers in the united states , engaged in the construction and improvement of streets , roads , highways , mass transit facilities , airport infrastructure , bridges , trenchless and underground utilities , power-related facilities , utilities , tunnels , dams and other infrastructure-related projects . we own aggregate reserves and plant facilities to produce construction materials for use in our construction business and for sale to third parties . we also operate a real estate investment business that we have been divesting over the past four years as part of our 2010 enterprise improvement plan ( “ eip ” ) . our permanent offices are located in alaska , arizona , california , colorado , florida , illinois , nevada , new york , texas , utah and washington . during 2014 , our business was organized into four reportable business segments . these business segments were : construction , large project construction , construction materials and real estate . in the fourth quarter of 2014 , we determined that the real estate segment no longer met the requirements of a reportable business segment under accounting standard codification ( “ asc ” ) 280 and have eliminated it as a segment for all periods presented . prior period amounts relating to the real estate segment have been combined with the construction materials segment . see note 20 of “ notes to the consolidated financial statements ” for additional information about our reportable business segments . in addition to business segments , we review our business by operating groups and by public and private market sectors . our operating groups are defined as follows : ( 1 ) california ; ( 2 ) northwest , which primarily includes offices in alaska , arizona , nevada , utah and washington ; ( 3 ) heavy civil , which primarily includes offices in california , florida , new york and texas ; and ( 4 ) kenny , which primarily includes offices in colorado and illinois . each of these operating groups may include financial results from our construction and large project construction segments . a project 's results are reported in the operating group that is responsible for the project , not necessarily the geographic area where the work is located . in some cases , the operations of an operating group include the results of work performed outside of that geographic region . our california and northwest operating groups include financial results from our construction materials segment . our construction contracts are obtained through competitive bidding in response to solicitations by both public agencies and private parties and on a negotiated basis as a result of solicitations from private parties . project owners use a variety of methods to make contractors aware of new projects , including posting bidding opportunities on agency websites , disclosing long-term infrastructure plans , advertising and other general solicitations . our bidding activity is affected by such factors as the nature and volume of advertising and other solicitations , contract backlog , available personnel , current utilization of equipment and other resources , our ability to obtain necessary surety bonds and competitive considerations . our contract review process includes identifying risks and opportunities during the bidding process and managing these risks through mitigation efforts such as insurance and pricing . contracts fitting certain criteria of size and complexity are reviewed by various levels of management and , in some cases , by the executive committee of our board of directors . bidding activity , contract backlog and revenue resulting from the award of new contracts may vary significantly from period to period . our typical construction project begins with the preparation and submission of a bid to a customer . if selected as the successful bidder , we generally enter into a contract with the customer that provides for payment upon completion of specified work or units of work as identified in the contract . we usually invoice our customers on a monthly basis . our contracts frequently call for retention that is a specified percentage withheld from each payment until the contract is completed and the work accepted by the customer . we defer recognition of profit on projects until there is sufficient information to determine the estimated profit on the project with a reasonable level of certainty and our profit recognition is based on estimates that may change over time . our revenue , gross margin and cash flows can differ significantly from period to period due to a variety of factors , including the projects ' stage of completion , the mix of early and late stage projects , our estimates of contract costs , outstanding contract change orders and claims and the payment terms of our contracts . the timing differences between our cash inflows and outflows require us to maintain adequate levels of working capital . 23 the four primary economic drivers of our business are ( 1 ) the overall health of the economy ; ( 2 ) federal , state and local public funding levels ; ( 3 ) population growth resulting in public and private development ; and ( 4 ) the need to replace or repair aging infrastructure . a stagnant or declining economy will generally result in reduced demand for construction and construction materials in the private sector . this reduced demand increases competition for private sector projects and will ultimately also increase competition in the public sector as companies migrate from bidding on scarce private sector work to projects in the public sector . greater competition can reduce our revenues and or have a downward impact on our gross profit margins . in addition , a stagnant or declining economy tends to produce less tax revenue for public agencies , thereby decreasing a source of funds available for spending on public infrastructure improvements . story_separator_special_tag the percentage of fixed price contracts in our contract backlog increased to 71.0 % at december 31 , 2014 from 63.5 % at december 31 , 2013 . the percentage of fixed unit price contracts in our contract backlog was 19.9 % and 26.0 % at december 31 , 2014 and 2013 , respectively . all other types of contracts represented 9.1 % and 10.5 % of our contract backlog at december 31 , 2014 and 2013 , respectively . goodwill as of december 31 , 2014 , we had four reporting units in which goodwill was recorded as follows : kenny group construction kenny group large project construction northwest group construction northwest group construction materials the most significant goodwill balances reside in the reporting units associated with the kenny group . we perform impairment tests annually and more frequently when events and circumstances occur that indicate a possible impairment of goodwill . we have historically performed goodwill impairment testing on an annual basis as of december 31. however , in 2014 we changed the annual goodwill impairment testing date to november 1 , which we believe is preferable as the new testing date better aligns with our financial planning and budgeting cycle . in addition , we evaluate goodwill for impairment if events or circumstances change between annual tests indicating a possible impairment . examples of such events or circumstances include the following : a significant adverse change in legal factors or in the business climate ; an adverse action or assessment by a regulator ; a more likely than not expectation that a segment or a significant portion thereof will be sold ; or the testing for recoverability of a significant asset group within the segment . in performing step one of the goodwill impairment tests , we calculate the estimated fair value of the reporting unit in which the goodwill is recorded using the discounted cash flows and market multiple methods . judgments inherent in these methods include the determination of appropriate discount rates , the amount and timing of expected future cash flows and growth rates , and appropriate benchmark companies . the cash flows used in our 2014 discounted cash flow model were based on five-year financial forecasts , which in turn were based on the 2015-2017 operating plan developed internally by management adjusted for market participant-based assumptions . our discount rate assumptions are based on an assessment of the equity cost of capital and appropriate capital structure for our reporting units . in assessing the reasonableness of our determined fair values of our reporting units , we evaluate the reasonableness of our results against our current market capitalization . after calculating the estimated fair value , we compare the resulting fair value to the net book value of the reporting unit , including goodwill . if the net book value of a reporting unit exceeds its fair value , we measure and record the amount of the impairment loss by comparing the implied fair value of the reporting unit 's goodwill with the carrying amount of that goodwill . the results of our annual goodwill impairment tests , performed in accordance with asc 350 , indicated that the estimated fair values of our reporting units exceeded their net book values ( i.e. , cushion ) by at least 50 % for the four reporting units with goodwill . the kenny large project construction business is susceptible to fluctuations in results depending on awarded work given the size and frequency of awards . while we believe the current cushion is adequate to absorb these fluctuations , a significant decline in job win rates could have a significant impact to this reporting unit 's estimated fair value . 25 long-lived assets we review property and equipment and amortizable intangible assets for impairment whenever events or changes in circumstances indicate the net book value of an asset may not be recoverable . recoverability of these assets is measured by comparison of their net book values to the future undiscounted cash flows the assets are expected to generate . if the assets are considered to be impaired , an impairment charge will be recognized equal to the amount by which the net book value of the asset exceeds fair value . we group plant equipment assets at a regional level , which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets . when an individual asset or group of assets are determined to no longer contribute to the vertically integrated asset group , it is assessed for impairment independently . during 2013 and in connection with our eip , we recorded $ 14.7 million in restructuring charges related to non-performing quarry sites and incurred $ 3.2 million in lease termination charges , both related to the construction materials segment . during 2014 we recorded a $ 1.3 million restructuring gain resulting from our release from the lease obligations . in addition , during 2013 as part of the eip we recorded $ 31.1 million of non-cash impairment charges , including amounts attributable to non-controlling interests of $ 3.9 million , related to all of the remaining consolidated real estate assets . separate from the eip , we recorded $ 1.3 million in non-cash impairment gains and $ 3.2 million in non-cash impairment charges during 2014 and 2013 , respectively , related to the construction materials segment . see note 11 of “ notes to the consolidated financial statements ” and “ restructuring and impairment ( gains ) charges , net ” under “ item 7. management 's discussion and analysis of financial condition and results of operations ” for additional information . insurance estimates we carry insurance policies to cover various risks , primarily general liability , automobile liability and workers compensation , under which we are liable to reimburse the insurance company for a portion of each claim paid . payment for general liability and workers compensation claim amounts generally range from the first $ 0.5 million to $ 1.0 million per occurrence .
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results of operations replace_table_token_7_th 27 revenue replace_table_token_8_th replace_table_token_9_th construction revenue for the year ended december 31 , 2014 decreased by $ 64.8 million , or 5.2 % , compared to the year ended december 31 , 2013 primarily due to lower volumes from entering the year with less backlog , as well as the timing of new awards in the northwest public and kenny private sector . the decreases were partially offset by an improved success rate on bidding activity in the california private sector and entering the year with higher backlog in the heavy civil and kenny public sectors from bid successes during 2013 . 28 replace_table_token_10_th 1 for the periods presented , large project construction revenue was earned from the public sector . large project construction revenue for the year ended december 31 , 2014 increased by $ 47.2 million , or 6.1 % , compared to the year ended december 31 , 2013 , primarily due to increases in kenny and heavy civil operating groups from entering the year with greater backlog than 2013 and the settlement of outstanding claims . decreases in the california and northwest groups were from ongoing projects nearing completion coupled with delayed starts on new work . replace_table_token_11_th construction materials revenue for the year ended december 31 , 2014 increased $ 25.9 million , or 10.9 % , when compared to the year ended december 31 , 2013 primarily due to increased volume and pricing . the increased volume and pricing was due to more aggressive sales efforts coupled with increased demand in most western states . 29 contract backlog our contract backlog consists of the remaining unearned revenue on awarded contracts , including 100 % of our consolidated joint venture contracts and our proportionate share of unconsolidated joint venture contracts . we generally include a project in our contract backlog at the time it is awarded and funding is in place .
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the guidance was effective for the company on a prospective basis beginning on january 1 , 2018. this new guidance is not expected to have a material impact on the company 's consolidated financial statements . on october 24 , 2016 , the fasb issued asu no . 2016-16 , “ income taxes ( topic 740 ) : intra-entity transfers of assets other than inventory , ” which eliminates the requirement to defer recognition of income taxes on intra-entity asset transfers until the asset story_separator_special_tag executive overview colgate-palmolive company ( together with its subsidiaries , the “ company ” or “ colgate ” ) seeks to deliver strong , consistent business results and superior shareholder returns by providing consumers globally with products that make their lives healthier and more enjoyable . to this end , the company is tightly focused on two product segments : oral , personal and home care ; and pet nutrition . within these segments , the company follows a closely defined business strategy to develop and increase market leadership positions in key product categories . these product categories are prioritized based on their capacity to maximize the use of the organization 's core competencies and strong global equities and to deliver sustainable long-term growth . operationally , the company is organized along geographic lines with management teams having responsibility for the business and financial results in each region . the company competes in more than 200 countries and territories worldwide with established businesses in all regions contributing to the company 's sales and profitability . approximately 75 % of the company 's net sales are generated from markets outside the u.s. , with approximately 50 % of the company 's net sales coming from emerging markets ( which consist of latin america , asia ( excluding japan ) , africa/eurasia and central europe ) . this geographic diversity and balance help to reduce the company 's exposure to business and other risks in any one country or part of the world . the oral , personal and home care product segment is managed geographically in five reportable operating segments : north america , latin america , europe , asia pacific and africa/eurasia , all of which sell to a variety of retail and wholesale customers and distributors . the company , through hill 's pet nutrition , also competes on a worldwide basis in the pet nutrition market , selling its products principally through authorized pet supply retailers and veterinarians . many of the company 's products are also sold online through various e-commerce platforms and retailers . on an ongoing basis , management focuses on a variety of key indicators to monitor business health and performance . these indicators include market share , net sales ( including volume , pricing and foreign exchange components ) , organic sales growth ( net sales growth excluding , as applicable , the impact of foreign exchange , acquisitions , divestments and the deconsolidation of the company 's venezuelan operations ) , a non-gaap financial measure , and gross profit margin , operating profit , net income and earnings per share , in each case , on a gaap and non-gaap basis , as well as measures used to optimize the management of working capital , capital expenditures , cash flow and return on capital . the monitoring of these indicators and the company 's code of conduct and corporate governance practices help to maintain business health and strong internal controls . for additional information regarding non-gaap financial measures , see “ non-gaap financial measures ” below . to achieve its business and financial objectives , the company focuses the organization on initiatives to drive and fund growth . the company seeks to capture significant opportunities for growth by identifying and meeting consumer needs within its core categories , through its focus on innovation and the deployment of valuable consumer and shopper insights in the development of successful new products regionally , which are then rolled out on a global basis . to enhance these efforts , the company has developed key initiatives to build strong relationships with consumers , dental and veterinary professionals and retail customers . in addition , the company has strengthened its capabilities in e-commerce , including by developing its relationships with online-only retailers and enhancing its digital marketing capabilities . growth opportunities are greater in those areas of the world in which economic development and rising consumer incomes expand the size and number of markets for the company 's products . the investments needed to support growth are developed through continuous , company-wide initiatives to lower costs and increase effective asset utilization . through these initiatives , which are referred to as the company 's funding-the-growth initiatives , the company seeks to become even more effective and efficient throughout its businesses . these initiatives are designed to reduce costs associated with direct materials , indirect expenses , distribution and logistics , and advertising and promotional materials , among other things , and encompass a wide range of projects , examples of which include raw material substitution , reduction of packaging materials , consolidating suppliers to leverage volumes and increasing manufacturing efficiency through sku reductions and formulation simplification . the company also continues to prioritize its investments toward its higher margin businesses , specifically oral care , personal care and pet nutrition . 18 ( dollars in millions except per share amounts ) significant items impacting comparability on december 22 , 2017 , the tax cuts and jobs act ( the “ tcja ” or “ u.s . tax reform ” ) was enacted , which , among other things , lowered the u.s. corporate income tax rate to 21 % from 35 % and established a modified territorial system requiring a mandatory deemed repatriation tax on undistributed earnings of foreign subsidiaries . beginning in 2018 , the tcja also requires a minimum tax on certain future earnings generated by foreign subsidiaries while providing for future tax-free repatriation of such earnings through a 100 % dividends-received deduction . story_separator_special_tag the program 's initiatives are expected to help the company ensure sustained solid worldwide growth in unit volume , organic sales , operating profit and earnings per share and to enhance its global leadership positions in its core businesses . implementation of the global growth and efficiency program remains on track . the initiatives under the global growth and efficiency program are focused on the following areas : ▪ expanding commercial hubs ▪ extending shared business services and streamlining global functions ▪ optimizing global supply chain and facilities savings , substantially all of which are expected to increase future cash flows , are projected to be in the range of $ 560 to $ 635 pretax ( $ 500 to $ 575 aftertax ) annually , once all projects are approved and implemented . cumulative pretax charges resulting from the global growth and efficiency program , once all phases are approved and implemented , are estimated to be in the range of $ 1,730 to $ 1,885 ( $ 1,280 to $ 1,380 aftertax ) . in 2017 , 2016 and 2015 , the company incurred aftertax costs of $ 246 , $ 168 and $ 183 , respectively , associated with the global growth and efficiency program . for more information regarding the global growth and efficiency program , see “ restructuring and related implementation charges ” below and note 4 , restructuring and related implementation charges to the consolidated financial statements . outlook looking forward , the company expects global macroeconomic and market conditions to remain highly challenging and category growth rates around the world to continue to be slow . while the global marketplace in which the company operates has always been highly competitive , the company continues to experience heightened competitive activity in certain markets from strong local competitors and from other large multinational companies , some of which have greater resources than the company does . such activities have included more aggressive product claims and marketing challenges , as well as increased promotional spending and geographic expansion . the company has also been negatively affected by changes in the policies or practices of its retail trade customers in key markets , such as inventory de-stocking . in addition , the growth of e-commerce has affected and continues to affect consumer preferences and market dynamics . given that approximately 75 % of the company 's net sales originate in markets outside the u.s. , the company has experienced and may continue to experience volatile foreign currency fluctuations and high raw and packaging material costs . while the company has taken , and will continue to take , measures to mitigate the effect of these conditions , should they persist , they could adversely affect the company 's future results . the company believes it is well prepared to meet the challenges ahead due to its strong financial condition , experience operating in challenging environments and continued focus on the company 's key priorities : growing sales through engaging with consumers , developing world-class innovation and working with retail partners ; driving efficiency on every line of the income statement to increase margins ; generating strong cash flow performance and utilizing that cash effectively to enhance total shareholder returns ; and leading to win by staying true to the company 's culture and focusing on its stakeholders . the company 's commitment to these priorities , together with the strength of the company 's global brands , its broad international presence in both developed and emerging markets and cost-saving initiatives , such as the company 's funding-the-growth initiatives and the global growth and efficiency program , should position the company well to increase shareholder value over the long term . 20 ( dollars in millions except per share amounts ) results of operations net sales worldwide net sales were $ 15,454 in 2017 , up 1.5 % from 2016 , driven by volume growth of 0.5 % , net selling price increases of 0.5 % and positive foreign exchange of 0.5 % . organic sales ( net sales excluding , as applicable , the impact of foreign exchange , acquisitions , divestments and the deconsolidation of the company ' s venezuelan operations ) , a non-gaap financial measure as discussed below , increased 1.0 % in 2017 . net sales in the oral , personal and home care product segment were $ 13,162 in 2017 , up 2.0 % from 2016 , driven by volume growth of 0.5 % , net selling price increases of 0.5 % and positive foreign exchange of 1.0 % . organic sales in the oral , personal and home care product segment increased 1.0 % in 2017 . the increase in organic sales in 2017 versus 2016 was driven by an increase in oral care organic sales , partially offset by a decline in personal care and home care organic sales . the increase in oral care organic sales was due to organic sales growth in the toothpaste category . the decrease in personal care organic sales was primarily due to declines in organic sales in the underarm protection , liquid hand soap and shampoo categories , which were partially offset by organic sales growth in the shower gel and bar soap categories . the decrease in the home care organic sales was primarily due to declines in organic sales in the hand dish category , partially offset by organic sales growth in the liquid cleaners and fabric conditioner categories .
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segment results the company markets its products in over 200 countries and territories throughout the world in two product segments : oral , personal and home care ; and pet nutrition . the company evaluates segment performance based on several factors , including operating profit . the company uses operating profit as a measure of the operating segment performance because it excludes the impact of corporate-driven decisions related to interest expense and income taxes . oral , personal and home care north america replace_table_token_16_th net sales in north america decreased 2.0 % in 2017 to $ 3,117 , driven by net selling price decreases of 2.0 % , while volume and foreign exchange were flat . organic sales in north america decreased 2.0 % in 2017 . the decrease in organic sales in north america in 2017 versus 2016 was primarily due to decreases in personal care and home care organic sales . the decrease in personal care was due to declines in organic sales in the underarm protection and liquid hand soap categories . the decrease in home care was primarily due to a decline in organic sales in the hand dish category . net sales in north america increased 1.0 % in 2016 to $ 3,183 , driven by volume growth of 2.5 % , which was partially offset by net selling price decreases of 1.0 % and negative foreign exchange of 0.5 % . organic sales in north america increased 1.5 % in 2016 . operating profit in north america decreased 4 % in 2017 to $ 986 , or 80 bps to 31.6 % of net sales . this decrease in operating profit as a percentage of net sales was primarily due to a decrease in gross profit ( 40 bps ) and an increase in selling , general and administrative expenses ( 60 bps ) , both as a percentage of net sales .
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the following discussion and analysis covers changes in our results of operations and financial condition from 2019 to 2020. a discussion and analysis of changes in our results of operations and financial condition from 2018 to 2019 may be found in “ item 7 – management 's discussion and analysis of financial condition and results of operations ” in our annual report on form 10-k for the year ended december 31 , 2019 , which was filed with the u.s. securities and exchange commission on march 11 , 2020. private securities litigation reform act safe harbor statement this report may contain statements relating to our future results ( including certain projections and business trends ) that are considered “ forward-looking statements ” as defined in the private securities litigation reform act of 1995 ( the “ pslra ” ) . such forward-looking statements , in addition to historical information , which involve risk and uncertainties , are based on the beliefs , assumptions and expectations of our management . words such as “ expects , ” “ believes , ” “ should , ” “ plans , ” “ anticipates , ” “ will , ” “ potential , ” “ could , ” “ intend , ” “ may , ” “ outlook , ” “ predict , ” “ project , ” “ would , ” “ estimated , ” “ assumes , ” “ likely , ” and variations of such similar expressions are intended to identify such forward-looking statements . examples of forward-looking statements include , but are not limited to , possible or assumed estimates with respect to the financial condition , expected or anticipated revenue , and results of operations and our business , including earnings growth ; revenue growth in retail banking , lending and other areas ; origination volume in the consumer , commercial and other lending businesses ; current and future capital management programs ; non-interest income levels , including fees from the title insurance subsidiary and banking services as well as product sales ; tangible capital generation ; market share ; expense levels ; and other business operations and strategies . we claim the protection of the safe harbor for forward-looking statements contained in the pslra . factors that could cause future results to vary from current management expectations include , but are not limited to , changing economic conditions ; legislative and regulatory changes , including increases in fdic insurance rates ; monetary and fiscal policies of the federal government ; changes in tax policies ; rates and regulations of federal , state and local tax authorities ; changes in interest rates ; deposit flows ; the cost of funds ; demand for loan products ; demand for financial services ; competition ; our ability to successfully integrate acquired entities ; changes in the quality and composition of our loan and investment portfolios ; changes in management 's business strategies ; changes in accounting principles , policies or guidelines ; changes in real estate values ; expanded regulatory requirements , which could adversely affect operating results ; and other factors discussed elsewhere in this report including factors set forth under item 1a. , risk factors , and in quarterly and other reports filed by us with the securities and exchange commission . the forward-looking statements are made as of the date of this report , and we assume no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements . story_separator_special_tag footprint . these grants are focused on organizations working to address meeting the basic needs of the vulnerable populations , providing emergency food , and health services . we have partnered with local governments to help coordinate emergency relief . the ppp loans we funded also benefitted hundreds of non-profit partners . a portion of the fees generated by the ppp will be set aside to increase funding for local organizations . significant events merger agreement with dime community bancshares , inc. on july 1 , 2020 , the company entered into an agreement and plan of merger ( the “ merger agreement ” ) with legacy dime . pursuant to the merger agreement , on february 1 , 2021 , legacy dime merged with and into bridge , with bridge as the surviving corporation under the name “ dime community bancshares , inc. ” at the effective time , each outstanding share of legacy dime common stock , par value $ 0.01 per share , was converted into the right to receive 0.6480 shares of the company 's common stock , par value $ 0.01 per share . at the effective time of the merger , each outstanding share of dime preferred stock was converted into the right to receive one share of a newly created series of company preferred stock having the same powers , preferences and rights as the dime preferred stock . immediately following the merger , dime community bank , a new york-chartered commercial bank and a wholly-owned subsidiary of legacy dime , merged with and into bnb bank , a new york-chartered commercial bank and a wholly-owned subsidiary of the company , with bnb bank as the surviving bank , under the name “ dime community bank. ” in connection with the merger , the company assumed $ 115.0 million in aggregate principal amount of the 4.50 % fixed-to-floating rate subordinated debentures due 2027 of legacy dime . critical accounting policies note 1 of the notes to the consolidated financial statements for the year ended december 31 , 2020 contains a summary of significant accounting policies . various elements of our accounting policies , by their nature , are inherently subject to estimation techniques , valuation assumptions and other subjective assessments . our policy with respect to the methodologies used to determine the allowance for credit losses is our most critical accounting policy . story_separator_special_tag loans that share similar credit risk characteristics in estimating the component of the allowance for credit losses for loans that share similar risk characteristics with other loans , such loans are segmented into loan types . loans are designated into loan pools with similar risk characteristics based on product type in conjunction with other homogeneous characteristics . loan types include commercial real estate mortgages , owner and non-owner occupied ; multi-family mortgage loans ; residential real estate mortgages and home equity loans ; commercial , industrial and agricultural loans , real estate construction and land loans ; and consumer loans . in determining the allowance for credit losses , we derive an estimated credit loss assumption from a model that categorizes loan pools based on loan type and further segmented by risk rating . this model is known as probability of default/loss given default , utilizing a transition matrix approach . this model calculates an expected loss percentage for each loan page -27- pool by considering the probability of default , based upon the historical transition or migration of loans from performing ( various pass ratings ) to criticized , and classified risk ratings to default by risk rating buckets using life-of-loan analysis runout periods for all loan segments , and the historical severity of loss , based on the aggregate net lifetime losses ( loss given default ) per loan pool . the default trigger , which is defined as the earlier of ninety days past-due or non-accrual status , and severity factors used to calculate the allowance for credit losses for loans in pools that share similar risk characteristics with other loans , are adjusted for differences between the historical period used to calculate historical default and loss severity rates and expected conditions over the remaining lives of the loans in the portfolio . these factors include : ( 1 ) lending policies and procedures ; ( 2 ) international , national , regional and local economic business conditions and developments that affect the collectability of the portfolio , including the condition of various markets ; ( 3 ) the nature and volume of the loan portfolio including the terms of the loans ; ( 4 ) the experience , ability , and depth of the lending management and other relevant staff ; ( 5 ) the volume and severity of past due and adversely classified or graded loans and the volume of non-accrual loans ; ( 6 ) the quality of our loan review system ; ( 7 ) the value of underlying collateral for collateralized loans ; ( 8 ) the existence and effect of any concentrations of credit , and changes in the level of such concentrations ; and ( 9 ) the effect of external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing portfolio . such factors are used to adjust the historical probabilities of default and severity of loss for current conditions that are not reflective of the model results . in addition , the economic factor includes management 's expectation of future conditions based on a reasonable and supportable forecast of the economy . to the extent the lives of the loans in the portfolio extend beyond the period for which a reasonable and supportable forecast can be made ( currently two years ) , the bank immediately reverts back to the historical rates of default and severity of loss . management believes that this transition approach to the probability of default/loss given default is a relevant calculation of expected credit losses as there is sufficient volume as well as movement in the risk ratings due to the initial grading system as well as timely updates to risk ratings when necessary . credit risk ratings are based on management 's evaluation of a credit 's cash flow , collateral , guarantor support , financial disclosures , industry trends and strength of borrowers ' management . the adequacy of the allowance is analyzed quarterly , with any adjustment to a level deemed appropriate by the credit risk management committee ( “ crmc ” ) , based on its risk assessment of the entire portfolio . each quarter , members of the crmc meet with the credit risk committee of our board of directors to review credit risk trends and the adequacy of the allowance for credit losses . based on the crmc 's review of the classified loans , delinquency and charge-off trends , current economic conditions , reasonable and supportable forecasts , and the overall allowance levels as they relate to the entire loan portfolio at december 31 , 2020 and december 31 , 2019 , we believe the allowance for credit losses has been established at levels sufficient to cover the expected losses inherent in our loan portfolio . future additions or reductions to the allowance may be necessary based on changes in economic , market or other conditions . changes in estimates could result in a material change in the allowance . in addition , various regulatory agencies , as an integral part of the examination process , periodically review the allowance for credit losses . such agencies may require us to recognize adjustments to the allowance based on their judgments of the information available to them at the time of their examination . for additional information regarding the allowance for credit losses , see note 4 of the notes to the consolidated financial statements .
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overview who we are and how we generate income dime community bancshares , inc. , a new york corporation previously known as “ bridge bancorp , inc. , ” is a bank holding company formed in 1989. on a parent-only basis , the holding company has had minimal results of operations . the holding company is dependent on dividends from its wholly-owned subsidiary , dime community bank , which was previously known as “ bnb bank , ” its own earnings , additional capital raised , and borrowings as sources of funds . the information in this report reflects principally the financial condition and results of operations of the bank . the bank 's results of operations are primarily dependent on its net interest income , which is the difference between interest income on loans and investments and interest expense on deposits and borrowings . the bank also generates non-interest income , such as fee income on deposit accounts and merchant credit and debit card processing programs , loan swap fees , investment services , income from its title insurance subsidiary , and net gains on sales of securities and loans . the level of non-interest expenses , such as salaries and benefits , occupancy and equipment costs , other general and administrative expenses , page -23- expenses from the bank 's title insurance subsidiary , and income tax expense , further affects our net income . we believe the merger created the opportunity for the resulting company to leverage complementary and diversified revenue streams and to potentially have superior future earnings and prospects compared to our current earnings and prospects on a stand-alone basis . certain reclassifications have been made to prior year amounts and the related discussion and analysis to conform to the current year presentation . these reclassifications did not have an impact on net income or total stockholders ' equity .
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4.2 assignment of warrant agreement , dated as of march 31 , 2012 , by and among anderson strudwick , inc. , investors capital alliance , llc and sensus healthcare , llc – incorporated by reference to exhibit 4.2 of the company 's amendment no . 4 to registration statement on form s-1 ( filed 2/10/16 ) ( no . 333-209451 ) . 4.3 amendment no . 1 to warrant agreement of sensus healthcare , llc , dated as of march 31 , 2016 , by and between sensus healthcare , inc. and investors capital alliance , llc – incorporated by reference to exhibit 4.5 of the company 's registration statement on form s-1 ( filed 5/19/16 ) ( no . 333-209451 ) . 4.4 amendment no . 2 to warrant agreement of sensus healthcare , llc , dated as of april 30 , 2016 , by and between sensus healthcare , inc. and investors capital alliance , llc – incorporated by reference to exhibit 4.6 of the company 's amendment no . 4 to registration statement on form s-1 ( filed 5/19/16 ) ( no . 333-209451 ) . 4.5 amendment no . 3 to warrant agreement of sensus healthcare , llc , dated as of may 27 , 2016 , by and between sensus healthcare , inc. and investors capital alliance , llc – incorporated by reference to exhibit 4.2 of the company 's quarterly report on form 10-q ( filed 8/15/16 ) ( no . 001-37714 ) . 4.6 form of warrant agreement of sensus healthcare , llc , dated as of february 1 , 2013 , by and between sensus healthcare , llc and certain investors – incorporated by reference to exhibit 4.4 of the company 's registration statement on form s-1 ( filed 2/10/16 ) ( no . 333-209451 ) . 4.7 form of representatives ' warrant to purchase units– incorporated by reference to exhibit 4.7 of the company 's amendment no . 4 to registration statement on form s-1 ( filed 5/19/16 ) ( no . 333-209451 ) . 4.8 form of indenture – incorporated by reference to exhibit 4.2 of the company 's registration statement on form s-3 ( filed 11/6/17 ) ( no . 333-221371 ) . 10.1+ sensus healthcare , llc 2013 option plan – incorporated by reference to exhibit 10.1 of the company 's registration statement on form s-1 ( filed 2/10/16 ) ( no . 333-209451 ) . 65 10.2 amended and restated loan and security agreement by and between sensus healthcare story_separator_special_tag you should read the following management 's discussion and analysis ( “ md & a ” ) in conjunction with the information set forth within the financial statements and related notes included in this annual report on form 10-k. the following information should provide a better understanding of the major factors and trends that affect our earnings performance and financial condition , and how our performance during 2017 compares with the prior year . throughout this section , sensus healthcare , inc. is referred to as “ company , ” “ we , ” “ us , ” or “ our. ” caution concerning forward-looking statements this annual report on form 10-k , including this md & a section , contains “ forward-looking statements ” within the meaning of the private securities litigation reform act of 1995. these forward-looking statements include , among others , statements about our beliefs , plans , objectives , goals , expectations , estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors , many of which are beyond our control . the words “ may , ” “ could , ” “ should , ” “ would , ” “ believe , ” “ anticipate , ” “ estimate , ” “ expect , ” “ intend , ” “ plan , ” “ target , ” “ goal , ” and similar expressions are intended to identify forward-looking statements . all forward-looking statements , by their nature , are subject to risks and uncertainties . our actual future results may differ materially from those set forth in our forward-looking statements . please see the introductory note and item 1a risk factors of this annual report for a discussion of factors that could cause our actual results to differ materially from those in the forward-looking statements . however , other factors besides those listed in item 1a risk factors or discussed in this annual report also could adversely affect our results , and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties . any forward-looking statements made by us or on our behalf speak only as of the date they are made . we do not undertake to update any forward-looking statement , except as required by applicable law . 37 components of our results of operations we manage our business globally within one reportable segment , which is consistent with how our management reviews our business , prioritizes investment and resource allocation decisions and assesses operating performance . revenue our sales primarily relate to sales of our devices . we recognize product revenue upon shipment provided that there is persuasive evidence of an arrangement , there are no uncertainties regarding customer acceptance , the sales price is fixed and determinable , and collection of the resulting receivable is reasonably assured . we do not provide a right of return related to product sales . revenues for service contracts are recognized over the service contract period on a straight-line basis . revenue for rentals of equipment is recognized over the lease term on a straight-line basis . we sell products and services under multiple-element arrangements with separate units of accounting . story_separator_special_tag the new tax law also provides for immediate deduction of 100 % of the costs of qualified property that have been incurred and the property placed in service during the period from september 27 , 2017 to december 31 , 2022. this provision will begin to phase down by 20 % per year beginning january 1 , 2023 and will be completely phased out as of january 1 , 2027. inflation inflation has not had a material impact on net sales , revenues or income from continuing operations for our two most recent years as a result of historically low levels of inflation . 39 significant trends and uncertainties impacting our business many third party payors follow coverage decisions and payment amounts determined by the cms , which administers the u.s. medicare program , in setting their coverage and reimbursement policies . effective january 1 , 2016 and 2017 , the total reimbursement for an episode of care remained similar to the reimbursement in prior years . story_separator_special_tag ■ fluctuations in gross margins , operating expenses and net results ; and ■ fluctuations in working capital . our primary short-term capital needs , which are subject to change , include expenditures related to : ● expansion of our sales and marketing activities ; and ● expansion of our research and development activities . we regularly evaluate our cash requirements for current operations , commitments , capital requirements and business development transactions , and we may elect to raise additional funds for these purposes in the future . cash flows the following table provides a summary of our cash flows for the periods indicated : replace_table_token_3_th 41 cash flows from operating activities net cash used in operating activities was $ 3,056,606 for the year ended december 31 , 2017 , consisting of a net loss of $ 3,710,514 and an increase in net operating assets of $ 568,857 , partially offset by non-cash charges of $ 1,222,765. the increase in net operating assets was primarily due to the increase in sales resulting in an increase in accounts receivable and an increase in account payable and accrued expenses . non-cash charges consisted primarily of stock compensation expense and depreciation and amortization . net cash used in operating activities was $ 851,024 for the year ended december 31 , 2016 , consisting of a net loss of $ 346,448 and an increase in net operating assets of $ 1,601,413 , offset by non-cash charges of $ 1,096,837. cash flows from investing activities net cash provided in investing activities was $ 6,173,913 due to matured investments of $ 6,461,507 and $ 287,594 for acquisition of property and equipment during the year ended december 31 , 2017. cash used in investing activities totaled $ 7,852,140 for the year ended december 31 , 2016 , which included $ 7,566,142 for the purchase of debt securities held-to-maturity and $ 285,998 for acquisition of property and equipment . cash flows from financing activities net cash provided by financing activities was $ 1,925,684 during the year ended december 31 , 2017 , of which $ 2,214,970 was from borrowing under the line of credit offset by $ 289,286 on withholding taxes paid on stock compensation . net cash provided by financing activities was $ 8,680,573 during the year ended december 31 , 2016 mostly from the net proceeds of our ipo . indebtedness on march 12 , 2013 , we entered into a two-year $ 3 million revolving credit facility . the credit facility was amended and extended effective march 12 , 2015 through may 12 , 2017. the maximum borrowing was reduced to $ 1,500,000 and was limited by our eligible borrowing base of 80 % of eligible accounts receivable . on september 21 , 2016 , a second amendment to the credit facility extended the facility through september 21 , 2017 , increased the maximum borrowing to $ 2,000,000 and expanded the eligible accounts receivables to include certain international receivables . we were not in compliance in april and may 2017 with one of our financial covenants . on june 27 , 2017 , the covenant defaults were waived and the agreement was further amended to modify the financial covenants effective june 27 , 2017. an amendment signed on september 15 , 2017 extended the maturity date of the credit line through november 19 , 2017 and on october 31 , 2017 , we again amended our revolving credit facility to extend the maturity to october 31 , 2019. the amount of credit available under the amended facility will equal the lesser of the $ 5 million commitment amount or the borrowing base plus the $ 2.5 million non-formula sub-limit . the borrowing base consists of 80 % of eligible accounts receivable , as defined in the agreement . interest , at prime plus 0.75 % ( 5.25 % at december 31 , 2017 ) and prime plus 1.50 % on non-formula borrowings ( 6.00 % at december 31 , 2017 ) , is payable monthly , and the outstanding principal and interest are due on the maturity date . the facility is secured by all of our assets and limits the amount of additional indebtedness , restricts the sale , disposition or transfer of our assets and requires the maintenance of a certain monthly adjusted quick ratio restrictive covenant , as defined in the agreement . approximately $ 2,215,000 was outstanding under the revolving credit facility at december 31 , 2017 and $ 0 at december 31 , 2016. we pay commitment fees of 0.25 % per annum on the average unused portion of the line of credit . contractual obligations and commitments our only long-term contractual commitment is the lease of our office space in boca raton , florida . in july 2016 , we renewed our lease and expanded our office space from 4,551 to 8,028 square feet . the lease expires in september 2022 and lease payments increase by 3 % annually .
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results of operations replace_table_token_2_th year ended december 31 , 2017 compared to the year ended december 31 , 2016 total revenue . total revenue was $ 20,587,827 for the year ended december 31 , 2017 compared to $ 14,811,175 for the year ended december 31 , 2016 , an increase of $ 5,776,652 , or 39.0 % . the growth in revenue was attributable to an increase in the volume of systems sold as well as a higher percentage of sales of the higher priced srt-100 vision product in the current year . total cost of sales . cost of sales was $ 6,787,836 for the year ended december 31 , 2017 compared to $ 4,965,372 for the year ended december 31 , 2016 , an increase of $ 1,822,464 , or 36.7 % . the increase in cost was due to a greater number of systems sold during the year ended december 31 , 2017 compared to the corresponding period in 2016. gross profit . gross profit was $ 13,799,991 for the year ended december 31 , 2017 compared to $ 9,845,803 for the year ended december 31 , 2016 , an increase of $ 3,954,188 or 40.2 % , for the reasons discussed above . our overall gross profit margin was 67.0 % in the year ended december 31 , 2017 compared to 66.5 % in the corresponding period in 2016 , mainly due to increased sales of the higher margin srt-100 vision product . selling and marketing . selling and marketing expense was $ 8,305,315 for the year ended december 31 , 2017 compared to $ 4,915,440 for the year ended december 31 , 2016 , an increase of $ 3,389,875 or 69.0 % . the increase was primarily attributable to an increase in sales personnel as well as increased participation in tradeshows and other marketing expenses . general and administrative .
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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 . see cautionary statement regarding forward-looking statements . business overview emcore corporation ( referred to herein , together with its subsidiaries , as the “ company , ” “ we , ” “ our , ” or “ emcore ” ) , was established in 1984 as a new jersey corporation . the company became publicly traded in 1997 and is listed on the nasdaq stock exchange under the ticker symbol emkr . emcore pioneered the linear fiber optic transmission technology that enabled the world 's first delivery of cable tv directly on fiber , and today is a leading provider of advanced mixed-signal optics products that enable communications systems and service providers to meet growing demand for increased bandwidth and connectivity . the mixed-signal optics technology at the heart of our broadband communications products is shared with our fiber optic gyros and inertial sensors to provide the aerospace and defense markets with state-of-the-art navigations systems technology . with both analog and digital circuits on multiple chips , or even a single chip , the value of mixed-signal device solutions is often far greater than traditional digital applications and requires a specialized expertise held by emcore which is unique in the optics industry . critical accounting policies the preparation of consolidated financial statements in conformity with u.s. gaap requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities , as of the date of the financial statements , and the reported amounts of revenue and expenses during the reported period . the accounting estimates that require our most significant , difficult , and or subjective judgments include : the valuation of inventory ; the allowance for doubtful accounts ; and , the valuation allowance for deferred tax assets . we develop estimates based on historical experience and on various assumptions about the future that are believed to be reasonable based on the best information available to us . our reported financial position or results of operations may be materially different under changed conditions or when using different estimates and assumptions , particularly with respect to significant accounting policies . in the event that estimates or assumptions prove to differ from actual results , adjustments are made in subsequent periods to reflect more current information . a listing and description of our critical accounting policies includes the following : accounts receivable we regularly evaluate the collectability of our accounts receivable and maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to meet their financial obligations to us . the allowance is based on the age of receivables and a specific identification of receivables considered at risk of collection . we classify charges associated with the allowance for doubtful accounts as sales , general , and administrative expense . if the financial condition of our customers were to deteriorate , impacting their ability to pay us , additional allowances may be required . see note 7 - accounts receivable in the notes to the consolidated financial statements for additional information related to our receivables . 45 inventory inventory is stated at the lower of cost or net realizable value ( first-in , first-out ) . inventory that is expected to be used within the next 12 months is classified as current inventory . we write-down inventory once it has been determined that conditions exist that may not allow the inventory to be sold for its intended purpose or the inventory is determined to be excess or obsolete based on assumptions about future demand and market conditions . the charge related to inventory write-downs is recorded as a cost of revenue . we evaluate inventory levels at least quarterly against sales forecasts on a significant part-by-part basis , in addition to determining its overall inventory risk . we have incurred , and may in the future incur , charges to write-down our inventory . see note 8 - inventory in the notes to the consolidated financial statements for additional information related to our inventory . income taxes in accordance with the authoritative guidance on accounting for income taxes , we recognize income taxes using an asset and liability approach . this approach requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns . the measurement of current and deferred taxes is based on provisions of the enacted tax law and the effects of future changes in tax laws or rates are not anticipated . the authoritative guidance provides for recognition of deferred tax assets if the realization of such deferred tax assets is more likely than not to occur based on an evaluation of all available evidence , both positive and negative , and the relative weight of the evidence . with the exception of the gains resulting from the completed sale of the photovoltaics business in december 2014 , we have determined that at this time it is more likely than not that deferred tax assets attributable to all other items will not be realized , primarily due to uncertainties related to our ability to utilize our net operating loss carryforwards before they expire . accordingly , we have established a valuation allowance for such deferred tax assets which we do not expect to realize . if there is a change in our ability to realize our deferred tax assets for which a valuation allowance has been established , then our tax valuation allowance may decrease in the period in which we determine that realization is more likely than not . story_separator_special_tag see note 12 - income and other taxes in the notes to the consolidated financial statements for additional disclosures . for the fiscal year ended september 30 , 2017 , the company recorded income tax expense from continuing operations of approximately $ 0.2 million and $ 0 of income tax expense within income from discontinued operations . comparison of financial results for the fiscal years ended september 30 , 2017 and 2016 replace_table_token_6_th revenue for the fiscal year ended september 30 , 2017 , revenue increased 33.6 % compared to the prior year driven by significantly higher sales of our catv products primarily to u.s. customers . 51 gross profit our cost of revenue consists of raw materials , compensation expense including non-cash stock-based compensation expense , depreciation expense and other manufacturing overhead costs , expenses associated with excess and obsolete inventories , and product warranty costs . historically , our cost of revenue as a percentage of revenue , which we refer to as our gross margin , has fluctuated significantly due to product mix , manufacturing yields and sales volumes , and inventory and specific product warranty charges . consolidated gross margins were 34.6 % and 33.6 % for fiscal years ended september 30 , 2017 and 2016 , respectively . stock-based compensation expense within cost of revenue totaled approximately $ 0.5 million and $ 0.3 million during the fiscal years ended september 30 , 2017 and 2016 , respectively . for the fiscal year ended september 30 , 2017 , gross margins increased by 37.4 % when compared to the prior year . the increase in gross profit and margins for the fiscal year ended september 30 , 2017 was primarily due to product mix and higher sales volume . selling , general and administrative ( “ sg & a ” ) sg & a consists primarily of compensation expense including non-cash stock-based compensation expense related to executive , finance , and human resources personnel , as well as sales and marketing expenses , professional fees , legal and patent-related costs , and other corporate-related expenses . stock-based compensation expense within sg & a totaled approximately $ 2.6 million and $ 1.4 million during the fiscal years ended september 30 , 2017 and 2016 , respectively . the increase in stock-based compensation within sg & a during the fiscal year ended september 30 , 2017 when compared to the prior year is primarily due to expense associated with performance stock units granted during the fiscal year ended september 30 , 2017. sg & a expense for the fiscal year ended september 30 , 2017 was higher than the amount reported in the prior year primarily due to higher compensation costs , severance , including $ 1.0 million related to a workforce reduction we initiated in connection with the transition of our manufacturing operations in china to a new manufacturing facility in china during the fiscal year ended september 30 , 2017 , and stock-based compensation partially offset by lower legal and professional expenses . as a percentage of revenue , sg & a expenses were 18.1 % and 22.5 % for the fiscal years ended september 30 , 2017 and 2016 , respectively . the decrease in sg & a expense as a percentage of revenue in the fiscal year ended september 30 , 2017 compared to the prior year is due to the increase in revenues in the fiscal year ended september 30 , 2017. research and development ( “ r & d ” ) r & d consists primarily of compensation expense including non-cash stock-based compensation expense , as well as engineering and prototype costs , depreciation expense , and other overhead expenses , as they related to the design , development , and testing of our products . our r & d costs are expensed as incurred . we believe that in order to remain competitive , we must invest significant financial resources in developing new product features and enhancements and in maintaining customer satisfaction worldwide . stock-based compensation expense within r & d totaled approximately $ 0.5 million and $ 0.4 million during the fiscal years ended september 30 , 2017 and 2016 , respectively . r & d expense for the fiscal year ended september 30 , 2017 was higher than the amounts reported in the prior year primarily due to higher compensation costs and increased project spending primarily related to navigation products and linear externally modulated lasers . as a percentage of revenue , r & d expenses were 10.2 % and 10.8 % for the fiscal years ended september 30 , 2017 and 2016 , respectively . the decrease in r & d expense as a percentage of revenue in the fiscal year ended september 30 , 2017 compared to the prior year is due to the increase in revenues in the fiscal year ended september 30 , 2017 . 52 impairments in march 2017 , in connection with the transition of our manufacturing operations in china to a new manufacturing facility in china , we identified equipment with a net book value of approximately $ 0.6 million that would no longer be utilized after the planned move later in fiscal year 2017. after taking into consideration the costs of disposal and estimated net funds from the sale of the equipment of approximately $ 0.1 million , we recorded a charge to impairments of approximately $ 0.5 million in the fiscal year ended september 30 , 2017. see note 9 - property , plant and equipment , net in the notes to the consolidated financial statements for additional information . recovery of previously incurred litigation related fees and expenses from arbitration award recovery of previously incurred litigation related fees and expenses from arbitration award consists of the fees and costs recovered by the company from sumitomo electric industries ltd. ( “ sei ” ) as a result of a decision by the international court of arbitration tribunal in april 2016 related to an arbitration proceeding previously commenced by sei .
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results of operations the following table sets forth our consolidated statements of operations data expressed as a percentage of revenue : replace_table_token_4_th 47 comparison of financial results for the fiscal years ended september 30 , 2018 and 2017 replace_table_token_5_th revenue for the fiscal year ended september 30 , 2018 , revenue decreased 30.3 % compared to the prior year driven by lower sales volume of our catv components and rfog products primarily to u.s. customers partially offset by increases in revenue from our chip devices and navigation systems product lines . the decrease in catv components is primarily the result of a significant customer experiencing a large inventory accumulation due to the consolidation of contract manufacturers ' inventory in the u.s .. gross profit our cost of revenue consists of raw materials , compensation expense including non-cash stock-based compensation expense , depreciation expense and other manufacturing overhead costs , expenses associated with excess and obsolete inventories , and product warranty costs . historically , our cost of revenue as a percentage of revenue , which we refer to as our gross margin , has fluctuated significantly due to product mix , manufacturing yields and sales volumes , and inventory and specific product warranty charges . consolidated gross margins were 21.6 % and 34.6 % for the fiscal years ended september 30 , 2018 and 2017 , respectively . stock-based compensation expense within cost of revenue totaled approximately $ 0.5 million during each of the fiscal years ended september 30 , 2018 and 2017 . 48 for the fiscal year ended september 30 , 2018 , gross profit decreased by 56.5 % when compared to the prior year . the decrease in gross profit for the fiscal year ended september 30 , 2018 was primarily due to lower sales and production volumes , resulting in lower operating leverage due to higher fixed manufacturing labor and expenses , and higher wafer fabrication expenses .
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the cpg continues to diversify its revenue streams with a broader government focus and new commercial channels , including the addition of national retailers , international accounts , and a direct-to-consumer business line , in response to recent and ongoing reductions in military spending . the cpg is also actively growing its custom manufacturing business to provide a wide range of metal and plastic fabrication services to a variety of consumer and industrial companies . new product development is focused on the commercialization of products with applications that span government and civilian requirements to maximize demand or that open up new lines of business entirely . the atg and cpg continue to respond to u.s. government procurement requests for quotes . new product development activities are ongoing along with the acquisition and development of new product lines . see also note 11 , business segments , of the accompanying consolidated financial statements for information concerning business segment operating results . - 10 - story_separator_special_tag rate in both years reflects federal and state income taxes , permanent non-deductible expenditures , the deduction for domestic production activities and the federal tax credit for research and development expenditures . the effective tax rate was higher in 2017 primarily due to the revaluation of the net deferred tax asset balances as a result of a reduction in the federal tax rate from tax law changes enacted in 2017 partially offset by permanent differences and research tax credits . see also note 6 , income taxes , of the accompanying consolidated financial statements for information concerning income taxes . - 12 - the company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities , as well as net operating loss and tax credit carryforwards . net income income from operations decreased approximately $ 436,000 or 24.9 % when comparing the twelve month period ended december 31 , 2017 to the same period in 2016. this decrease is the result of a pretax increased costs for s g & a expenses discussed earlier , partially offset by increases in revenues and operating profits . liquidity and capital resources the company 's primary liquidity and capital expenditure requirements relate to working capital needs ; primarily inventory , accounts receivable , accounts payable , capital expenditures for property , plant and equipment and principal payments on debt . at december 31 , 2017 , the company had working capital of approximately $ 20,307,000 ( $ 19,817,000 – 2016 ) of which approximately $ 4,707,000 ( $ 3,515,000 – 2016 ) was comprised of cash and cash equivalents . the company generated approximately $ 3,652,000 in cash from operations during the twelve months ended december 31 , 2017 as compared to $ 2,441,000 during the twelve months ended december 31 , 2016. cash was generated primarily through net income of approximately $ 1,317,000 , adjustments to reconcile net income to net cash of approximately $ 1,361,000 and timing of accrued expenses and employee compensation and benefit costs . the primary use of cash for the company 's operating activities for the twelve months ended december 31 , 2017 include working capital requirements , mainly an increase in accounts receivables of approximately $ 1,062,000 and on time payments to our suppliers of approximately $ 703,000. cash generated and used in operations is consistent with sales volume , customer expectations and competitive pressures . the company 's primary use of cash in its financing and investing activities in the twelve months ended december 31 , 2017 included approximately $ 548,000 of current principal payments on long-term debt , approximately $ 376,000 for cash dividends as well as approximately $ 195,000 for the purchase of treasury shares . the company also expended approximately $ 1,508,000 , net of proceeds from equipment financing , for capital expenditures . on december 1 , 2014 , the company , entered into a loan agreement that provides for a $ 2,620,000 seven-year term loan ( the “ term loan ” ) and $ 2,000,000 line of credit ( the “ line of credit ” ) . the line of credit has been renewed until june 20 , 2018 and the company is considering its options with respect to any future renewals . as of december 31 , 2017 , there were no draws on the line . the proceeds from the term loan were used to pay off the industrial development revenue bonds that were issued by a government agency in 1994 to finance the construction of the company 's headquarters/advanced technology facility and which matured on december 1 , 2014. in addition , the company 's wholly-owned subsidiary , the ontario knife company ( okc ) entered into a separate loan agreement with the bank on december 1 , 2014. the okc loan agreement provides for a $ 2,000,000 seven-year term loan ( the “ okc term loan ” ) . the proceeds from the okc term loan were used to purchase equipment and expand/renovate the okc facility in franklinville , new york . - 13 - borrowings under these credit facilities bear interest , at the company 's option , at the bank 's prime rate or libor plus 1.4 % . principal installments are payable on the term loan and the okc term loan through december 1 , 2021 with a balloon payment of $ 786,000 at maturity of the term loan . the term loan and line of credit are secured by all of the company 's equipment , receivables and inventory . the okc term loan is secured by substantially all of okc 's equipment and is fully and unconditionally guaranteed by the company . the company established a lease line of credit for equipment financing in the amount of $ 1,000,000 available until june 28 , 2018. this line is non-revolving and non-renewable . the lease term for equipment covered by the story_separator_special_tag the cpg continues to diversify its revenue streams with a broader government focus and new commercial channels , including the addition of national retailers , international accounts , and a direct-to-consumer business line , in response to recent and ongoing reductions in military spending . the cpg is also actively growing its custom manufacturing business to provide a wide range of metal and plastic fabrication services to a variety of consumer and industrial companies . new product development is focused on the commercialization of products with applications that span government and civilian requirements to maximize demand or that open up new lines of business entirely . the atg and cpg continue to respond to u.s. government procurement requests for quotes . new product development activities are ongoing along with the acquisition and development of new product lines . see also note 11 , business segments , of the accompanying consolidated financial statements for information concerning business segment operating results . - 10 - story_separator_special_tag rate in both years reflects federal and state income taxes , permanent non-deductible expenditures , the deduction for domestic production activities and the federal tax credit for research and development expenditures . the effective tax rate was higher in 2017 primarily due to the revaluation of the net deferred tax asset balances as a result of a reduction in the federal tax rate from tax law changes enacted in 2017 partially offset by permanent differences and research tax credits . see also note 6 , income taxes , of the accompanying consolidated financial statements for information concerning income taxes . - 12 - the company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities , as well as net operating loss and tax credit carryforwards . net income income from operations decreased approximately $ 436,000 or 24.9 % when comparing the twelve month period ended december 31 , 2017 to the same period in 2016. this decrease is the result of a pretax increased costs for s g & a expenses discussed earlier , partially offset by increases in revenues and operating profits . liquidity and capital resources the company 's primary liquidity and capital expenditure requirements relate to working capital needs ; primarily inventory , accounts receivable , accounts payable , capital expenditures for property , plant and equipment and principal payments on debt . at december 31 , 2017 , the company had working capital of approximately $ 20,307,000 ( $ 19,817,000 – 2016 ) of which approximately $ 4,707,000 ( $ 3,515,000 – 2016 ) was comprised of cash and cash equivalents . the company generated approximately $ 3,652,000 in cash from operations during the twelve months ended december 31 , 2017 as compared to $ 2,441,000 during the twelve months ended december 31 , 2016. cash was generated primarily through net income of approximately $ 1,317,000 , adjustments to reconcile net income to net cash of approximately $ 1,361,000 and timing of accrued expenses and employee compensation and benefit costs . the primary use of cash for the company 's operating activities for the twelve months ended december 31 , 2017 include working capital requirements , mainly an increase in accounts receivables of approximately $ 1,062,000 and on time payments to our suppliers of approximately $ 703,000. cash generated and used in operations is consistent with sales volume , customer expectations and competitive pressures . the company 's primary use of cash in its financing and investing activities in the twelve months ended december 31 , 2017 included approximately $ 548,000 of current principal payments on long-term debt , approximately $ 376,000 for cash dividends as well as approximately $ 195,000 for the purchase of treasury shares . the company also expended approximately $ 1,508,000 , net of proceeds from equipment financing , for capital expenditures . on december 1 , 2014 , the company , entered into a loan agreement that provides for a $ 2,620,000 seven-year term loan ( the “ term loan ” ) and $ 2,000,000 line of credit ( the “ line of credit ” ) . the line of credit has been renewed until june 20 , 2018 and the company is considering its options with respect to any future renewals . as of december 31 , 2017 , there were no draws on the line . the proceeds from the term loan were used to pay off the industrial development revenue bonds that were issued by a government agency in 1994 to finance the construction of the company 's headquarters/advanced technology facility and which matured on december 1 , 2014. in addition , the company 's wholly-owned subsidiary , the ontario knife company ( okc ) entered into a separate loan agreement with the bank on december 1 , 2014. the okc loan agreement provides for a $ 2,000,000 seven-year term loan ( the “ okc term loan ” ) . the proceeds from the okc term loan were used to purchase equipment and expand/renovate the okc facility in franklinville , new york . - 13 - borrowings under these credit facilities bear interest , at the company 's option , at the bank 's prime rate or libor plus 1.4 % . principal installments are payable on the term loan and the okc term loan through december 1 , 2021 with a balloon payment of $ 786,000 at maturity of the term loan . the term loan and line of credit are secured by all of the company 's equipment , receivables and inventory . the okc term loan is secured by substantially all of okc 's equipment and is fully and unconditionally guaranteed by the company . the company established a lease line of credit for equipment financing in the amount of $ 1,000,000 available until june 28 , 2018. this line is non-revolving and non-renewable . the lease term for equipment covered by the
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results of operations the following table compares the company 's consolidated statements of income data for the years ended december 31 , 2017 and 2016 ( $ 000 's omitted ) . replace_table_token_3_th revenue the company 's consolidated revenues from operations increased approximately $ 2,857,000 or 7.4 % for the twelve month period ended december 31 , 2017 when compared to the same period in 2016. the increase in revenue is attributable to an increase in commercial and government shipments at both the atg and cpg . commercial shipments increased approximately $ 1,627,000 or 4.6 % and government shipments increased approximately $ 1,230,000 or 37 % for the twelve month period ended december 31 , 2017. revenues from commercial shipments increased $ 717,000 or 2.6 % at the atg and increased $ 910,000 or 12.4 % at the cpg . revenues from shipments to the government and its prime vendors at the atg increased approximately $ 638,000 or 20.5 % and at the cpg increased approximately $ 592,000 or more than triple the twelve month period ended december 31 , 2017 when compared to the same period in 2016. cost of goods sold cost of goods sold increased approximately $ 2,046,000 or 7.2 % for the twelve month period ended december 31 , 2017 when compared to the same period in 2016. the increase in costs attributable to increased sales volume is approximately $ 574,000. cost of goods sold , as a percentage of revenue , decreased from 74.0 % to 73.9 % . the improvement is attributed to the cpg decrease of cost of goods sold as a percentage of revenue , from 88.3 % to 83.2 % . this is due to the realization of certain expected operational efficiencies attributable to increased production volumes . the improvement is slightly offset by the atg increase of cost of goods sold as a percentage of revenue , from 70.6 % to 71.2 % .
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refer to “ note 7 : income taxes ” for further information . pension and other postretirement benefit plans the company sponsors several defined benefit and defined contribution plans . the company 's contributions to defined contribution plans are charged to income during the period of the story_separator_special_tag overview we are a leading global chemical and ingredients distributor and provider of specialty services . we purchase chemicals from thousands of chemical producers worldwide and warehouse , repackage , blend , dilute , transport and sell those chemicals to more than 100,000 customer locations across approximately 140 countries . our specialized services include digital promotion or e-marketing of chemicals for our producers , chemical waste removal and ancillary services , on-site storage of chemicals for our customers , and support services for the agricultural end market . we derive competitive advantage from our scale , broad product offering , technical expertise , specialized services , long-standing relationships with leading chemical producers and our industry leading safety record . our operations are structured into four operating segments that represent the geographic areas under which we operate and manage our business . these segments are univar usa ( “ usa ” ) , univar canada ( “ canada ” ) , univar europe and the middle east and africa ( “ emea ” ) , and rest of world ( “ rest of world ” ) , which includes developing businesses in latin america ( including brazil and mexico ) and the asia-pacific region . we monitor the results of our operating segments separately for the purposes of making decisions about resource allocation and performance assessment . we evaluate performance on the basis of adjusted ebitda , which we define as our consolidated net income ( loss ) , plus the sum of interest expense , net of interest income , income tax expense ( benefit ) , depreciation , amortization , loss on extinguishment of debt , other operating expenses , net ( which primarily consists of pension mark to market adjustments , acquisition and integration related expenses , employee stock-based compensation expense , restructuring charges , business optimization , and other unusual or non-recurring expenses ) , impairment charges , and other expense , net ( which consists of gains 42 and losses on foreign currency transactions and undesignated derivative instruments , ineffective portion of cash flow hedges , debt refinancing costs , and other non-operating activity ) . we believe that adjusted ebitda is an important indicator of operating performance because : we report adjusted ebitda to our lenders as required under the covenants of our credit agreements ; we consider gains ( losses ) on the acquisition , disposal and impairment of assets as resulting from investing decisions rather than ongoing operations ; adjusted ebitda excludes the effects of income taxes , as well as the effects of financing and investing activities by eliminating the effects of interest , depreciation and amortization expenses and therefore more closely measures our operational performance ; we use adjusted ebitda in setting performance incentive targets in order to align performance measurement with operational performance ; and other significant items , while periodically affecting our results , may vary significantly from period to period and have a disproportionate effect in a given period , which affects comparability of our results . we set transfer prices between operating segments on an arms-length basis in a similar manner to transactions with third parties . we allocate corporate operating expenses that directly benefit our operating segments on a basis that reasonably approximates our estimates of the use of these services . other/eliminations represents the elimination of inter-segment transactions as well as unallocated corporate costs consisting of costs specifically related to parent company operations that do not directly benefit segments , either individually or collectively . in the analysis of our results of operations , we discuss operating segment results for the current reporting period following our consolidated results of operations period-to-period comparison . the following is management 's discussion and analysis of the financial condition and results of operations for the years ended december 31 , 2017 , 2016 and 2015 . this discussion should be read in conjunction with the consolidated financial statements , including the related notes , see item 8 “ financial statements ” of this annual report on form 10-k. for reconciliations of adjusted ebitda to net income ( loss ) , see “ selected financial data selected ” in item 6 of this annual report on form 10-k. key factors affecting operating results and financial condition key factors impacting our operating results and financial condition include the following : economic conditions , industry trends and relationships with customers and suppliers chemical availability and prices , including volume-based pricing acquisitions , dispositions and strategic investments operating efficiencies working capital requirements , interest rates and credit risk foreign currencies for a description of our business and how the above factors impact us , refer to item 1 “ business ” and item 1a “ risk factors ” of this annual report on form 10-k. in addition to the factors listed above , seasonal changes may affect our business and results of operations . our net sales are affected by the level of industrial production , which tends to decline in the fourth quarter of each year . certain of our end markets experience seasonal fluctuations , which also affect our net sales and results of operations . for example , our sales to the agricultural end market , particularly in canada , tend to peak in the second quarter in each year , depending in part on weather-related variations in demand for agricultural chemicals . sales to other end markets such as paints and coatings may also be affected by changing seasonal weather conditions . results of operations executive summary during 2017 , we strengthened our financial condition through the refinancing of debt and generation of strong operating cash flow which reduced our leverage . story_separator_special_tag foreign currency translation increased warehousing , selling and administrative expenses by 0.6 % or $ 5.6 million . on a constant currency basis , the $ 26.4 million increase is primarily due to higher personnel costs of $ 34.2 million primarily driven by higher variable compensation expense , the absence of $ 4.5 million in prior service credits recognized in 2016 related to the us retiree health care plan and higher environmental remediation expense of $ 4.6 million , partially offset by $ 3.8 million in lower lease expense , $ 2.4 million in lower bad debt charges , $ 1.0 million in lower legal expenses and $ 0.6 million in lower insurance expense . the remaining $ 4.6 million decrease related to several insignificant components . refer to the “ segment results ” for the year ended december 31 , 2017 discussion for additional information . other operating expenses , net other operating expenses , net decreased $ 55.0 million , or 52.6 % , to $ 49.5 million for the year ended december 31 , 2017 . the decrease was primarily related to the $ 64.8 million decrease in pension mark to market loss and the $ 8.4 million increase in pension curtailment and settlement gains driven by a $ 9.7 million settlement gain in the year ended december 31 , 2017 related to a lump sum offering in a us defined benefit plan . the decrease was also driven by a higher gain on sale of property , plant and equipment of $ 10.6 million driven by the sale and subsequent leaseback of an operating facility in the canada segment , $ 2.4 million in lower acquisition and integration related expenses and $ 1.0 million in lower restructuring charges . the decrease in other operating expenses , net was partially offset by the increase of $ 18.0 million of costs incurred to support the transformation of the us business , $ 9.3 million of higher stock-based compensation , and $ 6.6 million of higher other employee termination costs . the remaining $ 1.7 million decrease related to several insignificant components . foreign currency translation increased other operating expenses , net by $ 0.1 million , or 0.1 % . refer to “ note 4 : other operating expenses , net ” in item 8 of this annual report on form 10-k for additional information . depreciation and amortization depreciation expense decreased $ 17.3 million , or 11.4 % , to $ 135.0 million for the year ended december 31 , 2017 . foreign currency translation increased depreciation expense by $ 0.6 million , or 0.4 % . on a constant currency basis , the decrease of $ 17.9 million , or 11.8 % , was primarily due to assets reaching the end of their useful lives and due to the second quarter 2016 reassessment of useful lives of certain internally developed software which were fully depreciated by may 2017 . 46 amortization expense decreased $ 20.2 million , or 23.6 % , to $ 65.4 million for the year ended december 31 , 2017 . amortization expense increased $ 0.3 million , or 0.3 % , due to foreign currency translation . on a constant currency basis , the decrease of $ 20.5 million , or 23.9 % , was primarily driven by the third quarter 2016 impairment charge which reduced the intangible asset base along with lower expense related to intangibles reaching the end of their useful life . impairment charges there were no impairment charges in the year ended december 31 , 2017 . impairment charges of $ 133.9 million were recorded in the year ended december 31 , 2016 of which $ 133.6 million was due to the impairment of certain intangible assets and fixed assets related to the upstream oil and gas customers in the usa segment . the company also recorded a non-cash , long-lived asset impairment charge of $ 0.3 million related to assets held-for-sale . refer to “ note 13 : impairment charges ” in item 8 of this annual report on form 10-k for additional information . interest expense interest expense decreased $ 11.8 million , or 7.2 % , to $ 152.0 million for the year ended december 31 , 2017 primarily due to lower average outstanding borrowings , as well as lower interest rates related to the january 2017 and november 2017 amendments of the senior term b loan agreement . foreign currency translation decreased interest expense by 0.1 % or $ 0.2 million . refer to “ note 15 : debt ” in item 8 of our annual report on form 10-k for additional information . loss on extinguishment of debt loss on extinguishment of debt increased $ 3.8 million for the year ended december 31 , 2017 . the $ 3.8 million loss on extinguishment of debt in the year ended december 31 , 2017 related to the write off of unamortized debt discount and debt issuance costs related to the january 2017 and november 2017 debt amendments of the senior term b loan agreement . refer to “ note 15 : debt ” in item 8 of our annual report on form 10-k for additional information . other expense , net other expense , net increased $ 27.1 million , or 444.3 % , to $ 33.2 million for the year ended december 31 , 2017 . the increase was primarily due to the $ 12.3 million change in mark to market for interest rate swaps resulting from a gain of $ 10.1 million during the year ended december 31 , 2016 compared to a $ 2.2 million loss in the year ended december 31 , 2017 . the increase was also driven by $ 5.3 million in fees related to the january 2017 and november 2017 amendments of the senior term b loan agreement . also contributing to the increase were $ 4.2 million in higher foreign currency denominated loan revaluation losses and $ 4.0 million in higher foreign currency transactions . the remaining $ 1.3 million increase is related to several insignificant components .
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segment results our adjusted ebitda by operating segment and in aggregate is summarized in the following tables : replace_table_token_5_th 48 replace_table_token_6_th ( 1 ) other/eliminations represents the elimination of intersegment transactions as well as unallocated corporate costs consisting of costs specifically related to parent company operations that do not directly benefit segments , either individually or collectively . usa . replace_table_token_7_th external sales in the usa segment were $ 4,657.1 million , a decrease of $ 49.6 million , or 1.1 % , in the year ended december 31 , 2017 due to lower sales volumes , partially offset by higher average selling prices resulting from the company 's efforts to improve its sales force effectiveness , favorable changes in product mix and increases in certain chemical prices . the increase in external net sales from acquisitions was due to the march 2016 bodine acquisition . gross profit increased $ 30.8 million , or 3.0 % , to $ 1,072.2 million in the year ended december 31 , 2017 . gross profit increased from sales pricing , product costs and other adjustments primarily due to higher average selling prices and changes in product mix to higher margin products . the increase in gross profit from acquisitions was due to the march 2016 bodine acquisition . gross margin increased from 22.1 % in the year ended december 31 , 2016 to 23.0 % during the year ended december 31 , 2017 primarily due to the factors impacting gross profit discussed above . outbound freight and handling expenses increased $ 1.3 million , or 0.7 % , to $ 192.8 million in the year ended december 31 , 2017 primarily due to higher delivery costs resulting from market capacity constraints and increasing fuel prices .
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for our fixed maturity afs securities , we generally consider the following to determine whether our unrealized losses are otti : · the estimated range and average period until recovery ; · the estimated range and average holding period to maturity ; · remaining payment terms of the security ; · current delinquencies and nonperforming assets of underlying collateral ; · expected future default rates ; · collateral value by vintage , geographic region , industry concentration or property type ; · subordination levels or other credit enhancements as of the balance sheet date as compared to origination ; and · contractual and regulatory cash obligations . for a debt security , if we intend to sell a security or it is more likely than not we will be required to sell a debt security before recovery of its amortized cost basis and the fair value of the debt security is below amortized cost , we conclude that an otti has occurred and the amortized cost is written down to current fair value , with a corresponding charge to realized gain ( loss ) on our consolidated statements of income ( loss ) . story_separator_special_tag the following management 's discussion and analysis ( “ md & a ” ) is intended to help the reader understand the financial condition as of december 31 , 2011 , compared with december 31 , 2010 , and the results of operations in 2011 and 2010 , compared with the immediately preceding year of lincoln national corporation and its consolidated subsidiaries . unless otherwise stated or the context otherwise requires , “ lnc , ” “ lincoln , ” “ company , ” “ we , ” “ our ” or “ us ” refers to lincoln national corporation and its consolidated subsidiaries . the md & a is provided as a supplement to , and should be read in conjunction with our consolidated financial statements and the accompanying notes to the consolidated financial statements ( “ notes ” ) presented in “ part ii – item 8. financial statements and supplementary data , ” as well as “ part i – item 1a . risk factors ” above . in this report , in addition to providing consolidated revenues and net income ( loss ) , we also provide segment operating revenues and income ( loss ) from operations because we believe they are meaningful measures of revenues and the profitability of our operating segments . financial information that follows is presented in conformity with accounting principles generally accepted in the united states of america ( “ gaap ” ) , unless otherwise indicated . see note 1 for a discussion of gaap . operating revenues and income ( loss ) from operations are the financial performance measures we use to evaluate and assess the results of our segments . accordingly , we define and report operating revenues and income ( loss ) from operations by segment in note 22. our management believes that operating revenues and income ( loss ) from operations explain the results of our ongoing businesses in a manner that allows for a better understanding of the underlying trends in our current businesses because the excluded items are unpredictable and not necessarily indicative of current operating fundamentals or future performance of the business segments , and , in many instances , decisions regarding these items do not necessarily relate to the operations of the individual segments . in addition , we believe that our definitions of operating revenues and income ( loss ) from operations will provide investors with a more valuable measure of our performance because it better reveals trends in our business . certain reclassifications have been made to prior periods ' financial information . forward-looking statements – cautionary language certain statements made in this report and in other written or oral statements made by us or on our behalf are “ forward-looking statements ” within the meaning of the private securities litigation reform act of 1995 ( “ pslra ” ) . a forward-looking statement is a statement that is not a historical fact and , without limitation , includes any statement that may predict , forecast , indicate or imply future results , performance or achievements , and may contain words like : “ believe , ” “ anticipate , ” “ expect , ” “ estimate , ” “ project , ” “ will , ” “ shall ” and other words or phrases with similar meaning in connection with a discussion of future operating or financial performance . in particular , these include statements relating to future actions , trends in our businesses , prospective services or products , future performance or financial results and the outcome of contingencies , such as legal proceedings . we claim the protection afforded by the safe harbor for forward-looking statements provided by the pslra . forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from the results contained in the forward-looking statements . risks and uncertainties that may cause actual results to vary materially , some of which are described within the forward-looking statements , include , among others : · deterioration in general economic and business conditions that may affect account values , investment results , guaranteed benefit liabilities , premium levels , claims experience and the level of pension benefit costs , funding and investment results ; · adverse global capital and credit market conditions could affect our ability to raise capital , if necessary , and may cause us to realize impairments on investments and certain intangible assets , including goodwill and a valuation allowance against deferred tax assets , which may reduce future earnings and or affect our financial condition and ability to raise additional capital or refinance existing debt as it matures ; · because of our holding company structure , the inability of our subsidiaries to pay dividends to the holding company in sufficient amounts could harm the holding company 's ability to meet its obligations ; · legislative , regulatory or tax changes , both domestic and foreign , that affect the story_separator_special_tag through our business segments , we sell a wide range of wealth protection , accumulation and retirement income products and solutions . these products include fixed and indexed annuities , variable annuities , universal life insurance ( “ ul ” ) , variable universal life insurance ( “ vul ” ) , linked-benefit ul , term life insurance , employer-sponsored defined contribution retirement plans , mutual funds and group life , disability and dental . we provide products and services and report results through our annuities , retirement plan services ( formerly referred to as “ defined contribution ” ) , life insurance and group protection segments . we also have other operations . these segments and other operations are described in “ part i – item 1. business ” above . 36 for information on how we derive our revenues , see the discussion in results of operations by segment below . current market conditions recent unfavorable market conditions including , but not limited to , the following concerns are weighing on and threatening the financial stability of the economy : · the effects of low interest rates ; · the effects of the european debt crisis ; · the effects of volatile equity and capital markets ; and · slow growth in the u.s. economy : § uncertainty regarding the long-term effect of the budget control act of 2011 ; § downgrades and threatened downgrades by credit rating agencies ; § the interest rate on overnight loans between banks controlled by the federal reserve board remaining unchanged in january 2012 at 0 % to 0.25 % , with low rates expected to continue at least through late 2014 , in anticipation of weakening economic conditions and a subdued outlook on inflation , an indicator of general interest rate trends ; § persistent high unemployment , shrinking unemployment benefits and weak job creation ; § continued slow and unpredictable u.s. housing market ; and § historically low consumer confidence as the consumer confidence index fell during 2011 to a level not seen since april 2009 when the u.s. was still officially in recession , reflecting the lowest percentile since the inception of the index . the federal reserve 's projections for 2012 announced in the fourth quarter of 2011 reflect weak growth and a slowing economic recovery . in the face of these economic challenges , we continue to focus on building our businesses through these difficult markets and beyond by developing and introducing high quality products , expanding distribution into new and existing key accounts and channels and targeting market segments that have high growth potential while maintaining a disciplined approach to managing our expenses . significant operational matters interest rate risk on fixed insurance businesses because the profitability of our fixed annuity , ul , vul and defined contribution insurance business depends in part on interest rate spreads , interest rate fluctuations could negatively affect our profitability . changes in interest rates may reduce both our profitability from spread businesses and our return on invested capital . some of our products , principally our fixed annuities , ul and vul , have interest rate guarantees that expose us to the risk that changes in interest rates or prolonged low interest rates will reduce our spread , or the difference between the interest that we are required to credit to contracts and the yields that we are able to earn on our general account investments supporting our obligations under the contracts . although we have been proactive in our investment strategies , product designs , crediting rate strategies and overall asset-liability practices to mitigate the risk of unfavorable consequences in this type of environment , declines in our spread , or instances where the returns on our general account investments are not enough to support the interest rate guarantees on these products , could have an adverse effect on some of our businesses or results of operations . given the level of interest rates as of the end of 2011 , we have provided disclosures around the effects of sustained low interest rates in “ part ii – item 7a . quantitative and qualitative disclosures about market risk – interest rate risk – interest rate risk on fixed insurance businesses – falling rates ” and “ part i – item 1a . risk factors – changes in interest rates and sustained low interest rates may cause interest rate spreads to decrease and changes in interest rates may also result in increased contract withdrawals. ” earnings from account values the annuities and retirement plan services segments are the most sensitive to the equity markets , as well as , to a lesser extent , our life insurance segment . we discuss the earnings effect of the equity markets on account values and the related asset-based earnings below in “ part ii – item 7a . quantitative and qualitative disclosures about market risk – equity market risk – effect of equity market sensitivity. ” from december 31 , 2010 , to december 31 , 2011 , our account values were up $ 2.7 billion driven primarily by positive net flows during 2011 . 37 variable annuity hedge program performance we offer variable annuity products with living benefit guarantees . as described below in “ critical accounting policies and estimates – derivatives – guaranteed living benefits , ” we use derivative instruments to hedge our exposure to the risks and earnings volatility that result from the guaranteed living benefit ( “ glb ” ) embedded derivatives in certain of our variable annuity products . the change in fair value of these instruments tends to move in the opposite direction of the change in embedded derivative reserves . these results are excluded from the annuities and retirement plan services segments ' operating revenues and income from operations . see “ realized gain ( loss ) and benefit ratio unlocking – variable annuity net derivatives results ” below for information on our methodology for calculating the non-performance risk ( “ npr ” ) , which affects the discount rate used in the calculation of the glb embedded derivative reserves .
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results of group protection income ( loss ) from operations details underlying the results for group protection ( in millions ) were as follows : replace_table_token_39_th replace_table_token_40_th comparison of 2011 to 2010 income from operations for this segment increased due primarily to the following : · more favorable non-medical loss ratio experience ; · growth in insurance premiums driven by normal , organic business growth in our non-medical products ; and · higher net investment income driven by an increase in business . the increase in income from operations was partially offset primarily by higher underwriting , acquisition , insurance and other expenses attributable to an increase in business and investments in strategic initiatives associated with enhancements to sales and distribution processes and improvements to technology platforms during 2011. comparison of 2010 to 2009 income from operations for this segment decreased due to unfavorable claims incidence and , to a lesser extent , termination experience on our long-term disability business and adverse mortality and morbidity experience on our life business resulting in a non-medical loss ratio of 76.2 % during 2010 that was above the high end of our historical expected range of 71 % to 74 % . 77 the decrease in income from operations was partially offset primarily by the following : · growth in insurance premiums driven by normal , organic business growth in our non-medical products and strong case persistency ; and · higher net investment income driven by an increase in business and more favorable investment income on alternative investments within our surplus portfolio ( see “ consolidated investments – alternative investments ” below for more information ) . additional information during 2011 , our non-medical loss ratio was 72.9 % , below the 76.2 % we experienced during 2010 , attributable primarily to improvement in disability claim incidence rates .
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sales to sanmina-sci corporation were 11.5 % , 14.6 % and 13.7 % of the story_separator_special_tag general : park electrochemical corp. ( “ park ” or the “ company ” ) is a global advanced materials company which develops , manufactures , markets and sells high-technology digital and rf/microwave printed circuit materials products principally for the telecommunications and internet infrastructure and high-end computing markets and advanced composite materials , parts and assemblies products for the aerospace markets . park 's core capabilities are in the areas of polymer chemistry formulation and coating technology . the company 's manufacturing facilities are located in singapore , china , france , connecticut , kansas , arizona and california . the company also maintains research and development facilities in arizona , kansas and singapore . the company 's total net sales worldwide declined in the fiscal year ended february 26 , 2012 compared to the fiscal year ended february 27 , 2011 principally as a result of decreases in net sales of the company 's printed circuit materials products in north america and asia , following an increase in the company 's total net sales in the fiscal year ended february 27 , 2011 compared to the fiscal year ended february 28 , 2010 as a result of increases in sales of the company 's printed circuit materials products in north america , asia and europe . the decrease in net sales of the company 's printed circuit materials products in the 2012 fiscal year compared to the prior fiscal year and the increase in net sales of the company 's printed circuit materials products in the 2011 fiscal year compared to the prior fiscal year were both accompanied by increases in sales of the company 's aerospace composite materials , parts and assemblies products compared to the prior fiscal year . the company 's total net sales of its aerospace composite materials , parts and assemblies products increased to $ 26.5 million in the 2012 fiscal year from $ 23.3 million in the 2011 fiscal year and comprised 14 % and 11 % , respectively , of the company 's total net sales worldwide in the 2012 and 2011 fiscal years . as a result of the decrease in the company 's total net sales in the 2012 fiscal year compared to the 2011 fiscal year , the company 's earnings from operations in the 2012 fiscal year were lower than in the 2011 fiscal year as the company 's gross profit margin , measured as a percentage of sales , declined to 28.3 % in the 2012 fiscal year compared to 33.0 % in the 2011 fiscal year . the company 's earnings from operations in the 2012 fiscal year were also adversely affected by the additional , and in some instances duplicative , costs associated with transferring aerospace composite materials , parts and assemblies manufacturing from the company 's park advanced composite materials , inc. ( “ pacm ” ) business unit in waterbury , connecticut and park aerospace structures corp. ( “ pasc ” ) business unit in lynnwood , washington to the company 's park aerospace technologies corp. ( “ patc ” ) business unit in newton , kansas , higher utility costs and the company 's donation to the japanese red cross society after the march 2011 earthquake in japan . such negative factors were only partially offset by the benefits from the higher percentage of sales of higher margin , high performance printed circuit materials products in the 2012 fiscal year than in the 2011 fiscal year and by lower legal fees and expenses in the 2012 fiscal year than in the 2011 fiscal year . the company 's earnings from operations and net earnings in the 2012 fiscal year were also reduced by the pre-tax charge of $ 1.3 million recorded 27 by the company in the 2012 fiscal year fourth quarter in connection with the closing of its pacm business unit located in waterbury , connecticut . in the 2012 fiscal year second quarter , the company recognized a pre-tax gain of $ 1.6 million resulting from the settlement of a lawsuit for an insurance claim for business interruption at the company 's neltec , inc. business unit in tempe , arizona in the 2003 fiscal year caused by the explosion and resulting destruction of a treater at the company 's business unit in singapore and the settlement of a lawsuit pertaining to defective equipment purchased by the company 's patc business unit in newton , kansas . the company 's net earnings in the 2012 fiscal year were lower than in the 2011 fiscal year primarily as a result of the lower earnings from operations in the 2012 fiscal year than in the 2011 fiscal year , which were only partially offset by the litigation settlement gain , described above , realized by the company in the 2012 fiscal year and the lower income tax provision in the 2012 fiscal year than in the 2011 fiscal year . the increase in the company 's total net sales in the 2011 fiscal year compared to the 2010 fiscal year resulted in higher earnings from operations in the 2011 fiscal year than in the 2010 fiscal year , as the company 's gross profit margin , measured as a percentage of sales , improved to 33.0 % in the 2011 fiscal year compared to 29.4 % in the 2010 fiscal year . the company 's operating and earnings performance during the 2011 fiscal year also benefited from the higher percentage of sales of higher margin , high performance printed circuit materials during the 2011 fiscal year . however , the company 's operating and earnings performances were adversely affected by losses incurred at the company 's patc business unit in newton , kansas in the 2011 fiscal year as well as in the 2010 fiscal year . story_separator_special_tag the closure of neltec europe sas in january of 2009 was a major component of restructurings of the operations of the company 's neltec europe sas and neltec sa business units in the 2009 fiscal year in response to the continuing serious erosion of the markets for printed circuit materials in europe and the continuing migration of such markets to asia . fiscal year 2012 compared with fiscal year 2011 : the company 's total net sales worldwide decreased in the fiscal year ended february 26 , 2012 compared to the fiscal year ended february 27 , 2011 principally as a result of decreases in net sales of the company 's printed circuit materials products in north america and asia , which were only partially offset by a small increase in net sales of such products in europe and by an increase in net sales of the company 's aerospace composite materials , parts and assemblies products . the company 's gross profit and its gross profit margin declined in the 2012 fiscal year compared to the 2011 fiscal year . the gross profit margin declined to 28.3 % in the 2012 fiscal year compared to 33.0 % in the 2011 fiscal year primarily as a result of the decline in sales , increased utility costs , additional , and in some instances duplicative , costs associated with the consolidation of all of the company 's north american aerospace composite materials , parts and assemblies manufacturing , development and design activities at its patc business unit in newton , kansas , and the partially fixed nature of the company 's overhead costs . such factors were only partially offset by the benefits from the higher percentage of sales of higher margin , high performance printed circuit materials products in the 2012 fiscal year than in the 2011 fiscal year . the company 's earnings from operations in the 2012 fiscal year were adversely affected by the aforementioned lower gross profit margins , by higher selling , general and administrative expenses in such year compared to the prior year and by the aforementioned $ 1.3 million charge in connection with the closure of pacm and were lower than the company 's earnings from operations in such prior year . the company 's earnings from operations in the prior year were adversely affected by the pre-tax charge of $ 1.3 million recorded by the company in such year related to the closure , in january of 2009 , of the operations of neltec europe sas , the company 's printed circuit materials business unit located in mirebeau , france . although the company 's net earnings in the 2012 fiscal year benefited from a significantly lower income tax provision than in the prior year and from the gain resulting from the settlement of two lawsuits , such net earnings were adversely affected by the lower earnings from operations and , consequently , were lower than the company 's net earnings in the 2011 fiscal year . the company 's higher net earnings in the 2011 fiscal year were the result of the higher earnings from operations despite the adverse effects of the charge related to the 2009 closure of neltec europe sas and the higher income tax provision in the 2011 fiscal year than in the 2010 fiscal year . 30 the company 's earnings from operations and net earnings in both the 2012 and 2011 fiscal years were reduced by losses incurred at the company 's patc business unit in newton , kansas . results of operations the company 's total net sales worldwide for the fiscal year ended february 26 , 2012 decreased 9 % to $ 193.3 million from $ 211.7 million for the fiscal year ended february 27 , 2011. the decrease in net sales was the result of lower unit volumes of printed circuit materials products shipped by the company 's operations in north america and asia . the decrease in total net sales in the 2012 fiscal year was the result of lower sales of printed circuit materials products sold by the company 's operations in north america and asia only partially offset by higher sales of such products sold by the company 's operations in europe and higher sales of aerospace composite materials , parts and assemblies sold by the company 's operations in north america , asia and europe . the company 's total net sales of its aerospace composite materials , parts and assemblies products increased to $ 26.5 million in the 2012 fiscal year from $ 23.3 million in the 2011 fiscal year and comprised 14 % and 11 % , respectively , of the company 's total net sales worldwide in the 2012 and 2011 fiscal years . the company 's foreign sales were $ 107.3 million , or 55 % of the company 's total net sales worldwide , during the 2012 fiscal year , compared to $ 112.8 million of sales , or 53 % of total net sales worldwide , during the 2011 fiscal year and 50 % and 48 % , respectively , of total net sales worldwide during the 2010 and 2009 fiscal years . the company 's foreign sales during the 2012 fiscal year declined 5 % from the 2011 fiscal year primarily as a result of decreases in sales in asia . for the fiscal year ended february 26 , 2012 , the company 's sales in north america , asia and europe were 44 % , 43 % and 13 % , respectively , of the company 's total net sales worldwide compared to 47 % , 43 % and 10 % , respectively , for the fiscal year ended february 27 , 2011. the company 's sales in north america decreased 13 % , its sales in asia decreased 9 % and its sales in europe increased 11 % in the 2012 fiscal year compared to the 2011 fiscal year .
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results of operations the company 's total net sales worldwide for the fiscal year ended february 27 , 2011 increased 20 % to $ 211.7 million from $ 175.7 million for the fiscal year ended february 28 , 2010. the increase in net sales was the result of higher unit volumes of printed circuit materials products shipped by the company 's operations in north america , asia and europe . total net sales of the company 's advanced composite materials , parts and assemblies products increased to $ 23.3 million in the 2011 fiscal year from $ 23.2 million in the 2010 fiscal year and comprised 11 % and 13 % , respectively , of the company 's total net sales worldwide in the 2011 and 2010 fiscal years . the company 's foreign sales were $ 112.8 million , or 53 % of the company 's total net sales worldwide , during the 2011 fiscal year , compared to $ 88.3 million of sales , or 50 % of total net sales worldwide , during the 2010 fiscal year and 48 % of total net sales worldwide during the 2009 fiscal year . the company 's foreign sales during the 2011 fiscal year increased 28 % from the 2010 fiscal year primarily as a result of increases in sales in europe and asia . for the fiscal year ended february 27 , 2011 , the company 's sales in north america , asia and europe were 47 % , 43 % and 10 % , respectively , of the company 's total net sales worldwide compared to 50 % , 40 % and 10 % , respectively , for the fiscal year ended february 28 , 2010. the company 's sales in north america increased 18 % , its sales in asia increased 41 % and its sales in europe increased 32 % in the 2011 fiscal year compared to the 2010 fiscal year .
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our actual results may differ materially from those anticipated in these forward-looking statements as a result of many important factors , including those set forth in the section titled “ risk factors ” included under part i , item 1a of this annual report . story_separator_special_tag hospitalized pneumonia patients , implant and tissue infections , intra-abdominal infections , complicated urinary tract infections , and blood stream infections . our portfolio furthermore includes a ce-ivd-marked pcr based rapid test kit for sars cov-2 detection in combination with our pcr compatible universal lysis buffer ( pulb ) which we also market as a stand-alone ruo reagent . opgen 's combined amr bioinformatics offerings , once such products are cleared for marketing , if ever , will offer important new tools to clinicians treating patients with amr infections . we have collaborated with merck , inc. to establish the acuitas lighthouse knowledgebase , which is currently commercially available in the united states for ruo . the acuitas lighthouse knowledgebase includes approximately 15,000 bacterial isolates from the merck smart surveillance network of 192 hospitals in 52 countries and other sources . ares genetics ' aresdb is a comprehensive database of genetic and phenotypic information . aresdb was originally designed based on the siemens microbiology strain collection covering resistant pathogens and its development has significantly expanded , also by transferring data from the acuitas lighthouse® into aresdb to now cover approximately 55,000 bacterial isolates that have been sequenced using ngs technology and tested for susceptibility with applicable antibiotics from a range of over 100 antimicrobial drugs . in september 2019 , ares genetics signed a technology evaluation agreement with an undisclosed global ivd corporation . in the collaboration , ares genetics further enriched aresdb with a focus on certain pathogens relevant in a first , undisclosed infectious disease indication . following the successful completion of this collaborative r & d project , the ivd partner exercised their option for a 90-day period of exclusive negotiations with ares genetics for a potential exclusive license to aresdb in the field of human clinical diagnostics . following the lapse of such 90-day period without any commercial deal being signed , ares genetics is now in multiple , nonexclusive parallel discussions with several interested parties and such discussions are ongoing . in addition to potential future licensing and partnering , opgen 's subsidiary ares genetics intends to independently utilize the proprietary biomarker content in these databases , as well as to build an independent business in ngs and ai based offerings for amr research and diagnostics in collaboration with its current and potential future partners in the life science , pharmaceutical and diagnostics industries . ares genetics has recently signed up siemens technology accelerator and ages ( austrian agency for health and food safety ) as new customers , as well as entered into another technology assessment and feasibility project with another undisclosed major global ivd corporation , which was also successfully completed . the unyvero a50 tests for up to 130 diagnostic targets ( pathogens and resistance genes ) in under five hours with approximately two minutes of hands-on time . the system was first ce-ivd-marked in 2012 and was fda cleared in 2018 along with the lrt test through a de novo request . as of december 31 , 2020 , there is an installed base of about 179 unyvero a50 analyzers globally . the unyvero a30 rq is a new device designed to address the low-to mid-plex testing market for 5-30 dna targets and to provide results in 45 to 90 minutes with 2-5 minutes of hands on time . the unyvero a30 rq has a small laboratory footprint and has an attractive cost of goods profile . curetis has been following a partnering strategy for the unyvero a30 rq . the company has extensive partner and distribution relationships to help accelerate the establishment of a global infectious disease diagnostic testing and informatics business . partners include a. menarini diagnostics for pan-european distribution to currently 11 countries and beijing clear biotech co. ltd. for unyvero a50 product distribution in china . we have a network currently consisting of over 20 distributors covering more than 40 countries . with the discontinuation of our fish products business in europe we expect that network of distributors to be reduced to only those distributors actively commercializing our unyvero line of products and / or ce-ivd-marked sars cov-2 test kits . opgen will continue to develop and seek fda and other regulatory clearances or approvals , as applicable , for the acuitas amr gene panel ( isolate ) diagnostic test , unyvero uti and iji products . opgen will continue to offer the fda-cleared unyvero lrt and lrt bal panels , as well as unyvero uti panel and acuitas amr gene panel ( isolates ) and acuitas lighthouse software as ruo products to hospitals , public health departments , clinical laboratories , pharmaceutical companies and contract research organizations ( “ cros ” ) . our headquarters are in gaithersburg , maryland , and our principal operations are in gaithersburg , maryland and holzgerlingen and bodelshausen , both in germany . we also have operations in vienna , austria . the company will move its headquarters in april 2021 and us operations in may 2021 from gaithersburg , maryland to rockville , maryland . we operate in one business segment . 56 financing transactions since inception , the company has incurred , and continues to incur , significant losses from operations . the company has funded its operations primarily through external investor financing arrangements . the following financing transactions took place during 2019 and 2020 : · on march 29 , 2019 , the company closed the march 2019 public offering of 450,000 shares of its common stock at a public offering price of $ 12.00 per share . the offering raised gross proceeds of $ 5.4 million and net proceeds of approximately $ 4.8 million . story_separator_special_tag the terms of the new warrants are substantially similar to those of the existing warrants , except that the new warrants will have an exercise price of $ 3.56. the new warrants are immediately exercisable and expire five years from the date of the exercise agreement . on march 12 , 2021 , the company and the holder amended the exercise agreement to provide that the holder would pay the company $ 0.08125 for each new warrant issued to the holder . the holder paid an aggregate of $ 255,751 to the company for the purchase of the new warrants . the company received aggregate gross proceeds before expenses of approximately $ 9.65 million from the exercise of all of the remaining 4,842,615 outstanding existing warrants held by the holder and the payment of the purchase price for the new warrants . results of operations for the years ended december 31 , 2020 and 2019 revenues replace_table_token_1_th the company 's total revenue for the year ended december 31 , 2020 increased 20 % , to $ 4.2 million from $ 3.5 million , when compared to the same period in 2019. this increase is primarily attributable to : · product sales : the increase in revenue of 25 % in the 2020 period compared to the 2019 period is primarily attributable to the inclusion of curetis ' products sales subsequent to the transaction , offset in part by a reduction in the sale of the company 's fish rapid pathogen id testing products due to the loss of large customers and covid-19 ; · laboratory services : the increase in revenue in the 2020 period compared to the 2019 period is primarily attributable to the inclusion of ares genetics ' laboratory services subsequent to the transaction ; and · collaboration revenue : the decrease in collaboration revenue of 1 % in the 2020 period compared to the 2019 period is primarily the result of by lower revenue from our contract with the new york state doh offset by the inclusion of ares genetics ' collaboration revenue subsequent to the transaction . operating expenses replace_table_token_2_th 58 the company 's total operating expenses for the year ended december 31 , 2020 increased 71 % , to $ 26.9 million from $ 15.8 million , when compared to the same period in 2019. this increase is primarily attributable to : · costs of products sold : expenses for the year ended december 31 , 2020 increased approximately 269 % when compared to the same period in 2019. the change in costs of products sold is primarily attributable to the inclusion of curetis ' cost of products sold subsequent ‘ to the transaction as well as increased regulatory costs and an increase in the company 's write off of its fish inventory ; · costs of services : expenses for the year ended december 31 , 2020 decreased approximately 32 % when compared to the same period in 2019. the change in cost of service was primarily attributable to lower costs associated with our new york state doh contract partially offset by the inclusion of curetis ' and ares genetics ' cost of services subsequent to the transaction ; · research and development : expenses for the year ended december 31 , 2020 increased approximately 95 % when compared to the same period in 2019. the change in research and development is primarily attributable to the inclusion of curetis ' and ares ' research and development expenses subsequent to the transaction ; · general and administrative : expenses for the year ended december 31 , 2020 increased approximately 41 % when compared to the same period in 2019 , primarily due to the inclusion of curetis ' expenses subsequent to the transaction ; · sales and marketing : expenses for the year ended december 31 , 2020 increased approximately 111 % when compared to the same period in 2019 , primarily due to the inclusion of curetis ' sales and marketing expenses subsequent to the transaction , partially offset by lower travel costs ; · transaction costs : transaction costs for the year ended december 31 , 2020 decreased approximately 39 % when compared to the same period in 2019 , primarily due to the timing of the transaction announcement in 2019 ; · impairment of intangible assets : impairment of intangible assets for the year ended december 31 , 2020 represents the write down of intangible assets acquired from advandx in 2015 ; · impairment of right-of-use asset : impairment of right-of-use asset for the year ended december 31 , 2020 represents the impairment of our woburn , massachusetts rou asset recorded as part of the company 's adoption of asu 2016-02 , leases ( topic 842 ) in 2019 and the additional impairment expense in 2020 ; and · gain on sale of equipment : gain on sale of equipment for the year ended december 31 , 2020 represents the sale of laboratory equipment to one of our vendors . other expense replace_table_token_3_th other expense for the year ended december 31 , 2020 increased to a net expense of $ 3,359,962 from a net expense of $ 175,213 in the same period of 2019. the increase was primarily a result of an increase in interest expense associated with the debt assumed as part of the transaction with curetis offset by a gain on extinguishment of debt related to the company 's ppp loan . liquidity and capital resources at december 31 , 2020 , the company had cash and cash equivalents of $ 13.4 million , compared to $ 2.7 million at december 31 , 2019. the company has funded its operations primarily through external investor financing arrangements and has raised significant funds in 2020 and 2019 , including : on november 25 , 2020 , the company closed the 2020 pipe of 2,245,400 shares of common stock together with 2,597,215 pre-funded warrants . the 2020 pipe raised aggregate net proceeds of $ 9.3 million , and gross proceeds of $ 10.0 million .
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overview opgen is a precision medicine company harnessing the power of molecular diagnostics and informatics to help combat infectious disease . along with subsidiaries , curetis gmbh and ares genetics gmbh , we are developing and commercializing molecular microbiology solutions helping to guide clinicians with more rapid and actionable information about life threatening infections to improve patient outcomes and decrease the spread of infections caused by multidrug-resistant microorganisms , or mdros . our current product portfolio includes unyvero , curetis ' sars cov-2 products , quickfish , pna fish , acuitas amr gene panel , acuitas® lighthouse , and the ares technology platform including aresdb , using ngs technology and ai-powered bioinformatics solutions for antibiotic response prediction . on october 13 , 2020 , the company announced its decision to exit the fish business in its entirety by june 30 , 2021 and the company 's license agreement with life technologies , a subsidiary of thermofisher , will be terminated as of such date . on april 1 , 2020 , the company completed a business combination transaction ( the “ transaction ” ) with curetis n.v. , a public company with limited liability under the laws of the netherlands ( the “ seller ” or “ curetis n.v. ” ) , as contemplated by the implementation agreement , dated as of september 4 , 2019 ( the “ implementation agreement ” ) , by and among the company , the seller , and crystal gmbh , a private limited liability company organized under the laws of the federal republic of germany and wholly-owned subsidiary of the company ( “ purchaser ” ) . pursuant to the implementation agreement , the purchaser acquired all of the shares of curetis gmbh , a private limited liability company organized under the laws of the federal republic of germany ( “ curetis gmbh ” ) , and certain other assets and liabilities of the seller ( together , “ curetis ” ) .
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other revenues primarily include revenues from tenant leases , retail outlets , bowling , spas and entertainment . rental income is recognized over the lease term and contingent rental income is recognized when the right to receive such rental income is established according to the lease agreements . management fee revenue is recognized when the services have been performed , the amount of the fee is determinable and collectability is reasonably assured . management fee revenue includes reimbursable costs , which represent amounts received or due pursuant to the company 's management agreements with native american tribes for the reimbursement of expenses , primarily payroll costs , that it incurs on their behalf . the company recognizes reimbursable cost revenue on a gross basis , with an offsetting amount charged to operating expense story_separator_special_tag the following discussion and analysis should be read in conjunction with the consolidated financial statements and the notes thereto included in item 8. financial statements and supplementary data included in this annual report on form 10-k. overview red rock is a holding company that manages and owns equity interests in station holdco and station llc . station llc is a gaming , development and management company established in 1976 that develops and operates casino entertainment properties . station llc owns and operates ten major gaming and entertainment facilities and ten smaller casinos ( three of which are 50 % owned ) in the las vegas regional market . station llc also manages graton resort in sonoma county , california on behalf of a native american tribe . station llc managed gun lake in allegan county , michigan on behalf of another native american tribe through february 2018. station holdco holds all of the economic interests in station llc , and at december 31 , 2017 , we held approximately 59 % of the equity interests in station holdco . we have no material assets other than our ownership interest in station holdco and our ownership of 100 % of the voting interests in station llc . we are designated as the sole managing member of both station holdco and station llc , and we operate and control all of their business and affairs . in may 2016 , we completed an ipo of approximately 29.5 million shares of class a common stock , $ 0.01 par value per share at an offering price to the public of $ 19.50 per share . we received proceeds from the ipo of approximately $ 541 million , net of underwriting discount , which was used to purchase newly issued limited liability company interests in station holdco and outstanding llc units from existing members of station holdco . station holdco used the proceeds from the newly issued llc units to pay the majority of the $ 460 million purchase price of fertitta entertainment . prior to the fertitta entertainment acquisition , subsidiaries of fertitta entertainment managed station llc through long-term management agreements and such management agreements were terminated in connection with the fertitta entertainment acquisition . prior to the fertitta entertainment acquisition , station holdco , station llc and fertitta entertainment were controlled by frank j. fertitta iii , our chairman and chief executive officer , and lorenzo j. fertitta , our vice chairman , who collectively held a majority of the voting and economic interests in these entities , and accordingly , the fertitta entertainment acquisition constituted an acquisition of an entity under common control . we have no operations outside of our management of station llc and station holdco , and our consolidated financial statements reflect the consolidation of station llc and its consolidated subsidiaries , including the retrospective consolidation of fertitta entertainment , and station holdco for all periods presented . the financial position and results of operations attributable to llc units we do not own are reported separately as noncontrolling interest . station holdco , as combined with fertitta entertainment , is our predecessor for accounting purposes and accordingly , for all periods prior to may 2 , 2016 , the financial information presented herein represents the information of the predecessor . our principal source of revenue and operating income is gaming , and our non-gaming offerings include restaurants , hotels and other entertainment amenities . approximately 80 % to 85 % of our casino revenue is generated from slot play . the majority of our revenue is cash-based and as a result , fluctuations in our revenues have a direct impact on our cash flows from operations . because our business is capital intensive , we rely heavily on the ability of our properties to generate operating cash flow to repay debt financing and fund capital expenditures . a significant portion of our business is dependent upon customers who live and or work in the las vegas metropolitan area . the las vegas economy , although severely impacted by the recession and housing crisis that spanned from 2008 to 2011 , began to stabilize in 2012 and , based on population and employment growth , was one of the fastest growing economies in the united states from 2015 to 2017. based on a recent u.s. census bureau release , nevada was second among all states in percentage growth of population from july 2015 to july 2017. in addition , based on preliminary data for december 2017 from the bureau of labor statistics , las vegas experienced a 3.1 % year-over-year increase in employment to 998,800 , which is an all-time high . this resulted in an unemployment rate of 4.9 % which has declined from 14.1 % in july 2011. businesses and consumers in las vegas continue to increase their spending as evidenced by 57 consecutive months of year-over-year increases in taxable retail sales from february 2013 to october 2017. home values have also improved significantly over the past several years with the median price of an existing single family home in las vegas up approximately 140 % at december 2017 compared to january 2012 , as reported by the greater las vegas association of realtors . story_separator_special_tag for the year ended december 31 , 2017 , casino expenses increase d by $ 48.3 million or 13.1 % as compared to the prior year , primarily due to the acquisition of palms , as well as the increase in same-store casinos revenues , gaming promotions and employee expenses . casino revenues increase d $ 38.8 million to $ 961.0 million for the year ended december 31 , 2016 as compared to $ 922.2 million for 2015 . casino revenues on a same-store basis increase d by $ 23.3 million or 2.5 % due to higher slot and table games revenue , which was partially offset by a decrease in sports revenue . the improvement was attributable to a 2.8 % increase in same-store slot handle and a 4.0 % increase in same-store table game drop . the decrease in sports revenue on a same-store basis was primarily due to a 1.4 % decrease in hold . for the year ended december 31 , 2016 , casino expenses increase d by $ 21.1 million or 6.1 % as compared to the prior year , commensurate with the increase in same-store revenues , and included casino expenses associated with palms . food and beverage . food and beverage revenues for the year ended december 31 , 2017 increase d to $ 298.7 million as compared to $ 270.6 million for 2016 largely due to the acquisition of palms . on a same-store basis , food and beverage revenues for the year ended december 31 , 2017 increase d slightly as compared to the prior year due to a 4.8 % increase in the average guest check , which was partially offset by a 2.7 % decrease in the number of restaurant guests served . food and beverage expenses increase d by 14.0 % for the year ended december 31 , 2017 as compared to the prior year , primarily due to the acquisition of palms , as well as increases in employee expenses and enhancements to our food and beverage product offerings and service levels . food and beverage revenues for the year ended december 31 , 2016 increase d to $ 270.6 million as compared to $ 251.2 million for 2015 , largely due to the opening of several new restaurants and the first full year of operations for certain restaurants that opened in late 2015 , as well as the acquisition of palms , which contributed $ 8.7 million in revenue . on a same-store basis , for the year ended december 31 , 2016 , the average guest check increased by 4.0 % and the number of restaurant guests served increased slightly as compared to the prior year . food and beverage expense for the year ended december 31 , 2016 increase d by 13.8 % as compared to the prior year , mainly due to the addition of several new restaurants as well as additional product enhancements to our food and beverage offerings and service levels , and included food and beverage expenses associated with palms . 44 room . information about our hotel operations is presented below : replace_table_token_6_th room revenues for the year ended december 31 , 2017 increase d by 23.6 % to $ 176.6 million as compared to $ 142.9 million for the year ended december 31 , 2016 primarily due to the acquisition of palms . adr increased 9.9 % as compared to the prior year , partially offset by a 2.8 percentage point decrease in occupancy rate . on a same-store basis , room revenues increase d by $ 0.8 million or 0.6 % for the year ended december 31 , 2017 as compared to the prior year . same-store adr improved by 7.3 % , while same-store occupancy decreased by 2.4 % . during the year ended december 31 , 2017 , approximately 400 hotel rooms at palace station were permanently removed from service as part of the ongoing upgrade and expansion project . room expenses increase d by 31.5 % for the year ended december 31 , 2017 as compared to the prior year , primarily due to the acquisition of palms , as well as increases in employee expenses . room revenues for the year ended december 31 , 2016 increase d by 16.3 % to $ 142.9 million as compared to $ 122.9 million for the prior year due to a 9.4 % improvement in adr as compared to the prior year , partially offset by a 63 basis point decrease in the occupancy rate . on a same-store basis , room revenues increase d by $ 8.4 million or 6.8 % and adr improved by 7.7 % for the year ended december 31 , 2016 as compared to the prior year . room expenses for the year ended december 31 , 2016 increase d by 18.1 % as compared to the prior year , commensurate with the increase in same-store revenues , and included room expenses associated with palms . other . other revenues primarily include revenues from tenant leases , retail outlets , bowling , spas and entertainment . other revenues for the year ended december 31 , 2017 increase d by 26.3 % to $ 93.7 million as compared to $ 74.2 million for the prior year , primarily due to the acquisition of palms . on a same-store basis , other revenues for the year ended december 31 , 2017 increase d by 8.2 % to $ 75.2 million as compared to $ 69.5 million for the prior year . the year-over-year improvement in other revenues was spread across all categories of revenues other than tenant leases , which remained flat . other expenses for the year ended december 31 , 2017 increase d by 31.8 % as compared to the prior year , primarily due to the inclusion of a full year of expenses associated with palms . other revenues for the year ended december 31 , 2016 increase d by 6.4 % to $ 74.2 million as compared to $ 69.7 million for the prior year .
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results of operations above . operating cash flows for the year ended december 31 , 2016 totaled $ 346.2 million , compared to $ 349.4 million for the prior year . operating cash flows decreased due to the settlement of liability classified equity awards of fertitta entertainment , which was partially offset by improved operating results from our properties and our native american managed properties as described under results of operations above . cash flows from operating activities for all periods presented reflect normal fluctuations in our working capital accounts . cash flows from investing activities during the year s ended december 31 , 2017 , 2016 and 2015 , we paid $ 248.4 million , $ 162.4 million and $ 129.9 million , respectively , for capital expenditures , which were primarily related to various renovation projects , including the upgrade and expansion project at palace station which commenced in october 2016 and redevelopment of palms , as well as the purchase of slot machines and related gaming equipment . during the year ended december 31 , 2017 we paid $ 23.4 million to a 50 related party to purchase the land subject to the ground leases on which each of boulder station and texas station is located . during the year ended december 31 , 2016 , we paid $ 305.9 million , net of cash received , for the acquisition of palms . also during the year ended december 31 , 2016 , fertitta entertainment sold a consolidated subsidiary , which held an aircraft and related debt , to a related party for $ 8.0 million in cash and collected $ 18.3 million of related party notes . during the year ended december 31 , 2015 , we received $ 26.3 million in proceeds from asset sales , primarily from the sale of land previously held for development .
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our risk management activities involve the use of derivative financial instruments to hedge the impact of market risk exposure related to variable interest rates and foreign currency exchange rates . to reduce the impact of these risks on earnings and increase the predictability of our cash flows , from time to time we enter into certain derivative contracts , including interest rate swaps and foreign currency exchange contracts . all derivative instruments are reflected in the accompanying consolidated balance sheets at fair value . we formally document all relationships between hedging instruments and the related hedged items , as well as our risk management objectives , strategies for undertaking various hedge transactions and our methods for assessing and testing correlation and hedge ineffectiveness . all hedging instruments are linked to the hedged asset , liability , firm commitment or forecasted transaction . we also assess , both at the inception of the hedge and on an on-going basis , whether the derivative instruments that are designated as hedging instruments are highly effective in offsetting changes in cash flows of the hedged items . we discontinue hedge accounting if we determine that a derivative is no longer highly effective as a hedge , or it is probable that a hedged transaction will not occur . if hedge accounting is discontinued because it is probable the hedged transaction will not occur , deferred gains or losses on the hedging instruments are recognized in earnings immediately . if the forecasted transaction continues to be probable of occurring , any deferred gains or losses in accumulated oci are amortized to earnings story_separator_special_tag results of operations the following management 's discussion and analysis should be read in conjunction with our historical consolidated financial statements located in item 8. financial statements and supplementary data of this annual report . any reference to notes in the following management 's discussion and analysis refers to the notes to consolidated financial statements located in item 8. financial statements and supplementary data of this annual report . the results of operations reported and summarized below are not necessarily indicative of future operating results . this discussion also contains forward-looking statements that reflect our current views with respect to future events and financial performance . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors , such as those set forth under item 1a . risk factors and located earlier in this annual report . executive summary our strategy we are an international offshore energy services company that provides specialty services to the offshore energy industry , with a focus on well intervention and robotics operations . we believe that focusing on these services will deliver favorable long-term financial returns . from time to time , we make strategic investments that expand our service capabilities or add capacity to existing services in our key operating regions . the long-term prospects of our well intervention fleet are enhanced by the delivery of the siem helix 1 chartered vessel in june 2016 , the delivery of the siem helix 2 chartered vessel in february 2017 and the completion and delivery of the q7000 , a newbuild semi-submersible vessel , in 2018. chartering newer vessels with additional capabilities , including the grand canyon iii chartered vessel which is expected to be in service for us in may 2017 , should enable our robotics business to better serve the needs of our customers . it also is beneficial to us from a long-term perspective to have secured our new fixed fee agreement for the helix producer i ( the “ hp i ” ) , a dynamic positioning floating production vessel , to continue to service the phoenix field for the field operator until at least june 1 , 2023. in january 2015 , helix , onesubsea llc , onesubsea b.v. , schlumberger technology corporation , schlumberger b.v. and schlumberger oilfield holdings ltd. entered into a strategic alliance agreement and related agreements for the parties ' strategic alliance to design , develop , manufacture , promote , market and sell on a global basis integrated equipment and services for subsea well intervention . the alliance is expected to leverage the parties ' capabilities to provide a unique , fully integrated offering to clients , combining marine support with well access and control technologies . in april 2015 , we and onesubsea agreed to jointly develop and ordered a 15,000 working p.s.i . irs , which is expected to be completed in the second half of 2017 for a total cost of approximately $ 28 million ( approximately $ 14 million for our 50 % interest ) . at december 31 , 2016 , our total investment in the irs was $ 6.5 million . in october 2016 , we and onesubsea launched the development of our first roam for an estimated cost of approximately $ 12 million ( approximately $ 6 million for our 50 % interest ) , almost all of which will be incurred in 2017. the roam is expected to be available to customers in the third quarter of 2017. economic outlook and industry influences demand for our services is primarily influenced by the condition of the oil and gas industry , and in particular , the willingness of oil and gas companies to spend on operational activities as well as capital projects . story_separator_special_tag these dispositions primarily include approximately $ 55 million from the sale of individual oil and gas properties , over $ 500 million from the sale of our stockholdings in cal dive international inc. , $ 25 million from the sale of our former reservoir consulting business , approximately $ 238 million from the sale of our two remaining pipelay vessels , the caesar and the express , and $ 624 million from the sale of ert . our business activities in 2016 included the following : in january 2016 , we sold our office and warehouse property located in aberdeen , scotland for approximately $ 11 million and entered into a separate agreement with the same party to lease back the facility for a lease term of 15 years with two five-year options to extend the lease at our option ; in february 2016 , we sold our ownership interest in deepwater gateway to a subsidiary of genesis energy , l.p. for $ 25 million ; the siem helix 1 vessel was delivered to us and the charter term began in june 2016. the vessel has transited to brazil after integration and commissioning of our topside equipment onboard , and is continuing to work through petrobras 's inspection and acceptance process , including the completion of modifications as agreed between us and petrobras ; we returned the rem installer , a chartered vessel , to its owner as the charter expired in july 2016 ; and in december 2016 , we sold the helix 534 vessel to a third party for approximately $ 2.8 million . story_separator_special_tag including our chartered vessels , and accepting work with lower profit margins . 36 excluding the $ 133.4 million impairment charge in 2015 for the hp i , the gross profit related to our production facilities segment increased by 26 % in 2016 as compared to 2015 . the increase primarily reflects lower repair and maintenance costs and a decrease in depreciation expense related to the hp i as a result of the vessel 's impairment charge recorded in december 2015. goodwill impairment . the $ 45.1 million impairment charge in 2016 reflects the write-off of the entire goodwill balance associated with our robotics reporting unit ( notes 2 and 6 ) . the $ 16.4 million impairment charge in 2015 reflects the write-off of the entire goodwill balance associated with our u.k. well intervention reporting unit . gain on disposition of assets , net . the $ 1.3 million net gain on disposition of assets in 2016 was attributable to the sale of the helix 534 in december 2016 ( note 4 ) . selling , general and administrative expenses . our selling , general and administrative expenses increased by $ 8.7 million in 2016 as compared to 2015 . the increase was primarily attributable to payroll related costs associated with our variable performance-based incentive compensation programs ( note 12 ) , increased overhead costs associated with the petrobras contract and a $ 2.5 million increase associated with the provision for uncertain collection of a portion of our then existing trade and note receivables , and was partially offset by overhead cost saving measures including headcount reductions . equity in losses of investments . equity in losses of investments was $ 2.2 million in 2016 as compared to $ 124.3 million in 2015 . the losses in 2015 primarily reflect our share of impairment charges that deepwater gateway and independence hub recorded in december 2015 ( note 5 ) . net interest expense . our net interest expense totaled $ 31.2 million in 2016 as compared to $ 26.9 million in 2015 primarily reflecting an increase in interest expense , which was partially offset by a slight increase in capitalized interest . the increase in interest expense was primarily attributable to nearly four months of additional interest on the nordea q5000 loan , which was funded in april 2015 , as well as increases in interest rates on the term loan and the nordea q5000 loan . interest expense for 2016 also included a $ 2.5 million charge to accelerate the amortization of debt issuance costs in proportion to the reduced commitment under our revolving credit facility in february 2016 ( note 7 ) . interest on debt used to finance capital projects is capitalized and thus reduces overall interest expense . capitalized interest totaled $ 11.8 million for 2016 as compared to $ 11.0 million for 2015 . loss on repurchase of long-term debt . the $ 3.5 million loss in 2016 was associated with the repurchases of $ 139.9 million in aggregate principal amount of our 2032 notes in 2016 ( note 7 ) . other income ( expense ) , net . we reported other income , net , of $ 3.5 million for 2016 as compared to other expense , net , of $ 24.3 million in 2015 . net other income for 2016 included net gains totaling $ 1.3 million associated with our foreign currency exchange contracts , which primarily related to the contracts that were not designated as cash flow hedges ( note 18 ) . net other expense for 2015 primarily reflects losses associated with our foreign currency exchange contracts , including $ 18.0 million upon de-designation of our grand canyon ii and grand canyon iii hedges and $ 5.1 million related to our hedge ineffectiveness . also included in other income ( expense ) , net , were foreign currency transaction gains ( losses ) of $ 0.2 million and $ ( 1.2 ) million , respectively , in the comparable year-over-year periods . these amounts primarily reflect foreign exchange fluctuations in our non-u.s. dollar functional currencies . in addition , other income , net , for 2016 included a $ 2.0 million net foreign currency translation gain reclassified out of accumulated other comprehensive loss into earnings during the year . other income – oil and gas . our other income - oil and gas decreased by $ 2.0 million in 2016 as compared to 2015 .
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results of operations we have three reportable business segments : well intervention , robotics and production facilities . all material intercompany transactions between the segments have been eliminated in our consolidated financial statements , including our consolidated results of operations . we seek to provide services and methodologies that we believe are critical to maximizing production economics . our services cover the lifecycle of an offshore oil or gas field . we operate primarily in deepwater in the u.s. gulf of mexico , north sea , asia pacific and west africa regions , and are expanding our operations offshore brazil . in addition to servicing the oil and gas market , our robotics operations are contracted for the development of renewable energy projects ( wind farms ) . as of december 31 , 2016 , our consolidated backlog that is supported by written agreements or contracts totaled $ 1.9 billion , of which $ 429.2 million is expected to be performed in 2017. the substantial majority of our backlog is associated with our well intervention business segment . as of december 31 , 2016 , our well intervention backlog was $ 1.5 billion , including $ 337.3 million expected to be performed in 2017. our five-year contract with bp to provide well intervention services with our q5000 semi-submersible vessel , our four-year agreements with petrobras to provide well intervention services offshore brazil with the siem helix 1 and siem helix 2 chartered vessels , and our new seven-year fixed fee agreement for the hp i represent approximately 90 % of our total backlog . at december 31 , 2015 , the total backlog associated with our operations was $ 1.8 billion . backlog contracts are cancelable sometimes without penalty . in addition , if there are cancellation fees , the amount of those fees can be substantially less than the rates we would have generated had we performed the contract .
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tota l tangible assets , pre-tax return on average assets , located in the midwest ) . the market approach also includes the acquisition price/tangible book value multiple on similar sized banks in the midwest occurring after january 1 , 2017. more weighting was p laced on the income method . through the step 1 analysis it was determined there was no impairment charge to goodwill in the year ended december 31 , 2018. goodwill is included on the consolidated balance sheets . the future value of goodwill could be im pacted by the company 's future earnings , largely related to unanticipated losses from the company 's loan portfolio . allowance for loan losses the allowance for loan losses is established through a provision for loan losses charged to expense , which affects our earnings directly . loans are charged against the allowance for loan losses when management believes that the collectability of all or some of the principal is unlikely . subsequent recoveries are added to the allowance . the allowance is an amount that reflects management 's estimate of the level of probable incurred losses in the loan portfolio . factors considered by management in determining the adequacy of the allowance include , but are not limited to , detailed reviews of individual loans , historical and current trends in loan charge-offs for the various portfolio segments evaluated , the level of the allowance in relation to total loans and to historical loss levels , levels and trends in non-performing and past due loans , volume of and migratory direction of adversely graded loans , external factors including regulatory requirements , reputation , and competition , and management 's assessment of economic conditions . our board of directors reviews the recommendations of management regarding the appropriate level for the allowance for loan losses based upon these factors . the provision for loan losses is the charge to operating earnings necessary to maintain an adequate allowance for loan losses . we have developed policies and procedures for evaluating the overall quality of our loan portfolio and the timely identification of problem credits . management continuously reviews these policies and procedures and makes further improvements as needed . the adequacy of our allowance for loan losses and the effectiveness of our internal policies and procedures are also reviewed periodically by our regulators and our auditors and external loan review personnel . our regulators may advise us to recognize additions to the allowance based upon their judgments about information available to them at the time of their examination . such regulatory guidance is taken under consideration by management , and we may recognize additions to the allowance as a result . we continually refine our methodology for determining the allowance for loan losses by comparing historical loss ratios utilized to actual experience and by classifying loans for analysis based on similar risk characteristics . cash receipts for accruing loans are applied to principal and interest under the contractual terms of the loan agreements ; however , cash receipts on impaired and nonaccrual loans for which the accrual of interest has been discontinued are applied to principal and interest income depending upon the overall risk of principal loss to us . other real estate owned assets acquired through or in lieu of loan foreclosure are initially recorded at lower of cost or fair value less estimated costs to sell , establishing a new cost basis . subsequent to foreclosure , independent valuations are performed annually and the assets are carried at the lower of carrying amount or fair value less estimated costs to sell . revenue and expenses from operations and changes in the valuation allowance are included in other non-interest expense . costs related to the development and improvement of other real estate owned is capitalized . fair value of financial instruments a significant portion of the company 's assets are financial instruments carried at fair value . this includes securities available for sale and certain impaired loans . the majority of assets carried at fair value are based on either quoted market prices or market prices for similar instruments . for additional disclosures regarding the fair value of financial instruments , see note 20 . “ fair value measurements ” to our consolidated financial statements . jobs act transition period the jumpstart our business startups ( jobs ) act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards . thus , as an emerging growth company , the company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . we have elected to avail ourselves of this extended transition period . 34 comparison of financ ial condition at december 31 , 2018 and 2017 total assets . total assets increased $ 123.8 million , or 8.9 % , from $ 1.4 billion at december 31 , 2017 to $ 1.5 billion at december 31 , 2018. the increase was primarily the result of loan growth of $ 58.3 million and net security purchases of $ 69.9 million , which were partially the result of $ 30 million of subordinated notes that were issued by the company on may 30 , 2018. total assets increased $ 154.4 million , or 12.4 % , from $ 1.2 billion at december 31 , 2016 to $ 1.4 billion at december 31 , 2017. the increase is primarily the result of loan growth of $ 118.5 million , an increase in loans held for sale of $ 5.4 million , and an increase in cash and due from banks of $ 24.1 million , between december 31 , 2016 and december 31 , 2017. in addition , $ 5.5 million of additional bank owned life insurance policies were purchased during 2017. net loans . story_separator_special_tag the changes in our deposit balance mix below reflect our long-term strategy focus on customer relationships in order to secure less volatile and less costly funding and reduce our reliance on wholesale funding ( e.g . national time deposits , brokered deposits , fhlb advances ) . core deposit ( demand deposits , money market accounts , and certificates of deposit ) increased $ 69.3 million , or 10.1 % , since december 31 , 2017 , which allowed us to decrease our reliance on brokered deposits by 0.3 % of our total deposit balances from 25.5 % to 25.2 % , and reduce our wholesale fhlb funding by $ 32.1 million , or 26.4 % , since december 31 , 2017. replace_table_token_17_th 37 the following tables set forth the average balances and weighted average rates of our deposit products for the periods indicated . replace_table_token_18_th the following table sets forth the maturity of time deposits of $ 100,000 or more , including brokered time deposits , as of the date indicated . replace_table_token_19_th borrowings . the bank had fixed rate advances outstanding from the fhlb-chicago in the amount of $ 89.4 million and $ 121.5 million on december 31 , 2018 and 2017 , respectively . the terms of security agreements with the fhlb require the bank to pledge collateral for such borrowings consisting of qualifying first mortgage loans , certain securities available for sale , and stock in the fhlb . we did not have overnight advances with the fhlb at december 31 , 2018 or 2017. the bank decreased its fhlb borrowings as a result of the increase in core deposits . as of december 31 , 2018 and 2017 , the bank also had a line-of-credit available with the federal reserve bank of chicago . borrowings under this line of credit are limited by the amount of securities or pledged by the bank as collateral . our available credit due to our pledged loans totaled $ 143.4 million at december 31 , 2018 , and $ 8.6 million due to pledged securities at december 31 , 2017. no securities were pledged at december 31 , 2018 , and no loans were pledged at december 31 , 2017. we had no borrowings from the federal reserve bank of chicago as of december 31 , 2018 or 2017. on september 14 , 2017 , the company entered into a credit agreement with u.s. bank , national association for a $ 15.0 million revolving line-of-credit with an interest rate equal to the one-month libor rate plus 2.25 % . the line also bears a non-usage fee of 0.275 % per annum . the non-usage fee for year ended december 31 , 2018 and 2017 was $ 42 thousand and $ 5 thousand , respectively . the line did not have an outstanding balance as of december 31 , 2018 or 2017 . 38 we also have other borrowings as a result of sold loans that do not qualify for sale accounting . these agreements are recorded as financing transactions as we maintain effective control over the tra nsferred loans . the dollar amount of the loans underlying the sale agreements continues to be carried in our loan portfolio , and the transfer is reported as a secured borrowing with pledge of collateral . the following table sets forth information concerning balances and interest rates on our borrowings at the dates and for the periods indicated . replace_table_token_20_th subordinated debentures . in september 2005 and june 2006 , we formed two wholly owned subsidiary business trusts , county bancorp statutory trust ii ( “ trust ii ” ) and county bancorp statutory trust iii ( “ trust iii ” ) , respectively , for the purpose of issuing capital securities which qualify as tier 1 capital . trust ii issued at par $ 6.0 million of floating rate capital securities . the capital securities of trust ii are nonvoting , mandatorily redeemable in 2035 , and are guaranteed by us . trust iii issued at par $ 6.0 million of floating rate capital securities . the capital securities of trust iii are nonvoting , mandatorily redeemable in 2036 , and are also guaranteed by us . we own all of the outstanding common securities of trust ii and trust iii . the trusts used the proceeds from the issuance of their capital securities to buy floating rate junior subordinated deferrable interest debentures ( “ debentures ” ) issued by the company . these debentures are the trusts ' only assets , and interest payments from these debentures finance the distributions paid on the capital securities . these debentures are unsecured , rank junior , and are subordinate in the right of payment to all of our senior debt . the capital securities of trust ii and trust iii have been structured to qualify as tier 1 capital for regulatory purposes . however , the securities can not be used to constitute more than 25 % of the company 's “ core ” tier 1 capital according to regulatory requirements . we used the proceeds of the trust ii issue for general corporate purposes , and we used the proceeds of the trust iii issue to redeem the securities of county bancorp statutory trust i. as a result of the acquisition of fox river valley bancorp , inc. ( “ fox river valley ” ) in 2016 , we acquired a wholly owned subsidiary business trust , fox river valley capital i trust ( “ frv trust i ” ) which was formed in 2003 by fox river valley for the purpose of issuing capital securities which qualify as tier i capital . the trust issued at par $ 3.5 million of floating rate securities . the securities are non-voting , mandatorily redeemable in 2033 and are guaranteed by us . the capital securities of frv trust i have been structured to qualify as tier i capital for regulatory purposes . however , the securities can not be used to constitute more than 25 % of the company 's tier i capital .
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financial condition and results of operations the following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes thereto included in item 8 of this 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 such differences are discussed in the sections titled “ forward-looking statements ” and “ item 1a - risk factors. ” general the following discussion and analysis presents our financial condition and results of operations on a consolidated basis . however , because we conduct all of our material business operations through the bank , the discussion and analysis relates to activities primarily conducted at the bank . executive overview we are the holding company for investors community bank , which is headquartered in manitowoc , wisconsin . our results of operations depend primarily on our net interest income . net interest income is the difference between the interest income we earn on our interest-earning assets , such as loans , and the interest we pay on interest-bearing liabilities , such as deposits . we generate most of our revenue from interest on loans and investments and loan- and deposit-related fees . our loan portfolio consists of a mix of agricultural , commercial real estate , commercial , residential real estate and installment and consumer loans . our primary source of funding is deposits . our largest expenses are interest on these deposits and salaries and related employee benefits . we measure our performance through various metrics , including our net income , net interest margin , efficiency ratio , return on average assets , return on average common shareholders ' equity , earnings per share , and non-performing assets to total assets . we must also maintain appropriate regulatory leverage and risk-based capital ratios .
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as a result , the compensation committee reviews the number of stock options exercised by senior executive officers during recent periods , if any , as well as stock options currently held by the senior executive officers . this analysis enables the compensation committee to determine whether the grant of additional stock-based compensation may be advisable to ensure that our senior executive officers ' long term interests are aligned with those of the company . based on the foregoing , the compensation committee focuses on the following criteria when developing our executive compensation program : compensation should be based on the level of job responsibility , executive performance , and our performance ; compensation should enable us to attract and retain key talent ; compensation should be competitive with compensation offered by 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 a review of the other items included in this form 10-k and our december 31 , 2012 consolidated financial statements included elsewhere in this report . certain statements contained in this md & a may be deemed to be forward-looking statements . see special note regarding forward-looking statements. overview general lsb is a manufacturing and marketing company operating through our subsidiaries . lsb and its wholly-owned subsidiaries own the following core businesses : chemical business manufactures and sells nitrogen-based chemical products produced from four facilities located in el dorado , arkansas ; cherokee , alabama ; pryor , oklahoma ; and baytown , texas for the agricultural , industrial and mining markets . our products include high purity and commercial grade anhydrous ammonia for industrial and agricultural applications , industrial and fertilizer grade an , uan , sulfuric acids , nitric acids in various concentrations , nitrogen solutions , def and various other products . also see discussion below under liquidity and capital resourcescapital expenditures concerning an acquisition of working interests in certain natural gas properties . for 2012 , approximately 63 % of our consolidated net sales relates to the chemical business . climate control business manufactures and sells a broad range of hvac products in the niche markets we serve consisting of geothermal and water source heat pumps , hydronic fan coils , large custom air handlers , modular geothermal and other chillers and other related products used to control the environment in commercial/institutional and residential new building construction , renovation of existing buildings and replacement of existing systems . for 2012 , approximately 35 % of our consolidated net sales relates to the climate control business . downtime at certain chemical facilities and certain capital expenditures during 2012 , our chemical business encountered a number of significant issues including an explosion in one of our nitric acid plants at the el dorado facility in may , a pipe rupture at the cherokee facility in november that damaged the ammonia plant and mechanical issues at the pryor facility all resulting in lost production and significant adverse effect on 2012 sales , operating income and cash flow . for 2012 , we estimate the cumulative negative effect on operating income from these incidents and issues to be approximately $ 83 million , including lost absorption and gross profit margins . until the facilities are returned to normal production , operating income at these facilities will continue to be lower in 2013 than otherwise would be expected . we estimate that the monthly negative effect on operating income will approximate $ 1 million to $ 2 million at the el dorado facility until the new 65 % strength nitric acid plant and the 98 % concentrated nitric acid plant are constructed and begin production during the first half of 2015. the estimated combined cost for these new nitric acid plants is up to approximately $ 120 million . in addition , we estimate that the monthly negative effect on operating income will approximate $ 8 million to $ 9 million at the cherokee facility until the repairs of the ammonia plant are completed and production resumes , which production is currently scheduled to begin in may 2013. also we estimate the monthly adverse effect on the pryor facility 's operating income in 2013 prior to the restart of the ammonia plant in march 2013 was approximately $ 8 million . although the events are unrelated to each other , the severity and frequency of the events at our pryor , cherokee , and el dorado facilities caused us to undergo a thorough reexamination of our process safety management ( psm ) , reliability and mechanical integrity programs . as a result , we have recently undertaken a concerted program to attempt to improve the reliability and mechanical integrity of our chemical plant facilities . a key component of the improvement program is the implementation of enhanced psm programs to supplement existing psm programs . the improvement program includes engaging outside experts and consultants who specialize in risk management , reliability , mechanical integrity and psm . we are also recruiting and hiring additional corporate and plant engineering and operational personnel , and accelerating acquisition of additional spare parts to supplement our existing spare parts program . we estimate to incur expenses of approximately $ 1.0 million associated with these programs . the program also includes the installation of additional automation and additional plant equipment protections . also see discussion concerning planned capital expenditures associated with these programs under liquidity and capital resources capital expenditures . 27 as a result of certain of the events discussed above , we filed insurance claims to recover a portion of the costs incurred and lost profits . see further discussion relating to the downtime of certain chemical facilities and our property and business interruption insurance claims and recovery below under downtime at certain chemical facilities-2012. we are also planning to construct an ammonia plant at the el dorado facility at an estimated cost ranging from $ 250 million to $ 300 million . story_separator_special_tag we believe the el dorado facility 's nitric acid production capacity will be lower than prior periods , by approximately 20 % , until the first half of 2015 while awaiting the construction of the new 65 % strength nitric acid plant . the lower production will result in lower sales volumes at the el dorado facility . see discussion as to recovery and claims under our insurance policies below under downtime at certain chemical facilities 2012 . as previously reported , in may 2012 , we received permits to operate the two smaller ammonia plants at the pryor facility . these plants have begun limited operation . in addition during august 2012 , el dorado chemical company ( edc ) entered into an amendment to edc 's anhydrous ammonia purchase agreement with koch nitrogen international sàrl ( koch ) . under the amendment , koch agrees to supply certain of edc 's requirements of anhydrous ammonia at the el dorado facility through december 31 , 2015. we have also filed for permits with the adeq for the new 65 % strength nitric acid plant , the new 98 % concentrated nitric acid plant , and to construct the possible new ammonia plant . climate control business our climate control sales for 2012 were $ 266.2 million , or approximately $ 15.4 million lower than 2011 , and included a $ 21.1 million decrease in geothermal and water source heat pump sales , partially offset by a $ 1.4 million increase in hydronic fan coil sales and a $ 4.3 million increase in other hvac sales . from a market sector perspective , the net decline included a $ 12.6 million decrease in residential product sales and a $ 2.8 million decrease in commercial/institutional product sales . we believe the decline in residential product sales is due to low consumer confidence , which coupled with low natural gas prices and the slowdown in the single-family residential sectors we serve ( high end housing ) , caused a contraction in new construction as well as retrofits . the slight decline in the commercial/institutional sector of our business was related to timing of shipments considering the order levels for our commercial/institutional products increased 6 % compared to 2011 resulting in a growth in our backlog . we continue to follow economic indicators and have attempted to assess the impact on the commercial/institutional and residential construction sectors that we serve , including , but not limited to , new construction and or renovation of facilities in the following sectors : education single-family residential multi-family residential healthcare hospitality retail industrial during 2012 , approximately 82 % of our climate control business ' sales were to the commercial/institutional and multi-family construction markets , and the remaining 18 % were sales of geothermal heat pumps ( ghps ) to the single-family residential market . 30 the following table shows information relating to our product order intake level , net sales and backlog of confirmed customer product orders of our climate control business : replace_table_token_11_th ( 1 ) our product order level consists of confirmed purchase orders from customers that have been accepted and received credit approval . our backlog consists of confirmed customer orders for product to be shipped at a future date . historically , we have not experienced significant cancellations relating to our backlog of confirmed customer product orders , and we expect to ship substantially all of these orders within the next twelve months ; however , it is possible that some of our customers could cancel a portion of our backlog or extend the shipment terms . product orders and backlog , as reported , generally do not include amounts relating to shipping and handling charges , service orders or service contract orders . in addition , product orders and backlog , as reported , exclude contracts related to our construction business due to the relative size of individual projects and , in some cases , extended timeframe for completion beyond a twelve-month period . for january 2013 , our new orders received were approximately $ 25 million and our backlog was approximately $ 61 million at january 31 , 2013. our ghps use a form of renewable energy and , under certain conditions , we believe can reduce energy costs up to 80 % compared to some conventional hvac systems . tax legislation continues to provide incentives for customers purchasing products using forms of renewable energy . homeowners who install ghps are eligible for a 30 % tax credit . businesses that install ghps are eligible for a 10 % tax credit and five-year accelerated depreciation on the balance of the system cost . under currently enacted legislation , these tax credits for homeowners and tax credits and accelerated depreciation for business owners are effective through december 31 , 2016. during 2013 , businesses also have the option of electing 50 % bonus depreciation on qualifying equipment , such as ghps , that are placed in service during the year . we expect the climate control business to experience moderate sales growth in the short-term compared to 2012. although a significant part of the climate control business ' sales are products that are used for renovation and replacement application , sales increases in the medium-term and long-term are expected to be primarily driven by growth in new construction , as well as the introduction of new products . we continue to increase our sales and marketing efforts for all of our climate control products in an effort to increase our share of the existing market for our products as well as expand the market for and application of our products , including ghps . downtime at certain chemical facilities 2012 pryor facility beginning in early january 2012 through early february 2012 , a planned project was performed at the pryor facility , during which time the facility was not producing ammonia or uan .
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2012 results our consolidated net sales for 2012 were $ 759.0 million , a decrease of $ 46.2 million compared to 2011. the sales decrease included a decrease of $ 34.0 million in our chemical business and a decrease of $ 15.4 million in our climate control business . our consolidated operating income was $ 95.7 million for 2012 , a decrease of $ 40.8 million compared to 2011. the decrease in operating income included a decrease of $ 34.4 million in our chemical business and a decrease of $ 6.9 million in our climate control business . in addition , our general corporate expense and other business operations net expenses decreased $ 0.5 million . our resulting effective income tax rate for 2012 and 2011 was approximately 36 % for both periods . chemical business our chemical business operates four chemical facilities . the cherokee and pryor facilities produce anhydrous ammonia and nitrogen products from natural gas delivered by pipeline but can also receive supplemental anhydrous ammonia by other modes of delivery . the el dorado and baytown facilities produce nitrogen products from anhydrous ammonia delivered by pipeline . our chemical business sales for 2012 were $ 477.8 million , a decrease of $ 34.0 million compared to 2011 , which includes a $ 14.3 million decrease in agricultural products sales , a $ 0.7 million increase in industrial acids and other products sales , and a $ 21.9 million decrease in mining products sales . in addition , during the fourth quarter of 2012 , our chemical business recognized a minimal amount of net sales of natural gas as the result of the acquisition of working interests in certain natural gas properties as discussed below under liquidity and capital resources capital expenditures .
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“ anadarko ” refers to anadarko petroleum corporation and its subsidiaries , excluding us and wgp gp , and “ affiliates ” refers to subsidiaries of anadarko , excluding us , and includes equity interests in fort union gas gathering , llc ( “ fort union ” ) , white cliffs pipeline , llc ( “ white cliffs ” ) , rendezvous gas services , llc ( “ rendezvous ” ) , enterprise ef78 llc ( the “ mont belvieu jv ” ) , texas express pipeline llc ( “ tep ” ) , texas express gathering llc ( “ teg ” ) and front range pipeline llc ( “ frp ” ) . the interests in tep , teg and frp are referred to collectively as the “ tefr interests. ” all income earned on , distributions from and contributions to , our equity investments are considered to be affiliate transactions . “ equity investment throughput ” refers to wes 's 14.81 % share of average fort union throughput and 22 % share of average rendezvous throughput , but excludes throughput measured in barrels , consisting of wes 's 10 % share of average white cliffs throughput , 25 % share of average mont belvieu jv throughput , 20 % share of average tep and teg throughput and 33.33 % share of average frp throughput . the “ dj basin complex ” refers to the platte valley system , wattenberg system , and lancaster plant , all of which were combined into a single complex in the first quarter of 2014. in november 2014 , wes completed the acquisition of nuevo midstream , llc ( “ nuevo ” ) from a third party . following the acquisition , wes changed the name of nuevo to delaware basin midstream , llc ( “ dbm ” ) . the term “ wes assets ” refers to the assets indirectly owned and interests accounted for under the equity method by us through our partnership interests in wes as of december 31 , 2014 ( see note 10—equity investments in the notes to consolidated financial statements under item 8 of this form 10-k ) . because we own the entire interest in and control wes gp , and wgp gp is owned and controlled by anadarko , each of wes 's acquisitions of wes assets from anadarko has been considered a transfer of net assets between entities under common control . as such , wes assets acquired from anadarko were initially recorded at anadarko 's historic carrying value , which did not correlate to the total acquisition price paid by wes ( see note 2—acquisitions in the notes to consolidated financial statements under item 8 of this form 10-k ) . further , after an acquisition of wes assets from anadarko , we , by virtue of our consolidation of wes , may be required to recast our financial statements to include the activities of such wes assets from date of common control . for those periods requiring recast , the consolidated financial statements for periods prior to the acquisition of wes assets from anadarko , have been prepared from anadarko 's historical cost-basis accounts and may not necessarily be indicative of the actual results of operations that would have occurred if wes had owned the wes assets during the periods reported . for ease of reference , we refer to the historical financial results of the wes assets prior to the acquisitions from anadarko as being “ our ” historical financial results . the following discussion analyzes our financial condition and results of operations and should be read in conjunction with our consolidated financial statements and notes to consolidated financial statements , in which western gas partners , lp is fully consolidated , which are included in item 8 of this form 10-k 75 executive summary we were formed by anadarko in september 2012 by converting wgr holdings , llc into an mlp and changing its name to western gas equity partners , lp . we closed our initial public offering “ ipo ” in december 2012 and own wes gp and a significant limited partner interest in wes , a growth-oriented delaware mlp organized by anadarko to own , operate , acquire and develop midstream energy assets . our consolidated financial statements include the consolidated financial results of wes due to our 100 % ownership interest in wes gp and wes gp 's control of wes . our only cash-generating assets consist of our partnership interests in wes , and we currently have no independent operations . wes currently owns or has investments in assets located in the rocky mountains ( colorado , utah and wyoming ) , the mid-continent ( kansas and oklahoma ) , north-central pennsylvania and texas , and is engaged in the business of gathering , processing , compressing , treating and transporting natural gas , condensate , ngls and crude oil for anadarko , as well as for third-party producers and customers . as of december 31 , 2014 , wes 's assets and investments accounted for under the equity method consisted of the following : replace_table_token_13_th significant financial and operational highlights during the year ended december 31 , 2014 included the following : we raised our distribution to $ 0.31250 per unit for the fourth quarter of 2014 , representing a 7 % increase over the distribution for the third quarter of 2014 and a 35 % increase over the distribution for the fourth quarter of 2013 . wes completed the acquisition of dbm from a third party . dbm 's assets serve production from reeves , loving and culberson counties , texas and eddy and lea counties , new mexico . see acquisitions under items 1 and 2 of this form 10-k for additional information . wes issued 10,913,853 class c units to a subsidiary of anadarko , at a price of $ 68.72 per unit , generating proceeds of $ 750.0 million , all of which was used to fund a portion of the acquisition of dbm . story_separator_special_tag see risk factors under item 1a and note 5—transactions with affiliates in the notes to consolidated financial statements under item 8 of this form 10-k. wes also has indirect exposure to commodity price risk in that persistent low natural gas prices have caused and may continue to cause current or potential customers to delay drilling or shut in production in certain areas , which would reduce the volumes of natural gas available for wes 's systems . wes also bears a limited degree of commodity price risk through settlement of natural gas imbalances . please read item 7a of this form 10-k. as a result of acquisitions from anadarko and third parties , our results of operations , financial position and cash flows may vary significantly for 2014 , 2013 and 2012 as compared to future periods . please see the caption items affecting the comparability of financial results , set forth below in this item 7. how wes evaluates its operations wes 's management relies on certain financial and operational metrics to analyze its performance . these metrics are significant factors in assessing wes 's operating results and profitability and include ( 1 ) throughput , ( 2 ) operating and maintenance expenses , ( 3 ) general and administrative expenses , ( 4 ) adjusted gross margin ( as defined below ) , ( 5 ) adjusted ebitda ( as defined below ) and ( 6 ) distributable cash flow ( as defined below ) . throughput . throughput is an essential operating variable wes uses in assessing its ability to generate revenues . in order to maintain or increase throughput on wes 's gathering and processing systems , wes must connect additional wells to its systems . wes 's success in maintaining or increasing throughput is impacted by the successful drilling of new wells by producers that are dedicated to wes 's systems , recompletions of existing wells connected to its systems , its ability to secure volumes from new wells drilled on non-dedicated acreage and its ability to attract natural gas volumes currently gathered , processed or treated by its competitors . during the year ended december 31 , 2014 , wes added 287 receipt points to its systems . operating and maintenance expenses . wes monitors operating and maintenance expenses to assess the impact of such costs on the profitability of its assets and to evaluate the overall efficiency of its operations . operating and maintenance expenses include , among other things , field labor , insurance , repair and maintenance , equipment rentals , contract services , utility costs and services provided to wes or on its behalf . for periods commencing on the date of and subsequent to wes 's acquisition of its assets , certain of these expenses are incurred under and governed by wes 's services and secondment agreement with anadarko . 78 general and administrative expenses . to help ensure the appropriateness of wes 's general and administrative expenses and maximize its cash available for distribution , wes monitors such expenses through comparison to prior periods , to the annual budget approved by wes gp 's board of directors , as well as to general and administrative expenses incurred by similar midstream companies . pursuant to the wes omnibus agreement , anadarko and wes gp perform centralized corporate functions for wes . general and administrative expenses for periods prior to wes 's acquisition of the wes assets include costs allocated by anadarko in the form of a management services fee , which approximated the general and administrative costs incurred by anadarko attributable to the wes assets . for periods subsequent to the acquisition of the wes assets , anadarko is no longer compensated for corporate services through a management services fee . instead , allocations and reimbursements of general and administrative expenses are determined by anadarko in its reasonable discretion , in accordance with wes 's partnership agreement and the wes omnibus agreement . amounts required to be reimbursed to anadarko under wes 's omnibus agreement also include those expenses attributable to its status as a publicly traded partnership , such as the following : expenses associated with annual and quarterly reporting ; tax return and schedule k-1 preparation and distribution expenses ; expenses associated with listing on the new york stock exchange ; and independent auditor fees , legal expenses , investor relations expenses , director fees , and registrar and transfer agent fees . see further detail under items affecting the comparability of financial results —western gas partners , lp —general and administrative expenses below and note 5—transactions with affiliates in the notes to consolidated financial statements under item 8 of this form 10-k . non-gaap financial measures adjusted gross margin attributable to western gas partners , lp . wes defines adjusted gross margin attributable to western gas partners , lp ( “ adjusted gross margin ” ) as total revenues less cost of product , plus distributions from equity investees and excluding the noncontrolling interest owners ' proportionate share of revenue and cost of product . wes believes adjusted gross margin is an important performance measure of the core profitability of its operations , as well as its operating performance as compared to that of other companies in the industry . cost of product expenses include ( i ) costs associated with the purchase of natural gas and ngls pursuant to wes 's percent-of-proceeds and keep-whole processing contracts , ( ii ) costs associated with the valuation of wes 's gas imbalances , ( iii ) costs associated with wes 's obligations under certain contracts to redeliver a volume of natural gas to shippers , which is thermally equivalent to condensate retained by wes and sold to third parties , and ( iv ) costs associated with wes 's fuel-tracking mechanism , which tracks the difference between actual fuel usage and loss , and amounts recovered for estimated fuel usage and loss pursuant to its contracts .
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operating results the following tables and discussion present a summary of wes 's results of operations : replace_table_token_21_th ( 1 ) revenues include amounts earned by wes from services provided to its affiliates , as well as from the sale of residue , condensate and ngls to its affiliates . operating expenses include amounts charged by wes affiliates for services as well as reimbursement of amounts paid by affiliates to third parties on wes 's behalf . see note 5—transactions with affiliates in the notes to consolidated financial statements under item 8 of this form 10-k. ( 2 ) for reconciliations to comparable consolidated results of wgp , see items affecting the comparability of financial results within this item 7 . ( 3 ) adjusted gross margin attributable to western gas partners , lp , adjusted ebitda attributable to western gas partners , lp and distributable cash flow are defined under the caption how wes evaluates its operations—non-gaap financial measures within this item 7. for reconciliations of adjusted gross margin attributable to western gas partners , lp , adjusted ebitda attributable to western gas partners , lp and distributable cash flow to their most directly comparable financial measures calculated and presented in accordance with gaap , see how wes evaluates its operations—reconciliation to gaap measures within this item 7. for purposes of the following discussion , any increases or decreases “ for the year ended december 31 , 2014 ” refer to the comparison of the year ended december 31 , 2014 , to the year ended december 31 , 2013 , and any increases or decreases “ for the year ended december 31 , 2013 ” refer to the comparison of the year ended december 31 , 2013 , to the year ended december 31 , 2012 .
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the total expense based on the grant date fair value , which is reduced by estimated forfeitures , is recognized over the vesting period for these awards which is 75 % over three years from the date of grant and 25 % over story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and the notes thereto included in item 8 to this report . introduction our revenues are highly correlated to the level of aum and fees associated with our various investment products , rather than our own corporate assets . aum , which are directly influenced by the level and changes of the overall equity markets , can also fluctuate through acquisitions , the creation of new products , the addition of new accounts or the loss of existing accounts . since various equity products have different fees , changes in our business mix may also affect revenues . at times , the performance of our equity products may differ markedly from popular market indices , and this can also impact our revenues . it is our belief that general stock market trends will have the greatest impact on our level of aum and hence , revenues . as of december 31 , 2012 , we had $ 36.4 billion of aum . we conduct our investment advisory business principally through : gamco ( institutional and private wealth management ) , funds advisor ( mutual funds ) and gsi ( investment partnerships ) . we also act as an underwriter and provide institutional research services through gabelli & company , a broker-dealer subsidiary , and are a distributor of our open-end mutual funds through our other broker-dealer subsidiary g.distributors . overview consolidated statements of income investment advisory and incentive fees , which are based on the amount and composition of aum in our mutual funds , institutional and private wealth management accounts and investment partnerships , represent our largest source of revenues . in addition to the general level and trends of the stock market , growth in revenues depends on good investment performance , which influences the value of existing aum as well as contributes to higher investment and lower redemption rates and facilitates the ability to attract additional investors while maintaining current fee levels . growth in aum is also dependent on being able to access various distribution channels , which is usually based on several factors , including performance and service . a majority of our cash inflows to mutual fund products have come through third party distribution programs , including ntf programs . we have also been engaged to act as a sub-advisor for other much larger financial services companies with much larger sales distribution organizations . these sub-advisory clients are subject to business combinations that may result in the termination of the relationship . the loss of a sub-advisory relationship could have a significant impact on our financial results in the future . advisory fees from the open-end funds , closed-end funds and sub-advisory accounts are computed daily or weekly based on average net assets . advisory fees from institutional and private wealth management clients are generally computed quarterly based on account values as of the end of the preceding quarter . management fees from investment partnerships are computed either monthly or quarterly . these revenues are highly correlated to the stock market and can vary in direct proportion to movements in the stock market and the level of sales compared with redemptions , financial market conditions and the fee structure for aum . revenues derived from the equity-oriented portfolios generally have higher management fee rates than fixed income portfolios . revenues from investment partnerships also generally include an incentive allocation on the absolute gain in a portfolio or a fee of 20 % of the economic profit , as defined in the partnership agreement . we recognize revenue only when the measurement period has been completed and when the incentive fees have been earned . we also receive incentive fees from certain institutional and private wealth management clients , which are based upon meeting or exceeding a specific benchmark index or indices . these fees are recognized at the end of the stipulated contract period , which may be quarterly or annually , for the respective account . management fees on assets attributable to a majority of the closed-end preferred shares are earned at year-end if the total return to common shareholders of the closed-end fund for the calendar year exceeds the dividend rate of the preferred shares . these fees are recognized at the end of the measurement period . institutional research services revenues consist of brokerage commissions derived from securities transactions executed on an agency basis on behalf of mutual funds , institutional and private wealth management clients as well as investment banking revenue , which consists of underwriting profits , selling concessions and management fees associated with underwriting activities . commission revenues vary directly with account trading activity and new account generation . investment banking revenues are directly impacted by the overall market conditions , which affect the number of public offerings which may take place . 28 distribution fees and other income primarily include distribution fee revenue earned in accordance with rule 12b-1 of the company act , as amended , along with sales charges and underwriting fees associated with the sale of the mutual funds plus other revenues . distribution fees fluctuate based on the level of aum and the amount and type of mutual funds sold directly by g.distributors or through various distribution channels . compensation costs include variable and fixed compensation and related expenses paid to officers , portfolio managers , sales , trading , research and all other professional staff . variable compensation paid to sales personnel and portfolio management generally represents 40 % of revenues and is the largest component of total compensation costs . distribution costs include marketing , product distribution and promotion costs . story_separator_special_tag we returned to shareholders a total of $ 0.18 per share in regular quarterly cash dividends , two special cash dividends of $ 0.25 per share each and one special cash dividend of $ 2.20 per share totaling $ 76.4 million during 2012. during 2011 , we returned $ 51.2 million of our earnings to shareholders through dividends and stock repurchases . we returned to shareholders $ 0.15 per share in regular quarterly cash dividends and a special dividend of $ 1.00 per share totaling $ 30.8 million during 2011. through our stock buyback program , we repurchased 1,138,313 and 450,966 shares in 2012 and 2011 , respectively , for a total of approximately $ 54.9 million and $ 20.4 million , respectively or $ 48.25 and $ 45.24 per share , respectively . approximately 152,000 shares remain authorized under our stock buyback program at december 31 , 2012. weighted average shares outstanding on a diluted basis in 2012 were 26.4 million . 33 at december 31 , 2012 , we had 68,623 options outstanding to purchase our class a stock . the allocation of the options was recommended by the company 's chairman who did not receive options . replace_table_token_11_th operating income before management fee expense is used by management for purposes of evaluating its business operations . we believe this measure is useful in illustrating the operating results of the company as management fee expense is based on pre-tax income before management fee expense , which includes non-operating items including investment gains and losses from the company 's proprietary investment portfolio and interest expense . we believe that an investor would find this useful in analyzing the business operations of the company without the impact of the non-operating items such as trading and investment portfolios or interest expense . operating results for the year ended december 31 , 2011 as compared to the year ended december 31 , 2010 revenues total revenues were $ 327.1 million in 2011 , $ 46.7 million or 16.7 % higher than the total revenues of $ 280.4 million in 2010. the change in total revenues by revenue component was as follows ( dollars in millions ) : replace_table_token_12_th investment advisory and incentive fees : investment advisory fees , which comprised 77.2 % of total revenues in 2011 , are directly influenced by the level and mix of average aum . average total aum rose 20.8 % to $ 34.3 billion in 2011 as compared to $ 28.4 billion in 2010. average equity aum rose 22.6 % to $ 32.6 billion in 2011 from $ 26.6 billion in 2010. incentive fees , which comprised 4.7 % of total revenues in 2011 , result from our ability to either generate an absolute return in a portfolio or meet or exceed a specific benchmark index or indices and can vary significantly from one period to another . incentive fees were lower in 2011 as markets were largely impacted by the prevailing global economic climate . mutual fund revenues increased $ 26.6 million or 18.2 % , to $ 172.7 million , driven by higher average aum . revenue from open-end funds increased $ 23.1 million , or 23.9 % , from the prior year as average aum in 2011 increased $ 2.7 billion , or 24.1 % , to $ 13.9 billion from the $ 11.2 billion in 2010. closed-end fund revenues increased $ 3.5 million , or 7.1 % , to $ 53.1 million from the prior year . the increase was primarily attributable to higher average aum of $ 5.9 billion during 2011 as compared with $ 4.9 billion during 2010 , and was offset by a $ 7.0 million decline in incentive fees on certain preferred closed-end fund aum . revenue from institutional and private wealth management accounts , which are generally billed on beginning quarter aum , increased $ 10.0 million , or 12.7 % , principally due to higher billable aum levels throughout the course of 2011 partially offset by a decrease of $ 2.6 million in incentive fees earned on certain accounts . in 2011 , average aum in our equity institutional and private wealth management business increased $ 2.0 billion , or 16.8 % , for the year to $ 13.9 billion . 34 total advisory fees from investment partnerships were unchanged at $ 6.4 million in both 2011 and 2010. management fee revenues were $ 4.1 million in 2011 , an increase of $ 1.3 million or 46.4 % , from the $ 2.8 million in 2010 as average aum increased $ 173 million , or 42.0 % , to $ 585 million in 2011 from $ 412 million in 2010. this increase was offset by a decrease of $ 1.3 million to $ 2.3 million in 2011 from $ 3.6 million in 2010 in incentive allocations and fees from investment partnerships , which generally represent 20 % of the economic profit . institutional research services : institutional research services revenues in 2011 were $ 14.3 million , a $ 2.3 million or 13.9 % decrease from $ 16.6 million in 2010 largely the result of lower trading volume . institutional research services revenues derived from transactions on behalf of our mutual funds and institutional and private wealth management clients totaled $ 10.7 million , or approximately 75 % of total institutional research services revenues in 2011. distribution fees and other income : distribution fees and other income increased $ 12.3 million , or 37.8 % , to $ 44.8 million in 2011 from $ 32.5 million in 2010. the increase was primarily due to higher distribution fees of $ 39.7 million in 2011 versus $ 29.0 million for the prior year , principally as a result of increased average aum in our open-end equity mutual funds of 28.4 % and an increase of $ 1.4 million in fees from the sale of load shares of mutual funds .
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assets under management highlights ( unaudited ) we reported assets under management as follows ( dollars in millions ) : replace_table_token_7_th our net cash inflows or outflows by product line were as follows ( in millions ) : replace_table_token_8_th ( a ) includes $ 104 million and $ 100 million of proprietary seed capital at december 31 , 2012 and december 31 , 2011 , respectively . ( b ) our net cash inflows or outflows for closed-end equity funds includes distributions , net of reinvestments , to fund holders of $ 454 million , $ 396 million and $ 328 million in 2012 , 2011 and 2010 , respectively . 30 our net appreciation and depreciation by product line were as follows ( in millions ) : replace_table_token_9_th aum at december 31 , 2012 were $ 36.4 billion , an increase of 6.8 % from aum of $ 34.1 billion at december 31 , 2011. equity aum were $ 34.7 billion on december 31.2012 , 7.5 % above the $ 32.2 billion on december 31 , 2011. we earn incentive fees for certain institutional client assets , assets attributable to certain preferred issues for our closed-end funds , our gdl fund ( nyse : gdl ) and investment partnership assets . as of december 31 , 2012 , assets with incentive based fees were $ 3.7 billion , unchanged from the $ 3.7 billion on december 31 , 2011. the majority of these assets have calendar year-end measurement periods ; therefore , our incentive fees are primarily recognized in the fourth quarter when the uncertainty is removed at the end of the annual measurement period .
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the following discussion contains forward-looking statements that reflect our plans , estimates , beliefs and expectations that involve risks and uncertainties . our actual results and the timing of events could differ materially from those discussed in these forward-looking statements . important factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report on form 10-k , particularly in part i , item 1a . “ risk factors ” and the section entitled “ cautionary note regarding forward-looking statements. ” overview we are a clinical-stage biopharmaceutical company focused on developing and commercializing innovative therapeutics for the treatment of respiratory diseases with significant unmet medical need . our product candidate , ensifentrine , is an investigational , potential first-in-class , inhaled , dual inhibitor of the enzymes phosphodiesterase 3 and 4 , or pde3 and pde4 , that is designed to act as both a bronchodilator and an anti-inflammatory agent . in the third quarter of 2020 we commenced our phase 3 enhance trials and , if approved , we intend to commercialize ensifentrine for the maintenance treatment of copd for the nebulized formation in the u.s. we have incurred recurring losses and negative cash flows from operations since inception , and have an accumulated deficit of $ 207.1 million as of december 31 , 2020. we expect to incur additional losses and negative cash flows from operations until our product candidates potentially gain regulatory approval and reach commercial profitability , if at all . we anticipate that our expenses will increase significantly in connection with our ongoing activities , as we : continue to invest in the clinical development of ensifentrine for the treatment of copd ; manufacture ensifentrine and engage in other chemistry , manufacturing and control activities ; maintain , expand and protect our intellectual property portfolio ; and enhance our commercial insights and capabilities . on july 17 , 2020 , we raised $ 200 million in a private placement ( the `` private placement '' ) , with net proceeds after transaction related fees and expenses of $ 185.5 million . in november 2020 , we and verona pharma , inc. ( `` verona u.s. '' ) entered into a term loan facility of up to $ 30.0 million ( the “ term loan ” ) , consisting of term loan advances in an aggregate amount of $ 5.0 million funded at closing , a term loan advance available subject to certain terms and conditions in an aggregate amount of $ 10.0 million , and a term loan advance available subject to certain terms and conditions in an aggregate amount of $ 15.0 million with silicon valley bank ( “ svb ” ) . see “ indebtedness ” below . we believe that our cash and cash equivalents as of december 31 , 2020 , together with funding expected to become available under the term loan and from cash receipts from u.k. tax credits , will enable us to fund our planned operating expenses and capital expenditure requirements into 2023 . 66 covid-19 impact and business continuity to help protect the health and safety of the patients , caregivers and healthcare professionals involved in its ongoing clinical trials of ensifentrine , as well as our employees and independent contractors , we continue to follow guidance from the fda and other health regulatory authorities regarding the conduct of clinical trials during the covid-19 pandemic to ensure the safety of study participants , minimize risks to study integrity , and maintain compliance with good clinical practice . we continue to review this guidance and the effect of the covid-19 pandemic on our operations and clinical trials and will provide an update if we become aware of any meaningful disruption caused by the pandemic to our clinical trials . we are closely monitoring activities at our contract manufacturers associated with clinical supply for our ongoing clinical trials , and are satisfied that appropriate plans and procedures are in place to ensure uninterrupted future supply of ensifentrine to the clinical trial sites , subject to potential limitations on their operations and on the supply chain due to the covid-19 pandemic . we continue to monitor this situation and will provide an update if we become aware of any meaningful disruption caused by the pandemic to the clinical supply of ensifentrine for our clinical trials . significant contracts ligand agreement in 2006 we acquired rhinopharma and assumed contingent liabilities owed to ligand uk development limited ( “ ligand ” ) ( formerly vernalis development limited ) . we refer to the assignment and license agreement as the ligand agreement . ligand assigned to us all of its rights to certain patents and patent applications relating to ensifentrine and related compounds ( the `` ligand patents '' ) and an exclusive , worldwide , royalty-bearing license under certain ligand know-how to develop , manufacture and commercialize products ( the `` licensed products '' ) developed using ligand patents , ligand know-how and the physical stock of certain compounds . the contingent liability comprises a milestone payment on obtaining the first approval of any regulatory authority for the commercialization of a licensed product , low single digit royalties based on the future sales performance of all licensed products and a portion equal to a mid-twenty percent of any consideration received from any sub-licensees for the ligand patents and for ligand know-how . at time of the acquisition the contingent liability was not recognized as part of the acquisition accounting as it was immaterial . we will therefore record as an r & d expense the milestone payment or royalties when they are payable . warrants on july 29 , 2016 , as part of a placement we issued warrants to investors . the warrant holders can subscribe for an ordinary share at a per share exercise price of £1.7238 . they can also opt for a cashless exercise of their warrants whereby they can choose to exchange the warrants held for a reduced number of warrants exercisable at nil consideration . story_separator_special_tag cash flows the following table summarizes our cash flows for the years ended december 31 , 2020 and 2019 ( in thousands ) : replace_table_token_2_th operating activities net cash used in operating activities increased to $ 45.1 million 2020 , from $ 42.9 million in 2019 , an increase of $ 2.2 million . operating expenses increased by $ 19.8 million , however $ 19.1 million of this was the non-cash share based compensation expense . the remaining variance of $ 1.5 million is due to the timing of supplier payments . investing activities net cash provided by investing activities decreased to $ 9.7 million for 2020 , from $ 47.3 million in 2019 due to less movement of funds from short term investments to cash in 2020. financing activities net cash provided by financing activities was $ 192.3 million for 2020 driven by net proceeds from the private placement and the first advance received under the term loan . we received $ 185.5 million after costs in the private placement . of the costs , $ 1.9 million were recorded in the statement of operations and comprehensive loss and therefore included in net cash used in operating activities . financing activities also includes a net $ 4.9 million receipt from the term loan facility . there was no cash provided by financing activities during the year ended december 31 , 2019. liquidity and capital resources we do not currently have any approved products and have never generated any revenue from product sales or otherwise . to date , we have financed our operations primarily through the issuances of our equity securities , including warrants , and in 2020 from borrowings under the term loan . we have incurred recurring losses since inception , including net losses of $ 65.1 million , and $ 40.6 million for the years ended december 31 , 2020 , and 2019 , respectively . in addition , as of december 31 , 2020 , we had an accumulated deficit of $ 207.1 million . we expect to continue to generate operating losses for the foreseeable future . 72 in july 2020 , we raised approximately $ 200 million in the private placement with new and existing institutional and accredited investors . the private placement comprised a placement of 38,440,009 adss , each representing eight ordinary shares or non-voting ordinary shares of the company , at a price of $ 4.50 per ads , and 48,088,896 of the company 's ordinary shares at the equivalent price per ordinary share of $ 0.5625. the net proceeds of the private placement were approximately $ 185.5 million after deducting placement agent fees and associated expenses ( including costs recorded to both equity and as expense in the consolidated statement of operations and comprehensive loss ) . we have no ongoing material financing commitments , such as lines of credit or guarantees , that are expected to affect our liquidity over the next five years , other than leases and the term loan with silicon valley bank . indebtedness in november , 2020 , we and verona pharma , inc. ( the “ borrowers ” ) entered into the term loan facility of up to $ 30.0 million , consisting of term loan advances in an aggregate amount of $ 5.0 million funded at closing , a term loan advance available subject to certain terms and conditions in an aggregate amount of $ 10.0 million ( the “ term b loan ” ) and a term loan advance available subject to certain terms and conditions in an aggregate amount of $ 15.0 million ( the “ term c loan ” ) , with silicon valley bank , a california corporation ( “ svb ” ) , the proceeds of which will be used for general corporate and working capital purposes . the term loan is governed by a loan and security agreement , dated as of november 19 , 2020 , between the borrowers and svb ( the “ loan agreement ” ) . the term b loan will be available , subject to and customary terms and conditions , during the period commencing upon the achievement of a specific clinical milestone relating to ensifentrine through and including june 30 , 2022. the term c loan will be available , subject to customary terms and conditions , during the period commencing upon the achievement of an additional specific clinical milestone relating to ensifentrine through and including june 30 , 2023. the term loan will mature on november 1 , 2024. each advance under the term loan accrues interest at a floating per annum rate equal to the greater of ( a ) the sum of the prime rate reported in the wall street journal plus 1.00 % and ( b ) four and one-quarter of one percent ( 4.25 % ) . the term loan provides for interest-only payments on a monthly basis until the payment date immediately preceding december 1 , 2023. thereafter , amortization payments will be payable monthly in equal installments of principal plus monthly payments of accrued interest . upon repayment ( whether at maturity , upon acceleration or by prepayment or otherwise ) , the borrowers shall make a final payment to svb in the amount of 10 % of the aggregate term loans advanced ( the `` final payment '' ) . the borrowers may prepay the term loan in full but not in part provided that the borrowers ( i ) provide ten days prior written notice to svb , ( ii ) pays on the date of such prepayment ( a ) all outstanding principal plus accrued and unpaid interest , ( b ) a prepayment fee of $ 450,000 plus 3.0 % of the term c loans advanced if paid on or before the first anniversary of the closing date ; $ 300,000 plus 2.00 % of the term c loans advanced if paid after the first anniversary of the closing date and on or before the second anniversary of the closing date ; and $ 150,000 plus 1.00 % of the term
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components of results of operations we anticipate that our expenses will increase substantially if and as we : conduct our ongoing phase 3 clinical trials for ensifentrine for the maintenance treatment of copd ; continue the clinical development of our dpi and pmdi formulations of ensifentrine and research and develop other formulations of ensifentrine ; initiate and conduct further clinical trials for ensifentrine for the treatment of acute copd , cf or any other indication ; initiate and progress pre-clinical studies relating to other potential indications of ensifentrine ; seek to discover and develop additional product candidates ; seek regulatory approvals for any of our product candidates that successfully complete clinical trials ; potentially establish a sales , marketing and distribution infrastructure and scale-up manufacturing capabilities to commercialize any products for which we may obtain regulatory approval ; maintain , expand and protect our intellectual property portfolio ; add clinical , scientific , operational , financial and management information systems and personnel , including personnel to support our product development and potential future commercialization efforts and to support our continuing operations as a u.s. public company ; and experience any delays or encounter any issues from any of the above , including but not limited to failed studies , complex results , safety issues or other regulatory challenges . operating expenses r & d costs r & d costs consist of salary and personnel related costs and third party costs for our research and development activities for ensifentrine . personnel related costs include a share based compensation charge relating to our stock option plan . the largest component of third party costs is for clinical trials , as well as manufacturing for clinical supplies and associated development , and pre-clinical studies . research and development costs are expensed as incurred . we expect our research and development costs to significantly increase in the near future as we progress our enhance program .
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30 executive summary xpo logistics , inc. , a delaware corporation , together with its subsidiaries , is a leading non-asset provider of transportation logistics services . we act as a middleman between shippers and carriers who outsource their transportation logistics to us as a third-party provider . as of december 31 , 2013 , we operated at 94 locations : 73 company-owned branches and 21 agent-owned offices . we offer our services through three business segments . our freight brokerage segment places shippers ' freight with qualified carriers , primarily trucking companies . our expedited transportation segment facilitates urgent shipments via independent over-the-road contractors and air charter carriers . our freight forwarding segment arranges domestic and international shipments using ground , air and ocean transport through a network of agent-owned and company-owned locations . in september of 2011 , following the equity investment in the company led by jacobs private equity , llc , we began to implement a strategy to leverage our strengthsincluding management expertise , operational scale and capital resourceswith the goals of significant growth and value creation . by executing our strategy , we have built leading positions in some of the fastest-growing sectors of transportation logistics . in north america , we are the fourth largest provider of freight brokerage services , which , driven by an outsourcing trend , is growing at two to three times the rate of gdp . our acquisitions of 3pd holding , inc. ( 3pd ) and optima service solutions , llc ( optima ) in 2013 ( further described below ) made us the largest provider of heavy goods last-mile delivery logistics in north america , a $ 13 billion sector which , driven by outsourcing by big-box retailers and e-commerce , is growing at five to six times the rate of gdp . in part due to our acquisition of national logistics management ( nlm ) in december of 2013 ( further described below ) , we now manage more expedited shipments than any other company in north america and have established a foothold in managed transportation . expediting is growing due to a trend toward just-in-time inventories in manufacturing . upon completion of the acquisition of pacer international , inc. ( further described below ) , we will be the third largest provider of intermodal services in north america and the largest provider of cross-border mexico intermodal services , a sector that , driven by the efficiencies of long-haul rail and the growth of near-shoring of manufacturing in mexico , is growing at three to five times the rate of gdp . we believe our broad service offering gives us a competitive advantage as many customers , particularly large shippers , focus their relationships on fewer , larger third party logistics providers with deep capacity across a wide range of services . our strategy has three main components : optimization of operations . we are continuing to optimize our existing operations by growing our sales force , implementing advanced information technology , cross-selling our services and leveraging our shared carrier capacity . we have a disciplined framework of processes in place for the recruiting , training and mentoring of newly hired employees . our salespeople market our services to hundreds of thousands of small and medium-sized prospective customers . in addition , we have a strategic and national accounts team focused on developing business relationships with the largest shippers in north america . our network is supported by our national operations center in charlotte , north carolina , which we opened in march of 2012 , and by our information technology . we have a scalable platform in place across the company , with sales , service , carrier and track-and-trace capabilities , as well as benchmarking and analysis . most important to our growth strategy , we are developing a culture of passionate , world-class service for customers . acquisitions . we take a disciplined approach to acquisitions : we look for companies that are highly scalable and are a good strategic fit with our core competency . when we acquire a company , we seek to integrate it with our operations and scale it up by adding salespeople . we integrate the acquired operations with our technology platform , which connects them to our broader organization , and we give them access to our shared carrier pool . we gain more carriers , customers , lane histories and pricing histories with each acquisition , and in some cases an acquisition adds complementary services . 31 we use these resources company-wide to buy transportation more efficiently and to cross-sell a more complete supply chain solution to customers . since the beginning of 2012 , we have developed an active pipeline of targets . in 2012 , we completed the acquisition of four non-asset third party logistics companies . we acquired another six companies in 2013 , including 3pd , the largest non-asset , third party provider of heavy goods , last-mile logistics in north america , and nlm , the largest provider of web-based expedited transportation management in north america . on january 5 , 2014 , we agreed to acquire pacer international , inc. , a tennessee corporation ( pacer ) , the third largest provider of intermodal transportation services in north america . we plan to continue to acquire quality companies that fit our strategy for growth . cold-starts . we believe that cold-starts can generate high returns on invested capital because of the relatively low investment required and the large component of variable-based incentive compensation . we are currently ramping up 23 cold-starts : 10 in freight brokerage , 12 in freight forwarding and one in expedited transportation . we seek to locate our freight brokerage cold-starts in prime areas for sales recruitment . we plan to continue to open cold-start locations where we see the potential for strong returns . story_separator_special_tag we were in compliance , in all material respects , with all covenants related to the credit agreement as of december 31 , 2013. common stock offerings on february 5 , 2014 , we closed a registered underwritten public offering of 15,000,000 shares of common stock , and on february 11 , 2014 we closed as part of the same public offering the sale of an additional 2,250,000 shares as a result of the full exercise of the underwriters ' overallotment option , in each case at a price of $ 25.00 per share ( together , the february 2014 offering ) . we received $ 413.3 million in net proceeds from the february 2014 offering after underwriting discounts and expenses . on august 13 , 2013 , we closed a registered underwritten public offering of 9,694,027 shares of common stock , and on august 16 , 2013 we closed as part of the same public offering the sale of an additional 1,454,104 shares as a result of the full exercise of the underwriters ' overallotment option , in each case at a price of $ 22.75 per share ( together , the august 2013 offering ) . we received $ 239.5 million in net proceeds from the august 2013 offering after underwriting discounts and expenses . on march 20 , 2012 , we closed a registered underwritten public offering of 9,200,000 shares of common stock ( the 2012 offering ) , including 1,200,000 shares issued and sold as a result of the full exercise of the underwriters ' overallotment option , at a price of $ 15.75 per share . we received $ 137.0 million in net proceeds from the 2012 offering after underwriting discounts and estimated expenses . convertible debt offering on september 26 , 2012 , we completed a registered underwritten public offering of 4.50 % convertible senior notes due october 1 , 2017 ( the notes ) , in an aggregate principal amount of $ 125.0 million . on october 17 , 2012 , the underwriters exercised the overallotment option to purchase $ 18.8 million additional principal amount of the notes . we received $ 138.5 million in net proceeds after underwriting discounts , 33 commissions and expenses were paid . the notes were allocated to long-term debt and equity in the amounts of $ 106.8 million and $ 31.7 million , respectively . these amounts are net of debt issuance costs of $ 4.1 million for debt and $ 1.2 million for equity . to date , we have entered into transactions pursuant to which we have issued an aggregate of 1,404,887 shares of our common stock to certain holders of the notes in connection with the conversion of $ 23.1 million aggregate principal amount of the notes . these transactions included induced conversions pursuant to which we paid the holder a market-based premium in cash . the negotiated market-based premiums , in addition to the difference between the current fair value and the book value of the notes , will be reflected in interest expense . the number of shares of common stock issued in the foregoing transactions equals the number of shares of common stock presently issuable to holders of the notes upon conversion under the original terms of the notes . we are obligated to pay holders of the notes interest semiannually in arrears on april 1 and october 1 of each year which began on april 1 , 2013. the notes will mature on october 1 , 2017 unless earlier converted or repurchased . the conversion rate was initially 60.8467 shares of common stock per $ 1,000 principal amount of notes ( equivalent to an initial conversion price of approximately $ 16.43 per share of common stock ) and is subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest . equity investment in september 2011 , pursuant to the investment agreement , we issued , for $ 75.0 million in cash : ( i ) an aggregate of 75,000 shares of our series a convertible perpetual preferred stock ( the series a preferred stock ) , which are initially convertible into an aggregate of 10,714,286 shares of our common stock , and ( ii ) warrants initially exercisable for an aggregate of 10,714,286 shares of our common stock at an initial exercise price of $ 7.00 per common share ( the warrants ) . we refer to this investment as the equity investment. see note 7 to our audited consolidated financial statements in item 8 of this annual report . the conversion feature of the series a preferred stock was determined to be a beneficial conversion feature ( bcf ) based on the effective initial conversion price and the market value of our common stock at the commitment date for the issuance of the series a preferred stock . generally accepted accounting principles in the united states ( us gaap ) require that we recognize the bcf related to the series a preferred stock as a discount on the series a preferred stock and amortize such amount as a deemed distribution through the earliest conversion date . the calculated value of the bcf was in excess of the relative fair value of net proceeds allocated to the series a preferred stock . accordingly , during the third quarter of 2011 we recorded a discount on the series a preferred stock of $ 44.2 million with immediate recognition of this amount as a deemed distribution because the series a preferred stock is convertible at any time . other reporting disclosures this discussion and analysis also refers from time to time to our freight brokerage international operations . these brokered shipments may originate in either the united states or canada and are largely attributable to our acquisition of kelron corporate services , inc. and certain related entities ( collectively , kelron ) in august 2012. these services are provided to both u.s. and canadian customers who primarily pay in their home currency . this discussion and analysis refers from time to time to expedited transportation 's international operations .
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consolidated results year ended december 31 , 2013 compared to year ended december 31 , 2012 our consolidated revenue for 2013 increased 152.1 % to $ 702.3 million from $ 278.6 million in 2012. this increase was driven largely by the acquisitions of turbo logistics , inc. and turbo dedicated , inc. ( collectively , turbo ) , 3pd , covered logistics , inc. ( covered ) , interide logistics , lc ( interide ) , east coast air charter , nlm , and optima , as well as the revenue attributable to the growth of our freight brokerage cold-start locations . total gross margin dollars for 2013 increased 202.5 % to $ 123.5 million from $ 40.8 million in 2012. as a percentage of revenue , gross margin was 17.7 % in 2013 as compared to 14.7 % in 2012. the increase in gross margin as a percentage of revenue is attributable to higher gross margins in freight brokerage and freight forwarding as described below . sales , general and administrative ( sg & a ) expense as a percentage of revenue was 25.0 % in 2013 , as compared to 24.7 % in 2012. sg & a expense increased by $ 107.0 million in 2013 compared to 2012 , due to significant growth initiatives , including six acquisitions , sales force recruitment , costs associated with our new freight brokerage offices , and an increase in corporate sg & a . interest expense for 2013 increased 466.5 % to $ 18.2 million from $ 3.2 million in 2012. the increase in interest expense is primarily attributable to the year over year increase in interest on the convertible senior notes and an undrawn debt commitment fee of $ 3.0 million related to our acquisition of 3pd . our effective income tax rates were ( 31.6 % ) and ( 35.5 % ) for 2013 and 2012 , respectively . both 2013 and 2012 included the recognition of a tax benefit due to the net operating losses incurred .
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in accordance with industry practice , in this report , the term “ ton ” or the symbol “ st ” refers to a short ton , an imperial unit of measurement equal to 0.9072 metric tons . the term “ metric ton ” or the symbol “ admt ” refers to an air dry metric ton . in this report , unless otherwise indicated , all dollar amounts are expressed in u.s. dollars , and the term “ dollars ” and the symbol “ $ ” refer to u.s. dollars . in the following discussion , unless otherwise noted , references to increases or decreases in income and expense items , prices , contribution to net earnings ( loss ) , and shipment volumes are based on the twelve-month periods ended december 31 , 2018 , 2017 and 2016. the twelve month periods are also referred to as 2018 , 2017 and 2016. reference to notes refers to footnotes to the consolidated financial statements and notes thereto included in item 8 , financial statements and supplementary data . this md & a is intended to provide investors with an understanding of our recent performance , financial condition and outlook . topics discussed and analyzed include : overview 2018 highlights outlook consolidated results of operations and segment review liquidity and capital resources recent accounting pronouncements and critical accounting estimates and policies overview we have two reportable segments as described below , which also represent our two operating segments . each reportable segment offers different products and services and requires different manufacturing processes , technology and or marketing strategies . the following summary briefly describes the operations included in each of our reportable segments . pulp and paper : our pulp and paper segment consists of the design , manufacturing , marketing and distribution of communication , specialty and packaging papers , as well as softwood , fluff and hardwood market pulp . personal care : our personal care segment consists of the design , manufacturing , marketing and distribution of absorbent hygiene products . story_separator_special_tag style= '' text-align : justify ; margin-top:6pt ; margin-bottom:0pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; font-family : times new roman ; font-size:10pt ; '' > includes raw materials ( such as fiber , chemicals , nonwovens and super absorbent polymers ) and energy costs . ( b ) includes maintenance , freight costs , selling , general and administrative ( “ sg & a ” ) expenses and other costs . ( c ) in our personal care segment , in 2018 , we recorded $ 7 million of non-cash impairment of property , plant and equipment compared to $ 578 million of non-cash impairment of goodwill recorded in 2017. depreciation charges were lower by $ 13 million in 2018 , excluding foreign currency impact . ( d ) 2018 restructuring charges relate mostly to : 2017 restructuring charges relate mostly to : -inventory write-down ( $ 4 million ) -severance and termination costs ( $ 3 million ) -other costs ( $ 1 million ) -severance and termination costs ( $ 2 million ) ( e ) 2018 operating expenses/income includes : 2017 operating expenses/income includes : - net gain on sale of property , plant and equipment ( $ 4 million ) - foreign exchange gain ( $ 2 million ) - environmental provision ( $ 5 million ) - bad debt expense ( $ 2 million ) - other income ( $ 1 million ) - net gain on sale of property , plant and equipment ( $ 13 million ) - reversal of contingent consideration ( $ 2 million ) - bad debt expense ( $ 1 million ) - environmental provision ( $ 3 million ) - foreign exchange loss ( $ 1 million ) - other income ( $ 4 million ) commentary - 2018 vs. 2017 interest expense , net we incurred $ 62 million of net interest expense in 2018 compared to net interest expense of $ 66 million in 2017. interest expense decreased mainly due to the repayment at maturity of the 10.75 % notes due in june 2017 and was partially offset by an increase in interest rate on the term loan . income taxes we recorded an income tax expense of $ 57 million in 2018 compared to an income tax benefit of $ 125 million in 2017 , which yielded an effective tax rate of 17 % and 33 % for 2018 and 2017 , respectively . during 2018 , we recorded $ 19 million of tax credits , mainly research and experimentation credits , which significantly impacted our effective tax rate . on december 22 , 2017 , the u.s. tax reform was signed into law . the u.s. tax reform significantly changed u.s. tax law for businesses by , among other things , lowering the maximum federal corporate income tax rate from 35 % to 21 % effective january 1 , 2018 , implementing a territorial tax system , and imposing a one-time deemed repatriation tax on accumulated foreign earnings . as a result of the u.s. tax reform , we recorded a net tax benefit of $ 140 million in the fourth quarter of 2017 when the legislation was enacted . this consisted of a provisional tax benefit of $ 186 million relating to the revaluation of our ending net deferred tax liabilities and a provisional expense of $ 46 million related to the deemed repatriation tax . additionally , staff accounting bulletin no . 118 ( “ sab 118 ” ) was issued to address the application in situations when a registrant did not have the necessary information available , prepared , or analyzed in reasonable detail to complete the accounting for certain income tax effects of the u.s. tax reform . story_separator_special_tag see “ u.s . tax reform ” below for more information . the effective tax rate for 2017 was also significantly impacted by our foreign operations being taxed at lower statutory tax rates and by recording $ 24 million of current tax credits , mainly research and experimentation credits . during 2016 , we recorded $ 18 million of tax credits , mainly research and experimentation credits , which significantly impacted the effective tax rate . the effective tax rate for 2016 was also significantly impacted by our foreign operations being taxed at lower statutory tax rates . u.s. tax reform the u.s. tax reform was signed into law on december 22 , 2017. the u.s. tax reform significantly changed u.s. tax law for businesses by , among other things , lowering the maximum federal corporate income tax rate from 35 % to 21 % effective january 1 , 2018 , implementing a territorial tax system , and imposing a one-time deemed repatriation tax on accumulated foreign earnings . as a result of the corporate tax rate reduction , we revalued our ending net deferred tax liabilities , and recognized a provisional tax benefit of $ 186 million in our consolidated statement of earnings for the year ended december 31 , 2017. the u.s tax reform provided for a mandatory one-time deemed repatriation tax on our undistributed foreign earnings and profits . we recorded a provisional repatriation tax amount of $ 46 million , which we elected to pay over eight years , and which impacted the 2017 tax rate . while we made a reasonable estimate of the repatriation tax amount , we continued to analyze various factors , including the impact of foreign tax credits available to offset the tax . we continued to gather additional information and monitor for further interpretive guidance in order to finalize our calculations and complete our accounting for the repatriation tax liability . additionally , we continued to assess the impact of the u.s. tax reform with respect to our current strategy of reinvesting profits of foreign subsidiaries back into those foreign operations . as of december 31 , 2017 we had not completed our analysis of the impacts of the u.s tax reform and how these changes would impact operational decisions around the utilization of cash residing in the foreign subsidiaries . as such , we had not recorded a tax liability amount for this item . valuation allowances in 2017 , we recorded a net valuation allowance increase of $ 3 million related to certain foreign loss carryforwards and a u.s. state credit , which impacted the effective tax rate for the year . in 2016 , we recorded a net valuation reversal of $ 1 million , related to foreign loss carryforwards , which impacted the effective tax rate for the year . commentary – segment review pulp and paper segment 2018 vs. 2017 sales in our pulp and paper segment increased by $ 307 million , or 7 % , when compared to sales in 2017. this increase in sales is mostly due to an increase in net average selling price for pulp and paper as well as an increase in our paper sales volume . this increase was partially offset by a decrease in our pulp sales volumes . 32 operating income in our pulp and paper segment amounted to $ 438 million in 2018 , an increase of $ 201 million , when compared to operating income of $ 237 million in 2017. our results were positively impacted by : higher average selling prices for pulp and paper ( $ 355 million ) lower depreciation charges ( $ 16 million ) due to certain assets being fully depreciated higher other income/expense ( $ 3 million ) these increases were partially offset by : higher operating expenses ( $ 94 million ) mostly due to higher freight as a result of a shortage of truck capacity in north america and higher maintenance costs due to timing of planned maintenance , as well as lower production higher input costs ( $ 69 million ) mostly related to higher costs of chemical , fiber , and energy in part due to severe weather conditions as well as unfavorable market conditions negative impact of our hedging program and a stronger canadian dollar on our canadian denominated expenses ( $ 9 million ) lower volume and mix ( $ 1 million ) mostly related to lower volume of pulp , partially offset by higher volume of paper 2017 vs. 2016 sales in 2017 in our pulp and paper segment decreased by $ 23 million , or 1 % , when compared to sales in 2016. this decrease in sales is mostly due to a decrease in our paper sales volumes , partially offset by an increase in our pulp sales volumes . our net average selling price for papers decreased while our net average selling price for pulp increased . operating income in our pulp and paper segment amounted to $ 237 in 2017 , an increase of $ 36 million , when compared to operating income of $ 201 million in 2016. our results were positively impacted by : lower depreciation charges ( $ 60 million ) due to accelerated depreciation related to our 2014 decision to convert a paper machine at our ashdown facility to a high quality fluff pulp line in 2016 and lower depreciation expenses due to certain assets being fully depreciated lower restructuring costs mostly related to the conversion of a paper machine to a high quality fluff pulp line at our ashdown mill and the closure of a pulp dryer and idling of related assets at our plymouth mill related to our plan to optimize fluff pulp manufacturing , recorded in 2016 ( $ 31 million ) lower input costs ( $ 14 million ) mostly related to lower fiber costs as a result of improved yields and better weather and lower energy costs mostly due to the favorable impact of a boiler conversion , partially offset by higher chemicals costs positive impact of our hedging program , partially offset by a stronger canadian
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2018 highlights operating income and net earnings increased by 218 % and 210 % , respectively from 2017 sales increased by 6 % from 2017. net average selling prices for pulp and paper were up while net average selling prices for personal care products were down from 2017. our manufactured paper volumes were up while our pulp and personal care volumes were down when compared to 2017 recognition of a closure and restructuring charge and accelerated depreciation associated with an announced margin improvement plan within our personal care segment of $ 8 million and $ 7 million , respectively $ 554 million of cash flow from operating activities we paid $ 108 million in dividends 27 replace_table_token_4_th replace_table_token_5_th 1 as a result of the margin improvement plan within our personal care segment announced in the fourth quarter of 2018 , we recorded a closure and restructuring charge of $ 8 million and an accelerated depreciation of property , plant and equipment charge of $ 7 million . in the fourth quarter of 2017 , we recorded non-cash goodwill impairment charge associated with our personal care segment of $ 578 million . see item 8 , financial statements and supplementary data under note 15 “ closure and restructuring costs and liability ” and note 4 “ impairment of property , plant and equipment and goodwill ” , for more information . 2 in the fourth quarter of 2017 , we recorded a net tax benefit of $ 140 million related to the u.s. tax reform , which is composed of a benefit of $ 186 million for the remeasurement of deferred tax assets and liabilities and a charge of $ 46 million for the repatriation tax , and adjusted by $ 7 million in the third quarter of 2018. see item 8 , financial statements and supplementary data under note 10 “ income taxes ” for more information .
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during fiscal 2017 , we closed the dell services , dell software group ( `` dsg '' ) , and enterprise content division ( `` ecd '' ) divestiture transactions . accordingly , the results of operations of dell services , dsg , and ecd , as well as the related gains or losses on sale , have been excluded from the results of continuing operations in the relevant periods , except as otherwise indicated . introduction dell technologies is a strategically aligned family of businesses , poised to become the essential infrastructure company , from the edge to the core to the cloud , as we continue our mission to advance human progress through technology . we seek to accomplish this by executing two , related , high-level strategic initiatives : helping our customers transform their businesses through digital , it , workforce and security transformation , while extending our many leading market positions in client solutions and it infrastructure . dell technologies brings together the entire infrastructure from hardware to software to services . the core of it is evolving in our hyper-connected world , containing both centralized data centers and geographically distributed hyper-converged infrastructure . dell technologies is a leader in the traditional technology of today and a leader in the cloud-native infrastructure of tomorrow . through our recent combination with emc , dell technologies offers next-generation solutions through our client solutions group , infrastructure solutions group , vmware , inc. , rsa information security ( `` rsa '' ) , secureworks corp. ( `` secureworks '' ) , pivotal software , inc. ( `` pivotal '' ) , boomi , inc. ( `` boomi '' ) , and virtustream , inc. ( `` virtustream '' ) . our next-generation solutions enable digital transformation and encompass software-defined data centers , all-flash arrays , hybrid cloud , converged and hyper-converged infrastructure , cloud-native application development tools , mobile , and security solutions . in addition , we provide important value differentiators through our extended warranty and delivery offerings , and software and peripherals , which are closely tied to the sale of our hardware products . dell technologies is committed to our customers . as we innovate to make our customers ' existing it increasingly productive , we help them reinvest their savings into the next generation of technologies that they need to succeed in the digital economy . we are positioned to help customers of any size and are differentiated by our practical innovation and efficient , simple , and affordable solutions . during fiscal 2018 , we celebrated the one year anniversary of our historic merger with emc , and recognize the many accomplishments we have made since the merger . these accomplishments include the broad expansion of our product 42 portfolio , integration of our supply chain , and achievement of revenue synergies across the business . with these accomplishments , we believe we are well-positioned for long-term sustainable growth and innovation . as we continue our integration of the emc acquired businesses , we remain committed to our customers , supporting them with outstanding solutions , products , and services . we will continue our focus on building superior customer relationships through our direct model and our network of channel partners , which includes value-added resellers , system integrators , distributors , and retailers . we also will continue to balance our efforts to drive cost efficiencies in the business with strategic investments in areas that will enable growth , such as our sales force , marketing , and research and development , as we seek to strengthen our position as a leading global technology company poised for long-term sustainable growth and innovation . products and services we design , develop , manufacture , market , sell , and support a wide range of products and services . we are organized into the following business units , which are our reportable segments : client solutions group ; infrastructure solutions group ; and vmware . due to our divestitures of dell services , dell software group , and dell emc enterprise content division , the results of these businesses , as well as the related gains or losses on sale , have been excluded from the results of continuing operations in the relevant periods , except as otherwise indicated . client solutions group ( `` csg '' ) — offerings by csg include branded hardware , such as desktop pcs , notebooks , and workstations , and branded peripherals , such as monitors , and projectors . csg also offers attached software , peripherals , and services , including support and deployment , configuration , and extended warranty services . approximately half of csg revenue is generated by sales to customers in the americas , with the remaining portion derived from sales to customers in the europe , middle east , and africa region ( `` emea '' ) and the asia-pacific and japan region ( `` apj '' ) . infrastructure solutions group ( `` isg '' ) — emc 's information storage segment and our former enterprise solutions group were merged to create the infrastructure solutions group , which contains storage , server , and networking offerings . the comprehensive portfolio of advanced storage solutions includes traditional storage solutions as well as next-generation storage solutions ( including all-flash arrays and scale-out file , and object platforms ) . the server portfolio includes high-performance rack , blade , tower , and hyperscale servers . the networking portfolio enables our business customers to transform and modernize their infrastructure , mobilize and enrich end-user experiences , and accelerate business applications and processes . isg also offers attached software , peripherals , and services , including support and deployment , configuration , and extended warranty services . approximately half of isg revenue is generated by sales to customers in the americas , with the remaining portion derived from sales to customers in emea and apj . vmware — the vmware reportable segment ( `` vmware '' ) reflects the operations of vmware , inc. ( nyse : vmw ) within dell technologies . story_separator_special_tag we believe the complementary cloud solutions across our business , created through our combination with emc , strongly position us to meet these demands for our customers who are increasingly looking to leverage cloud-based computing . we also continue to be impacted by the emerging trends of enterprises deploying software-defined storage , hyper-converged infrastructure , and modular solutions based on server-centric architectures . these trends have put pressure on our traditional storage offerings , and we are focused on strategically repositioning our storage portfolio . we have leading solutions through our isg and vmware data center offerings . in addition , through our research and development efforts , we expect to develop new solutions in this rapidly changing industry that we believe will enable us to continue to provide superior solutions to our customers . in isg , we are also seeing increased interest in flexible consumption models by our customers as they seek to build greater flexibility into their cost structures . these solutions are generally multi-year contracts that typically result in recognition of revenue over the term of the arrangement . we expect these flexible consumption models will further strengthen our customer relationships , and will provide more predictable revenue streams over time . during fiscal 2018 , we experienced higher component costs that primarily impacted csg and isg . we expect this trend to moderate in fiscal 2019. we manage our business on a u.s. dollar basis . however , we have a large global presence , generating approximately half of our revenue by sales to customers outside of the united states during fiscal 2018 and fiscal 2017. our revenues , therefore , can be impacted by fluctuations in foreign currency exchange rates . we utilize a comprehensive hedging strategy intended to mitigate the impact of foreign currency volatility over time , and we adjust pricing when possible to further minimize foreign currency impacts . the percentage of our revenues generated in regions outside of the united states did not change substantially as a result of the emc merger transaction . emc merger transaction as described in note 3 of the notes to the consolidated financial statements included in this report , on september 7 , 2016 , a wholly-owned subsidiary of dell technologies inc. ( `` merger sub '' ) merged with and into emc corporation , a massachusetts corporation ( `` emc '' ) , with emc surviving the merger as a wholly-owned subsidiary of dell technologies inc. ( the `` emc merger transaction '' ) . pursuant to the terms of the merger agreement , upon the completion of the emc merger transaction , each issued and outstanding share of common stock , par value $ 0.01 per share , of emc ( approximately 2.0 billion as of september 7 , 2016 ) was converted into the right to receive ( 1 ) $ 24.05 in cash , without interest , and ( 2 ) 0.11146 validly issued , fully paid and non-assessable shares of common stock of dell technologies inc. designated as class v common stock , par value $ 0.01 per share , plus cash in lieu of any fractional shares . shares of the class v common stock were approved for listing on the new york stock exchange ( the `` nyse '' ) under the ticker symbol `` dvmt '' and began trading on september 7 , 2016. in connection with the emc merger transaction , all principal , accrued but unpaid interest , fees , and other amounts ( other than certain contingent obligations ) outstanding at the effective time of the emc merger transaction under emc 's unsecured revolving credit facility , dell 's asset-based revolving credit facility , and dell 's term facilities were substantially repaid concurrently with the closing . further , all commitments to lend and guarantees and security interests , as applicable , in connection therewith were terminated or released . the aggregate amounts of principal , interest , and premium necessary to redeem in full the outstanding $ 1.4 billion in aggregate principal amount of 5.625 % senior first lien notes due 2020 co-issued by dell international and denali finance corp. were deposited with the trustee for such notes , and such notes were thereby satisfied and discharged , concurrently with the effective time of the emc merger transaction . all of dell 's other outstanding senior notes and all of emc 's outstanding senior notes remained outstanding after the effective time of the emc merger transaction in accordance with their respective terms . dell technologies financed the emc merger transaction , the repayment of the foregoing indebtedness of emc and dell outstanding as of the closing of the emc merger transaction , and the payment of related fees and expenses , with debt financing arrangements in an aggregate principal amount of approximately $ 45.9 billion , equity financing arrangements of approximately $ 4.4 billion , and cash on hand of approximately $ 7.8 billion . see note 3 and note 8 to the consolidated financial statements included in this report for additional information regarding the emc merger transaction and the related financing transactions . 45 non-gaap financial measures in this management 's discussion and analysis , we use supplemental measures of our performance which are derived from our consolidated financial information but which are not presented in our consolidated financial statements prepared in accordance with accounting principles generally accepted in the united states of america ( `` gaap '' ) . these non-gaap financial measures include non-gaap product net revenue ; non-gaap services net revenue ; non-gaap net revenue ; non-gaap product gross margin ; non-gaap services gross margin ; non-gaap gross margin ; non-gaap operating expenses ; non-gaap operating income ; non-gaap net income from continuing operations ; earnings before interest and other , net , taxes , depreciation and amortization ( `` ebitda '' ) ; and adjusted ebitda . we use non-gaap financial measures to supplement financial information presented on a gaap basis .
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consolidated results the following table summarizes our consolidated results from continuing operations for each of the periods presented . unless otherwise indicated , all changes identified for the current-period results represent comparisons to results for the prior corresponding fiscal period . replace_table_token_9_th ( a ) product gross margin percentages represent product gross margin as a percentage of product net revenue , and non-gaap product gross margin percentages represent product gross margin as a percentage of non-gaap product net revenue . ( b ) services gross margin percentages represent services gross margin as a percentage of services net revenue , and non-gaap services gross margin percentages represent services gross margin as a percentage of non-gaap services net revenue . 51 non-gaap product net revenue , non-gaap services net revenue , non-gaap net revenue , non-gaap product gross margin , non-gaap services gross margin , non-gaap gross margin , non-gaap operating expenses , non-gaap operating income , non-gaap net income from continuing operations , ebitda , and adjusted ebitda are not measurements of financial performance prepared in accordance with gaap . non-gaap financial measures as a percentage of revenue are calculated based on non-gaap net revenue . see `` non-gaap financial measures '' for information about these non-gaap financial measures , including our reasons for including these measures , material limitations with respect to the usefulness of the measures , and a reconciliation of each non-gaap financial measure to the most directly comparable gaap financial measure . as a result of the emc merger transaction completed on september 7 , 2016 and its impact on fiscal 2017 results , our results for the fiscal periods discussed below are not directly comparable . overview during fiscal 2018 , our net revenue and non-gaap net revenue increased 28 % and 27 % , respectively . the increase in net revenue and non-gaap net revenue was attributable to the incremental net revenue from the emc acquired businesses and , to a lesser extent , an increase in csg net revenue .
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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 the ability to successfully complete the sale of the valves & controls business on anticipated terms and timetable : overall global economic and business conditions , including worldwide demand for oil and gas ; 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 ; 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 , including in item 1a of this annual report on form 10-k. all forward-looking statements speak only as of the date of this report . pentair plc assumes no obligation , and disclaims any obligation , to update the information contained in this report . overview pentair plc is a focused diversified industrial manufacturing company comprising three reporting segments : water quality systems , flow & filtration solutions and technical solutions . we classify our operations into business segments based primarily on types of products offered and markets served . for the year ended december 31 , 2016 , water quality systems , flow & filtration solutions and technical solutions accounted for 29 percent , 28 percent and 43 percent of total revenues , respectively . in december 2013 , the company 's board of directors approved changing the company 's jurisdiction of organization from switzerland to ireland . at an extraordinary meeting of shareholders on may 20 , 2014 , pentair ltd. shareholders voted in favor of a reorganization proposal pursuant to which pentair ltd. would merge into pentair plc and all pentair ltd. common shares would be cancelled and all holders of such shares would receive ordinary shares of pentair plc on a one-to-one basis . the reorganization transaction was completed on june 3 , 2014 , at which time pentair plc replaced pentair ltd. as the ultimate parent company ( the `` redomicile '' ) . shares of pentair plc began trading on the new york stock exchange ( `` nyse '' ) on june 3 , 2014 under the symbol `` pnr '' , the same symbol under which pentair ltd. shares were previously traded . although our jurisdiction of organization is ireland , we manage our affairs so that we are centrally managed and controlled in the united kingdom ( the `` u.k. '' ) and therefore have our tax residency in the u.k. our former parent company , pentair ltd. , took its form on september 28 , 2012 as a result of a reverse acquisition ( the `` merger '' ) involving pentair , inc. and an indirect , wholly-owned subsidiary of flow control ( defined below ) , with pentair , inc. surviving as an indirect , wholly-owned subsidiary of pentair ltd. `` flow control '' refers to pentair ltd. prior the merger . prior to the merger , tyco international ltd. ( `` tyco '' ) engaged in an internal restructuring whereby it transferred to flow control certain assets related to the flow control business of tyco , and flow control assumed from tyco certain liabilities related to the flow control business of tyco . on september 28 , 2012 prior to the merger , tyco effected a spin-off of flow control through the pro-rata distribution of 100 % of the outstanding ordinary shares of flow control to tyco 's shareholders ( the `` distribution '' ) , resulting in the distribution of approximately 110.9 million of our ordinary shares to tyco 's shareholders . the merger was accounted for as a reverse acquisition under the purchase method of accounting with pentair , inc. treated as the acquirer . on january 30 , 2014 , we acquired , as part of water quality systems , the remaining 19.9 percent ownership interest in two entities , a u.s. entity and an international entity ( collectively , pentair residential filtration or `` prf '' ) , from ge water & process technologies ( a unit of general electric company ) ( `` ge '' ) for $ 134.3 million in cash . prior to the acquisition , we held a 80.1 percent ownership equity interest in prf , representing our and ge 's respective global water softener and residential water filtration businesses . 22 on july 28 , 2014 , our board of directors approved a decision to exit our water transport business in australia . the results of the water transport business have been presented as discontinued operations and the assets and liabilities of the water transport business have been reclassified as held for sale for all periods presented . during 2014 , we recognized an impairment charge related to allocated amounts of goodwill , intangible assets , property , plant & equipment and other non-current assets totaling $ 380.1 million , net of tax , representing our estimated loss on disposal of the water transport business . story_separator_special_tag segment income represents equity income of unconsolidated subsidiaries and operating income exclusive of intangible amortization , certain acquisition related expenses , costs of restructuring activities , `` mark-to-market '' gain/loss for pension and other post-retirement plans , impairments and other unusual non-operating items . 26 water quality systems the net sales and segment income for water quality systems were as follows : replace_table_token_9_th net sales the components of the change in water quality systems net sales were as follows : replace_table_token_10_th the 3.4 % percent increase in water quality systems sales in 2016 from 2015 was primarily the result of : core sales growth related to higher sales of certain pool products primarily serving north american residential housing in 2016 ; and selective increases in selling prices to mitigate inflationary cost increases . these increase s were partially offset by : a strong u.s. dollar causing unfavorable foreign currency effects ; and core sales declines in western europe , asia and in certain developing regions . the 1.9 % percent increase in water quality systems sales in 2015 from 2014 was primarily the result of : core sales growth related to higher sales of certain pool products primarily serving north american residential housing in 2015 ; core sales growth within our residential & commercial and food & beverage businesses ; and selective increases in selling prices to mitigate inflationary cost increases . these increase were partially offset by : a strong u.s. dollar causing unfavorable foreign currency effects ; and decreased sales in western europe and in the developing regions of brazil and latin america . 27 segment income the components of the change in water quality systems segment income from the prior period were as follows : replace_table_token_11_th the 1.5 percentage point increase in segment income for water quality systems as a percentage of net sales in 2016 from 2015 was primarily the result of : favorable material savings and product mix offsetting inflation ; selective increases in selling prices to mitigate inflationary cost increases ; and cost savings generated from pims initiatives including lean and supply management practices . these increase s were partially offset by : inflationary increases related to labor costs and certain raw materials ; and continued growth investments in research & development and sales & marketing . the 1.7 percentage point increase in segment income for water quality systems as a percentage of net sales in 2015 from 2014 was primarily the result of : price increases more than offsetting inflationary cost increases ; and cost savings generated from back-office consolidation , reduction in personnel and other lean initiatives . these increase s were partially offset by : inflationary increases related to labor costs and certain raw materials . flow & filtration solutions the net sales and segment income for flow & filtration solutions were as follows : replace_table_token_12_th net sales the components of the change in flow & filtration solutions net sales were as follows : replace_table_token_13_th the 5.4 percent decrease in flow & filtration solutions sales in 2016 from 2015 was primarily the result of : continued slowdown in industrial capital spending , driving core sales declines in our industrial business ; core sales declines in the food & beverage business due mainly to weak irrigation sales and lower project sales ; 28 continued sales declines in china , southeast asia and brazil as the result of economic uncertainty ; and a strong u.s. dollar causing unfavorable foreign currency effects . these decrease s were partially offset by : core sales growth related to higher sales of pump and filtration solutions serving the infrastructure business ; core growth in the middle east ; and selective increases in selling prices to mitigate inflationary cost increases . the 10.1 percent decrease in flow & filtration solutions sales in 2015 from 2014 was primarily the result of : decrease in core sales due to significant declines in the global agricultural industry , broad-based slowing of global capital spending and customer inventory de-stocking ; decreased sales volume related to the loss of a customer in the residential retail business during the second half of 2014 ; and a strong u.s. dollar causing unfavorable foreign currency effects . these decrease s were partially offset by : selective increases in selling prices to mitigate inflationary cost increases ; core sales growth in our food & beverage business ; and core growth in developing regions , including eastern europe and southeast asia . segment income the components of the change in flow & filtration solutions segment income from the prior period were as follows : replace_table_token_14_th the 0.3 percentage point increase in segment income for flow & filtration solutions as a percentage of net sales in 2016 from 2015 was primarily the result of : selective increases in selling prices to mitigate inflationary cost increases ; savings driven from cost-out actions ; and savings generated from our pims initiatives , including lean and supply management practices . these increase s were partially offset by : lower core sales volumes , which resulted in decreased leverage on operating expenses ; negative product mix and pricing pressure ; and inflationary increases related to labor and certain raw materials . the 0.4 percentage point increase in segment income for flow & filtration solutions as a percentage of net sales in 2015 from 2014 was primarily the result of : price increases more than offsetting inflationary cost increases ; savings driven from cost-out actions ; and savings generated from our pims initiatives , including lean and supply management practices . 29 these increase s were partially offset by : lower core sales volumes , which resulted in decreased leverage on operating expenses ; and inflationary increases related to labor and certain raw materials .
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consolidated results of operations the consolidated results of operations were as follows : replace_table_token_7_th n.m. not meaningful net sales the components of the consolidated net sales change were as follows : replace_table_token_8_th the 5.9 percent increase in consolidated net sales in 2016 from 2015 was primarily the result of : sales of $ 516.1 million in 2016 as a result of the erico acquisition , compared to sales of $ 147.0 million in 2015 ; and core sales growth in water quality systems , primarily as the result of increased volume in the united states and canada . these increase s were partially offset by : continued slowdown in capital spending , particularly in our industrial and energy businesses , driving core sales declines in flow & filtration solutions and technical solutions ; slowing economic activity in certain developing regions , including china and brazil ; and a strong u.s. dollar causing unfavorable foreign currency effects . 24 the 1.1 percent decrease in consolidated net sales in 2015 from 2014 was primarily the result of : a strong u.s. dollar causing unfavorable foreign currency effects ; a slowdown in industrial capital spending , particularly in our industrial and infrastructure businesses ; and slowing economic activity in china , brazil and other developing markets . these decrease s were partially offset by : sales of $ 147.0 million as a result of the erico acquisition ; core sales growth in water quality systems and technical solutions , primarily as the result of increased volume in the united states and canada ; and core sales growth in our food & beverage and residential & commercial businesses .
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we have company-operated stores in the united states , canada , the united kingdom , france , ireland , japan , italy , china , hong kong , and beginning in march 2014 , taiwan . we also have franchise agreements with unaffiliated franchisees to operate gap , banana republic , and old navy stores in many other countries around the world . under these agreements , third parties operate , or will operate , stores that sell apparel and related products under our brand names . in addition , our products are available to customers online through company-owned websites and through the use of third parties that provide logistics and fulfillment services . most of the products sold under our brand names are designed by us and manufactured by independent sources . we also sell products that are designed and manufactured by branded third parties , especially at our piperlime and intermix brands . we identify our operating segments according to how our business activities are managed and evaluated . prior to fiscal 2013 , we had two reportable segments : stores and direct . the stores reportable segment included the results of the retail stores for gap , old navy , and banana republic . the direct reportable segment included the results of our online brands , as well as piperlime , athleta , and intermix . beginning in fiscal 2013 , we combined all channels and geographies under one global leader for each of the gap , old navy , and banana republic brands . each global brand president oversees their brand 's specialty , outlet , online , and franchise operations . our newer brands , piperlime , athleta , and intermix , are managed by the president of our growth , innovation , and digital ( `` gid '' ) division , who oversees those brands ' store and online operations . each of our brands serves customers through its store and online channels . we have determined that each of our operating segments ( gap global , old navy global , banana republic global , and gid ) share similar economic and other qualitative characteristics and , effective february 3 , 2013 , we have aggregated the results of our operating segments into one reportable segment . we are pleased with our fiscal 2013 results . we continued to deliver against our priorities to grow sales with healthy merchandise margins , manage expenses in a disciplined manner , deliver operating margin expansion and earnings per share growth , and return excess cash to shareholders . we used a balanced approach to drive shareholder value even in the face of headwinds from foreign exchange and a shorter fiscal year calendar . we delivered positive comparable sales in each of the four quarters of fiscal 2013. we remained committed to our principle of returning excess cash to shareholders and distributed $ 1.3 billion through dividends and share repurchases . as we transitioned to a global brand structure to drive long-term global growth , we opened 190 company-operated stores , primarily through expansion in asia , growth of our global outlets , and athleta stores in the united states . specifically , we expanded our gap store base in china , opening 34 stores for a total of 81 specialty and outlet stores , and opened an additional 17 old navy stores in japan for a total of 18 stores . we opened 58 global outlets for a total of 532 outlet stores . we also opened 30 athleta stores , ending fiscal 2013 with 65 athleta stores . our franchisees added 72 new stores and five new markets . fiscal 2013 consisted of 52 weeks versus 53 weeks in fiscal 2012. net sales and operating results for fiscal 2013 reflect the impact of one less selling week as well as the calendar shift , which positively impacted the results of the first quarter of fiscal 2013 and negatively impacted the results of the fourth quarter of 2013. in addition , due to the 53rd week in fiscal 2012 , comparable ( `` comp '' ) sales for the fiscal year ended february 1 , 2014 are compared to the 52-week period ended february 2 , 2013. financial results for fiscal 2013 are as follows : net sales for fiscal 2013 increased 3 percent to $ 16.1 billion compared with $ 15.7 billion for fiscal 2012 . excluding the impact of foreign exchange , our net sales increased 5 percent for fiscal 2013 compared with fiscal 2012. see net sales discussion for impact of foreign exchange . 17 online sales for fiscal 2013 increased 21 percent to $ 2.3 billion compared with $ 1.9 billion for fiscal 2012 and grew 2 percentage points , as a percentage of total net sales , to 14 percent compared with 12 percent for fiscal 2012. comparable sales for fiscal 2013 increased 2 percent compared with a 5 percent increase last year . gross profit for fiscal 2013 was $ 6.3 billion compared with $ 6.2 billion for fiscal 2012 . gross margin for fiscal 2013 was 39.0 percent compared with 39.4 percent for fiscal 2012 . operating margin for fiscal 2013 was 13.3 percent compared with 12.4 percent for fiscal 2012 . operating margin is defined as operating income as a percentage of net sales . net income for fiscal 2013 was $ 1.3 billion compared with $ 1.1 billion for fiscal 2012 . diluted earnings per share increased 18 percent to $ 2.74 for fiscal 2013 compared with $ 2.33 for fiscal 2012 . during fiscal 2013 , we generated free cash flow of $ 1.0 billion compared with free cash flow of $ 1.3 billion for fiscal 2012. free cash flow is defined as net cash provided by operating activities less purchases of property and equipment . for a reconciliation of free cash flow , a non-gaap financial measure , from a gaap financial measure , see liquidity and capital resources section . story_separator_special_tag income taxes replace_table_token_11_th the decrease in the effective tax rate for fiscal 2013 compared with fiscal 2012 was primarily due to the favorable impact of changes in the mix of pre-tax income between our domestic and international operations , partially offset by higher federal and state tax credits recognized in fiscal 2012. the decrease in the effective tax rate for fiscal 2012 compared with fiscal 2011 was primarily due to the higher federal and state tax credits recognized in fiscal 2012 , partially offset by an increase in our state taxes as a result of changes in the mix of state pre-tax income in fiscal 2012. we currently expect the fiscal 2014 effective tax rate to be about 38.5 percent . the actual rate will ultimately depend on several variables , including the mix of income between domestic and international operations , the overall level of income , the potential resolution of outstanding tax contingencies , and changes in tax laws and rates . 22 liquidity and capital resources our largest source of cash flows is cash collections from the sale of our merchandise and proceeds from issuance of debt . our primary uses of cash include merchandise inventory purchases , occupancy costs , personnel-related expenses , purchases of property and equipment , share repurchases , and payment of taxes . in the first quarter of fiscal 2011 , we made the strategic decision to issue debt in the aggregate amount of $ 1.65 billion . given favorable market conditions and our history of generating consistent and strong operating cash flow , we took this step to provide a more optimal capital structure . we remain committed to maintaining a strong financial profile with ample liquidity . proceeds from the debt issuance were available for general corporate purposes , including share repurchases . during fiscal 2012 , we repaid our $ 400 million , five-year , unsecured term loan in full . in the fourth quarter of fiscal 2013 , we entered into a 15 billion japanese yen ( $ 147 million as of february 1 , 2014 ) , four-year , unsecured term loan . we consider the following to be measures of our liquidity and capital resources : replace_table_token_12_th as of february 1 , 2014 , about half of our cash and cash equivalents were held in the u.s. and are generally accessible without any limitations . we believe that current cash balances and cash flows from our operations will be sufficient to support our business operations , including growth initiatives and planned capital expenditures , for the next 12 months and beyond . we are also able to supplement near-term liquidity , if necessary , with our $ 500 million revolving credit facility . cash flows from operating activities net cash provided by operating activities during fiscal 2013 decreased $ 231 million compared with fiscal 2012 , primarily due to the following : a decrease of $ 220 million related to income taxes payable , net of prepaid income taxes and other tax-related items , in fiscal 2013 compared with fiscal 2012 primarily due to the timing of tax payments ; a decrease of $ 73 million related to accrued expenses and other current liabilities primarily due to a higher bonus payout in fiscal 2013 compared with fiscal 2012 ; a decrease of $ 71 million related to non-cash and other items primarily due to the realized gain related to our derivative financial instruments in fiscal 2013 compared with a realized loss in fiscal 2012 ; a decrease of $ 67 million related to lease incentives and other long-term liabilities primarily due to the resolution of tax matters , including interest , and an increase in lease incentives in fiscal 2012 related to the relocation of our new york headquarter offices ; and a decrease of $ 50 million related to merchandise inventory primarily due to volume and timing of receipts ; partially offset by an increase in net income of $ 145 million ; and a deferred tax provision of $ 69 million in fiscal 2013 compared with a deferred tax benefit of $ 37 million in fiscal 2012 . 23 net cash provided by operating activities during fiscal 2012 increased $ 573 million compared with fiscal 2011 , primarily due to the following : an increase in net income of $ 302 million in fiscal 2012 compared with fiscal 2011 ; an increase of $ 237 million related to income taxes payable , net of prepaid income taxes and other tax-related items , in fiscal 2012 compared with fiscal 2011 primarily due to the timing of tax payments ; an increase of $ 113 million related to accrued expenses and other current liabilities in fiscal 2012 compared with fiscal 2011 primarily due to a higher bonus accrual in fiscal 2012 compared with fiscal 2011 ; and an increase of $ 80 million related to accounts payable in fiscal 2012 compared with fiscal 2011 primarily due to the volume and timing of payments ; partially offset by an increase of $ 147 million related to merchandise inventory in fiscal 2012 compared with fiscal 2011 primarily due to the timing of inventory receipts . we fund inventory expenditures during normal and peak periods through cash flows from operating activities and available cash . our business follows a seasonal pattern , with sales peaking over a total of about eight weeks during the end-of-year holiday period . the seasonality of our operations may lead to significant fluctuations in certain asset and liability accounts between fiscal year-end and subsequent interim periods . in fiscal 2014 , we expect depreciation and amortization , net of amortization of lease incentives , to be about $ 520 million . cash flows from investing activities our cash outflows from investing activities are primarily for capital expenditures and purchases of investments , while cash inflows are primarily proceeds from maturities of investments .
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results of operations net sales net sales primarily consist of retail sales from stores and online , and franchise revenues . see item 8 , financial statements and supplementary data , note 17 of notes to consolidated financial statements for net sales by brand and region . 18 comparable sales beginning in fiscal 2013 , the company reports comp sales by global brand : gap global , old navy global , and banana republic global . fiscal 2012 comp sales have been conformed to the current year presentation . the percentage change in comp sales by global brand and for total company , including the associated comparable online sales , as compared with the preceding year , is as follows : replace_table_token_5_th comparable online sales favorably impacted total company comp sales by 3 percent and 2 percent in fiscal 2013 and 2012 , respectively . only company-operated stores are included in the calculations of comp sales . gap and banana republic outlet comp sales are reflected within the respective results of each global brand . the calculation of total company comp sales includes the results of athleta stores and online , intermix stores and online , and the piperlime store , but excludes the results of our franchise business and piperlime online . a store is included in the comp sales calculations when it has been open and operated by gap , inc. for at least one year and the selling square footage has not changed by 15 percent or more within the past year . a store is included in the comp sales calculations on the first day it has comparable prior year sales . stores in which the selling square footage has changed by 15 percent or more as a result of a remodel , expansion , or reduction are excluded from the comp sales calculations until the first day they have comparable prior year sales .
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forward-looking statements can also be identified by words such as `` future , '' `` anticipates , '' `` believes , '' `` estimates , '' `` expects , '' `` intends , '' `` plans , '' `` predicts , '' `` will , '' `` would , '' `` could , '' `` can , '' `` may , '' and similar terms . forward-looking statements are not guarantees of future performance , and the company 's actual results may differ significantly from the results discussed in the forward-looking statements . factors that might cause such differences include , but are not limited to , those discussed in part i , item 1a . `` risk factors '' of this form 10-k , which are incorporated herein by reference . the following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in part iv , item 15 . `` exhibits and financial statement schedules '' of this form 10-k. each of the terms the `` company '' and `` sp plus '' as used herein refers collectively to sp plus corporation and its wholly-owned subsidiaries , unless otherwise stated . the company assumes no obligation to revise or update any forward-looking statements for any reason , except as required by law . explanatory note on november 30 , 2018 , we completed the acquisition . our consolidated results of operations for the year ended december 31 , 2018 includes the results of operations for the period of november 30 , 2018 through december 31 , 2018. our consolidated results of operations for the year ended december 31 , 2017 does not include amounts related to bags . see note 3. acquisition , which is included in part iv , item 15 . `` exhibits and financial statement schedules '' for further discussion of the acquisition . general overview in evaluating our financial condition and operating performance , management 's primary focus is on our gross profit and total general and administrative expenses . revenue from lease type contracts includes all gross customer collections derived from our lease type contracts ( net of local parking taxes ) , whereas revenue from management type contracts only includes our contractually agreed upon management fees and amounts attributable to ancillary services . gross customer collections at facilities under management type contracts , therefore , are not included in our revenue . additionally , revenue from lease type contracts also includes a reduction of services revenue - lease type contracts due to the adoption of asu no . 2017-10 , service concession arrangements ( topic 853 ) : determining the customer of the operation service s , which requires rental expense for the periods after january 1 , 2018 be presented as a reduction of services revenue - lease type contracts for that business ( and corresponding contracts ) that meet the criteria and definition of a service concession arrangement . accordingly , while a change in the proportion of our operating agreements that are structured as lease type contracts versus management type contracts may cause significant fluctuations in reported revenue and expense of services that change will not artificially affect our gross profit . for example , as of december 31 , 2019 , 81 % of our business was operating under management type contracts and 82 % of our gross profit for the year ended december 31 , 2019 was derived from management type contracts . only 56 % of total revenue ( excluding reimbursed management type contract revenue ) for the year ended december 31 , 2019 , however , was from management type contracts because , under those contracts , the revenue collected from customers belongs to our clients . therefore , gross profit and total general and administrative expense , rather than revenue , are management 's primary focus . we believe that sophisticated clients ( which also include property owners ) recognize the potential for parking services , parking management , ground transportation services , baggage handling services and other ancillary services to be a profit generator and or a service differentiator to their customers . by outsourcing these services , they are able to capture additional profit and customer experience by leveraging the unique operational skills and controls that an experienced services company can offer . our ability to consistently deliver a uniformly high level of services to our clients , including the use of various technological enhancements , allows us to maximize the profit and or customer experience to our clients and improves our ability to win contracts and retain existing clients . our focus on customer service and satisfaction is a key driver of our high retention rate , which was approximately 93 % and 88 % for the years ended december 31 , 2019 and 2018 , respectively . this retention rate captures facilities for the commercial segment . commercial segment facilities the following table reflects our commercial facilities ( by contractual type ) operated at the end of the years indicated : replace_table_token_3_th ( 1 ) includes partial ownership in one leased facility for 2019 , 2018 and 2017 . 21 revenue we recognize services revenue from lease and management type contracts as the related services are provided . substantially all of our revenue comes from the following two sources : lease type contracts . consists of all revenue received at lease type locations , including gross receipts ( net of local taxes ) , consulting and real estate development fees , gains on sales of contracts and payments for exercising termination rights . revenue from lease type contracts includes a reduction of services revenue - lease type contracts due to the adoption of topic 853 , which requires rental expense for the periods after january 1 , 2018 be presented as a reduction of services revenue - lease type contracts for that business ( and corresponding contracts ) that meet the criteria and definition of a service concession arrangement . management type contracts . story_separator_special_tag management type contracts gross profit for management type contracts increased $ 38.4 million , or 26.0 % , to $ 186.1 million for the year ended december 31 , 2019 , compared to $ 147.7 million for the prior year . gross profit percentage for management type contracts decreased to 35.4 % for the year ended december 31 , 2019 , compared to 40.9 % for the year ago period . gross profit for management type contracts increased as a result of increases in gross profit for new/acquired business , primarily due to the acquisition , partially offset by decreases in expired business and existing business . gross profit for existing business increased primarily due to decreases in net operating costs and increased management fees . from a reporting segment perspective , gross profit for management type contracts increased primarily due to new/acquired business in aviation and commercial , expired business in aviation , and existing business in commercial and aviation . this was partially offset by decreases in expired business in commercial and existing business in other . 25 general and administrative expenses general and administrative expenses increased $ 18.0 million , or 19.8 % , to $ 109.0 million for year ended december 31 , 2019 , compared to $ 91.0 million for the prior year . the increase in general and administrative expenses primarily related to the acquisition , a one-time $ 1.7 million cost recovery ( reduction of expense ) from a vendor partner recognized in 2018 and higher compensation and benefit costs , including costs associated with our performance-based compensation program , partially offset by a reduction in acquisition , restructuring and integration related costs . interest expense interest expense increased $ 9.3 million , or 96.9 % , to $ 18.9 million for the year ended december 31 , 2019 , as compared to $ 9.6 million for the prior year . this increase resulted primarily from an increase in borrowings as a result of the acquisition on november 30 , 2018 ( lower average borrowings under our credit facility prior to the acquisition ) and an increase in average borrowing rates . interest income interest income was $ 0.3 million and $ 0.4 million for the years ended december 31 , 2019 and 2018 , respectively . equity in ( earnings ) losses from investment in unconsolidated entity equity in earnings from investment in unconsolidated entity was $ 10.1 million for the year ended december 31 , 2018 , which was related to the net gain recognized on the sale of our entire 30 % equity interest in parkmobile . income tax expense for the year ended december 31 , 2019 , we recognized income tax expense of $ 19.4 million on earnings before income taxes of $ 71.1 million compared to a $ 19.6 million income tax expense on earnings before income taxes of $ 76.0 million for the year ended december 31 , 2018 . our effective tax rate was 27.3 % for the year ended december 31 , 2019 compared to 25.8 % for the year ended december 31 , 2018 . the $ 0.2 million decrease in income tax expense was primarily due to an increase in estimated income tax credits , a reduction in state taxes as a result of one-time unfavorable 2018 audit settlements , and a smaller increase in the valuation allowance as compared to 2018 due to impacts of the u.s. tax cuts and jobs act of 2017 ( the `` 2017 tax act '' ) in 2018 . 26 2018 compared to 2017 the following tables are a summary of service revenues ( excluding reimbursed management type contract revenue ) , cost of services ( excluding reimbursed management type contract expense ) and gross profit by segment for the comparable years ended december 31 , 2018 and 2017. existing business represents business that has been operating for at least one year and operating for the entire period in the comparative period being presented . expired business relates to contracts that have expired but where we were operating the business in the comparative period presented . the other segment amounts in existing business represent amounts not specifically allocated and or identifiable to commercial or aviation . services revenue by segment is summarized as follows : replace_table_token_7_th ( a ) the year ended december 31 , 2018 new/acquired business in commercial includes a $ 8.9 million reduction of services revenue - lease type contracts due to the adoption of topic 853 , which requires rental expense for the current period be presented as a reduction of services revenue - lease type contracts for that business ( and corresponding contracts ) that meet the criteria and definition of a service concession arrangement . ( b ) the year ended december 31 , 2018 new/acquired business in aviation includes a $ 2.3 million reduction of services revenue - lease type contracts due to the adoption of topic 853 , which requires rental expense for the current period be presented as a reduction of services revenue - lease type contracts for that business ( and corresponding contracts ) that meet the criteria and definition of a service concession arrangement . ( c ) the year ended december 31 , 2018 expired business in commercial includes a $ 0.3 million reduction of services revenue - lease type contracts due to the adoption of topic 853 , which requires rental expense for the current period be presented as a reduction of services revenue - lease type contracts for that business ( and corresponding contracts ) that meet the criteria and definition of a service concession arrangement . ( d ) the year ended december 31 , 2018 existing business in commercial includes a $ 14.9 million reduction of services revenue - lease type contracts due to the adoption of topic 853 , which requires rental expense for the current period be presented as a reduction of services revenue - lease type contracts for that business ( and corresponding contracts ) that meet the criteria and definition of a service concession arrangement .
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analysis of results of operations 2019 compared to 2018 the following tables are a summary of service revenues ( excluding reimbursed management type contract revenue ) , cost of services ( excluding reimbursed management type contract expense ) and gross profit by segment for the comparable years ended december 31 , 2019 and 2018 . existing business represents business that has been operating for at least one year and operating for the entire period in the comparative period being presented . expired business relates to contracts that have expired but where we were operating the business in the comparative period presented . the other segment amounts in existing business represent amounts not specifically allocated and or identifiable to commercial or aviation . services revenue by segment is summarized as follows : replace_table_token_4_th lease type contracts lease type contract revenue decreased $ 5.0 million , or 1.2 % , to $ 408.9 million for the year ended december 31 , 2019 , compared to $ 413.9 million for the prior year . the decrease in lease type contract revenue resulted primarily from a decrease of $ 26.9 million from expired business , partially offset by an increase of $ 9.7 million from existing business , $ 12.0 million from new/acquired business , and $ 0.2 million from business that converted from management type contracts during the periods presented . existing business revenue increased $ 9.7 million , or 3.0 % , primarily d ue to an increase in fees for transient revenue . from a reporting segment perspective , lease type contract revenue decreased primarily due to expired business in commercial and aviation , partially offset by increases from existing business in commercial , aviation , and other , new/acquired business in commercial and aviation , and conversions in commercial .
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catchmark timber trust has determined that there has been no impairment story_separator_special_tag the following discussion and analysis should be read in conjunction with the selected financial data in item 6 – selected financial data above and our accompanying consolidated financial statements and notes thereto in item 8 – financial statement and supplementary data . see also “ cautionary note regarding forward-looking statements ” preceding part i. overview we strive to deliver superior long-term returns for our stockholders through disciplined acquisitions , sustainable harvests , and well-timed sales . our immediate emphasis is to grow through selective acquisitions in high demand fiber basket markets and to efficiently integrate the new acquisitions . operationally , we focus on generating cash flows from sustainable harvests and improved harvest mix on prime timberlands as well as opportunistic land sales to provide 33 index to consolidated financial statements recurring dividends to our stockholders . we continue to practice intensive forest management and silvicultural techniques that increase the biological growth of the forest . we continued to execute our business growth strategy during 2017. we acquired approximately 19,600 acres of high-quality timberlands in the u.s. south in two separate transactions and entered into our first joint venture with an institutional equity partner . the properties acquired in 2017 are exceptionally well stocked with merchantable pine inventory and high sawtimber mix and located in strong pulpwood and sawtimber markets . they added approximately 1.4 million tons to our merchantable timber inventory , comprised of 78 % pine plantations by acreage and 66 % sawtimber by tons . in aggregate , these acquisitions potentially increase our annual harvest volumes by approximately 140,000 tons over the next decade . these acquisitions complement our existing timberland portfolio and continue the expansion of our customer base into new markets within the u.s. south . on april 25 , 2017 , we entered into the dawsonville bluffs joint venture with mpers that acquired a portfolio of approximately 11,000 acres of commercial timberlands located in north georgia . we and mpers each own a 50 % membership interest in the dawsonville bluffs joint venture . from entering into the joint venture to december 31 , 2017 , we recognized $ 1.1 million in equity earnings from the dawsonville bluffs joint venture . see note 4 - unconsolidated joint venture of our accompanying consolidated financial statements for further details . we will continue to execute on our ongoing growth strategy by targeting investments , either directly or through joint ventures , in : markets that demonstrate favorable long-term demand and allow for superior merchandizing to mill customers ; timberland properties with superior productivity characteristics from soil attributes and forest genetics which can provide durable harvest revenue and sustain long-term growth ; and properties with trees at the right age classes to complement existing holdings and support sustainable harvest volumes . we believe that we have access to adequate capital resources to achieve our growth targets for 2018 with the credit facilities available under the 2017 amended credit agreement ( see liquidity and capital resources for details ) . timber agreements a substantial portion of our timber sales is derived from the mahrt timber agreements under which we sell specified amounts of timber to westrock subject to market pricing adjustments . during the year ended december 31 , 2017 , westrock purchased approximately 531,000 tons under the mahrt timber agreements , which exceeded the minimum requirement of 518,000 tons . for the years ended december 31 , 2017 , 2016 , and 2015 , approximately 17 % , 17 % , and 23 % , respectively , of our net timber sales revenue was derived from the mahrt timber agreements . the percentage of our annual net timber sales revenue derived from westrock in 2017 remained consistent with 2016 and decreased from 2015 as a result of our acquisitions and expansion of our customer base over the years . see note 7 – commitments and contingencies of our accompanying consolidated financial statements for additional information regarding the material terms of the mahrt timber agreements . in connection with the carolinas midlands iii transaction that closed in june 2016 , we assumed the carolinas supply agreement which requires us to harvest and sell agreed-upon pulpwood volumes to ip , and ip is required to purchase such volume at defined market prices . during the year ended december 31 , 2017 , we sold approximately 171,000 tons under the carolinas supply agreement , which exceeded the 150,000 tons requirement . for the year ended december 31 , 2017 , approximately 6 % of our net timber sales revenue was derived from the carolinas supply agreement . general economic conditions and timber market factors impacting our business our operating results are influenced by a variety of factors , including timber prices ; the demand for pulp and paper products , lumber , panel , and other wood-related products ; the supply of timber ; and competition . timber prices can experience significant variations and have been historically volatile . the demand for timber and wood products is 34 affected primarily by the level of new residential construction activity , repair and remodeling activity , the supply of manufactured timber products including imports , and , to a lesser extent , other commercial and industrial uses . the demand for timber also is affected by the demand for wood chips in the pulp and paper markets and for hardwood in the furniture and other hardwood industries . story_separator_special_tag the table below presents the details of each credit facility under the 2017 amended credit agreement as of december 31 , 2017 : replace_table_token_9_th ( 1 ) the applicable libor margin on the 2017 revolving credit facility and the 2017 multi-draw term facility ranges from 1.50 % to 2.20 % , depending on the ltv ratio . the 2017 amended credit agreement increases the maximum commitments available for borrowing under our previous credit facilities from $ 500.0 million to $ 637.6 million and extended the weighted-average life of debt from 5 years to 9 years as of december 1 , 2017. it almost doubled the capacity to fund future joint venture investments . patronage under the 2017 amended credit agreement , we remain eligible to receive annual patronage refunds from our lenders . the annual patronage refund is dependent on the weighted-average debt balance with each participating lender , as calculated by cobank , for the respective fiscal year under the eligible patronage loans , as well as the financial performance of the patronage banks . in march 2017 , we received a patronage refund of $ 2.1 million on our borrowings under the eligible patronage loans that were outstanding during 2016. of the total amount received , 75 % was received 36 index to consolidated financial statements in cash and 25 % was received in equity in patronage banks . the equity component of the patronage refund is redeemable for cash only at the discretion of the patronage banks ' board of directors . debt covenants the 2017 amended credit agreement contains , among others , the following financial covenants : limits the ltv ratio to ( i ) 50 % at any time prior to the last day of the fiscal quarter corresponding to the fourth anniversary of the effective date and ( ii ) 45 % at any time thereafter ; requires that we maintain a fccr of not less than 1.05:1 ; and requires maintenance of a minimum liquidity balance of no less than $ 25.0 million at any time ; and limits the aggregated capital expenditures not exceeding 1 % of the value of the timberlands during any fiscal year . we were in compliance with the financial covenants of the 2017 amended credit agreement as of december 31 , 2017 . share repurchase program on august 7 , 2015 , our board of directors approved a share repurchase program for up to $ 30.0 million of our common stock at management 's discretion . the program has no set duration and the board may discontinue or suspend the program at any time . during the year ended december 31 , 2017 , we repurchased 97,469 shares of our common stock at an average price of $ 10.60 per share for a total of approximately $ 1.0 million . all common stock purchases under the stock repurchase program were made in open-market transactions and were funded with cash on-hand . as of december 31 , 2017 , we had 43.4 million shares of common stock outstanding and may repurchase up to an additional $ 19.8 million under the program . we can borrow up to $ 30.0 million under the 2017 multi-draw term facility , compared to $ 25.0 million under the previous credit facility , to repurchase our common stock . management believes that opportunistic repurchases of our common stock are a prudent use of capital resources . short-term liquidity and capital resources for the year ended december 31 , 2017 , net cash provided by operating activities was $ 27.4 million , a $ 3.4 million decrease from the year ended december 31 , 2016 , primarily due to a $ 4.5 million increase in interest paid as a result of higher outstanding debt balances during 2017 and a higher weighted-average interest rate , a $ 1.8 million increase in general and administrative expenses , and a $ 0.4 million increase in other operating expenses due to higher property taxes , offset by a $ 1.1 million increase in net timber sales and a $ 2.4 million increase in net timberland sales . for the year ended december 31 , 2017 , we used $ 52.3 million ( including transaction costs ) in timberland acquisitions ( see transactions in item 1. business for further details ) . we used $ 5.6 million to fund other capital expenditures during the year ended december 31 , 2017 , a $ 2.4 million increase from last year , primarily due to increased reforestation expenses and mainline road construction as a result of growth in harvest activities . we invested $ 10.5 million in a 50 % member interest in the dawsonville bluffs joint venture , which was funded with borrowings from our credit facilities . net cash provided by financing activities for the year ended december 31 , 2017 was $ 39.7 million . on october 17 , 2017 , we completed a public offering of 4.6 million shares of our class a common stock for $ 12.35 per share and received $ 56.8 million of gross proceeds . after deducting $ 2.6 million in underwriting discounts and commissions and $ 0.1 million in other offering costs , the net proceeds of $ 54.1 million were used to fund our 2017 acquisitions . we borrowed $ 11.0 million under our credit facilities to fund the investment in the dawsonville bluffs joint venture . in december 2017 , we amended our credit agreement and used the proceeds to refinance our then-outstanding debt balances . during the year , we paid total distributions to stockholders of $ 21.3 million , $ 1.0 million more than in 2016 as a result of higher per-share distribution rate and the 4.6 million additional shares issued in the 2017 follow-on offering . distributions to stockholders were funded by net cash provided by operating activities .
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results of operations overview our results of operations are materially impacted by the fluctuating nature of timber prices , changes in the levels and mix of our harvest volumes , the level of timberland sales , changes to associated depletion rates , and varying interest expense based on the amount and cost of outstanding borrowings . 38 index to consolidated financial statements timber sales volumes , net timber sales prices , timberland sales , and changes in the levels and composition for each of the years ended december 31 , 2017 , 2016 , and 2015 are shown in the following tables : replace_table_token_11_th replace_table_token_12_th 39 index to consolidated financial statements ( 1 ) includes chip-n-saw and sawtimber . ( 2 ) prices per ton are rounded to the nearest dollar and shown on a stumpage basis ( i.e. , net of contract logging and hauling costs ) and , as such , the sum of these prices multiplied by the tons sold does not equal timber sales in the accompanying consolidated statements of operations for the years ended december 31 , 2017 , 2016 , and 2015 . harvest volumes increased 6 % to 2.4 million tons for the year ended december 31 , 2017 from 2.2 million tons in the prior year primarily as a result of harvests from properties acquired during 2016 and 2017. although extended mill outages , high raw material inventories and quotas experienced during 2017 continued to constrain market conditions , our timber agreements and well-established delivered capacity helped us offset some of the impact . during the year ended december 31 , 2017 , harvests under our timber agreements increased 23 % from the prior year . delivered volume increased by 22 % from prior year . despite severe weather experienced in the second half of 2017 in each of our operating regions because of hurricanes harvey and irma , we incurred no significant loss of standing timber .
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we believe our brand-building strategy is the key to winning and sustaining leading share positions in markets around the globe . our fundamental financial 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 drivers of financial performance for our business . our long-term 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 dividends and share repurchases . our fiscal 2015 performance was mixed . our two smaller operating segments delivered growth . operating profit for the convenience stores and foodservice segment increased 15 percent to an all-time high of $ 353 million . operating results for the international segment were muted by a significant negative impact from foreign currency exchange and slowing economic growth in key emerging markets , but the segment achieved good margin expansion and profit growth in constant currency . results for our u.s. retail segment were disappointing , as both net sales and segment operating profit declined . our brands achieved share gains in categories representing 65 percent of our products ' sales in measured u.s. retail channels , but overall sales trends in many categories were weak , reflecting the impact of changing consumer food preferences . our consolidated net sales for the fiscal year ended may 31 , 2015 , declined 2 percent to $ 17.6 billion , as unfavorable foreign exchange offset the benefits of a 53 rd week and six months of incremental contribution from the annie 's inc. ( annie 's ) natural and organic foods business acquired in october 2014. on a constant-currency basis , net sales increased 1 percent . total segment operating profit of $ 3.0 billion declined 4 percent and 2 percent in constant currency . diluted eps declined 30 percent to $ 1.97 per share . adjusted diluted eps , which excludes certain items affecting comparability of results , rose 1 percent to $ 2.86 per share and increased 4 percent on a constant-currency basis . these results were in line with our expectations which were revised in the second quarter of fiscal 2015. our return on average total capital declined 40 basis points to 11.2 percent . ( see the non-gaap measures section below for discussion of total segment operating profit , adjusted diluted eps , constant-currency nets sales growth rates , constant-currency total segment operating profit growth rate , constant-currency adjusted diluted eps growth rate , and return on average total capital , which are not defined by generally accepted accounting principles ( gaap ) ) . net cash provided by operations totaled $ 2.5 billion in fiscal 2015. this cash generation supported capital investments totaling $ 712 million in fiscal 2015. we also returned significant cash to stockholders through an 8 percent dividend increase , and share repurchases totaling $ 1.2 billion . we recorded the following achievements related to our other key operating objectives for fiscal 2015 : product improvements on established brands and new-product introductions designed to respond to evolving consumer food preferences generated good growth for a variety of our product lines . examples included renewed sales growth for our u.s. yogurt operating unit ; strong sales contributions from protein-enriched 17 cereal varieties ; robust consumer demand across international markets for new old el paso mexican food items ; and double-digit growth for our u.s. portfolio of natural and organic food products . the acquisition of annie 's in october 2014 significantly expanded our scale and participation in the attractive u.s. natural and organic food category . combined net sales in the u.s. for our portfolio of natural and organic brands exceeded $ 570 million in fiscal 2015. we increased our share of u.s. cereal category measured dollar sales . we increased our share of u.s. yogurt category measured dollar sales , including strong gains in the greek yogurt segment , and renewed sales growth in the regular and child yogurt segments . our international yogurt operations expanded to china with first production and order shipments to the shanghai market commencing near the end of the fiscal year . we generated strong levels of supply chain productivity savings in 2015 through our ongoing holistic margin management ( hmm ) efforts . beyond this program , we began several new cost savings initiatives during the fiscal year . project century is our effort to simplify our north american supply chain . project catalyst is focused on increasing the agility and effectiveness of our u.s. retail and corporate organizations , and we are making changes to various corporate policies and practices to reduce overhead expense . together , these three initiatives generated more than $ 75 million in cost savings during fiscal 2015 , and they are expected to produce a cumulative $ 260 to $ 280 million in savings in fiscal 2016. we delivered strong cash returns to stockholders through dividends of $ 1.67 per share and share repurchases totaling $ 1.2 billion . share repurchase activity in fiscal 2015 and 2014 reduced the average number of diluted shares outstanding in fiscal 2015 by 4 percent from fiscal 2014. a detailed review of our fiscal 2015 performance appears below in the section titled fiscal 2015 consolidated results of operations. our sales and earnings growth targets for fiscal 2016 reflect the impact of one less week compared to fiscal 2015. the annie 's business will contribute 6 months of incremental results . story_separator_special_tag additional paid in capital increased $ 65 million from fiscal 2014 , primarily driven by redeemable interest revaluation , partially offset by stock compensation activity . aoci increased by $ 970 million from fiscal 2014. noncontrolling interests decreased $ 75 million from fiscal 2014 , primarily driven by foreign exchange . fiscal 2014 consolidated results of operations our consolidated results for fiscal 2014 include one additional quarter of operating activity from the acquisition of yoki alimentos s.a. ( yoki ) in brazil , one additional quarter of operating activity from the assumption of the canadian yoplait franchise license , and three additional quarters of operating activity from the acquisition of immaculate baking company in the united states . collectively , these items are referred to as new businesses in comparing our fiscal 2014 results to fiscal 2013. fiscal 2014 net sales grew 1 percent to $ 17,910 million including 1 percentage point of growth contributed by new businesses and 1 percentage point of unfavorable foreign currency exchange . in fiscal 2014 , net earnings attributable to general mills were $ 1,824 million , down 2 percent from $ 1,855 million in fiscal 2013 , and we reported diluted eps of $ 2.83 in fiscal 2014 , up 1 percent from $ 2.79 in fiscal 2013. fiscal 2014 results include a gain on the divestiture of certain grain elevators , the impact of venezuela currency devaluation , gains from the mark-to-market valuation of certain commodity positions and grain inventories , and restructuring charges related to our fiscal 2012 productivity and cost savings plan . fiscal 2013 results include the effects from various discrete tax items , the impact of venezuela currency devaluation , restructuring charges related to our fiscal 2012 productivity and cost savings plan , integration costs resulting from the acquisition of yoki , and gains from the mark-to-market valuation of certain commodity positions and grain inventories . diluted eps excluding these items affecting comparability totaled $ 2.82 in fiscal 2014 , up 4 percent from $ 2.72 in fiscal 2013 ( see the non-gaap measures section below for a description of our use of this measure not defined by gaap ) . net sales grew 1 percent in fiscal 2014 to $ 17,910 from $ 17,774 in fiscal 2013. the components of net sales growth are shown in the following table : fiscal 2014 vs. 2013 contributions from volume growth ( a ) 1 pt net price realization and mix 1 pt foreign currency exchange ( 1 ) pt net sales growth 1 pt ( a ) measured in tons based on the stated weight of our product shipments . net sales growth included 1 percentage point of growth from new businesses . contributions from volume growth included 2 percentage points from new businesses . 22 cost of sales increased $ 190 million in fiscal 2014 to $ 11,540 million . higher volume drove an $ 115 million increase in cost of sales . product mix also drove an $ 130 million increase in cost of sales . in fiscal 2014 , we recorded a $ 49 million net decrease in cost of sales related to mark-to-market valuation of certain commodity positions and grain inventories as described in note 7 to the consolidated financial statements in item 8 of this report , compared to a net decrease of $ 4 million in fiscal 2013. we also recorded a $ 23 million foreign exchange loss in fiscal 2014 related to the venezuela currency devaluation compared to a $ 16 million loss in fiscal 2013. in fiscal 2013 , we also recorded a $ 17 million non-recurring expense related to the assumption of the canadian yoplait franchise license . gross margin declined 1 percent in fiscal 2014 versus fiscal 2013. gross margin as a percent of net sales of 36 percent was unchanged compared to fiscal 2013. sg & a expenses decreased $ 78 million in fiscal 2014 versus fiscal 2013. the decrease in sg & a expenses was primarily driven by a 3 percent decrease in advertising and media expense , a smaller contribution to the general mills foundation , a decrease in incentive compensation expense , and lower pension expense compared to fiscal 2013. in fiscal 2014 , we recorded a $ 39 million charge related to venezuela currency devaluation compared to a $ 9 million charge in fiscal 2013. in addition , we recorded $ 12 million of integration costs in fiscal 2013 related to our acquisition of yoki . sg & a expenses as a percent of net sales decreased 1 percent compared to fiscal 2013. during fiscal 2014 , we recorded a divestiture gain of $ 66 million related to the sale of certain grain elevators in our u.s. retail segment . there were no divestitures in fiscal 2013. interest , net for fiscal 2014 totaled $ 302 million , $ 15 million lower than fiscal 2013. the average interest rate decreased 41 basis points , including the effect of the mix of debt , generating a $ 31 million decrease in net interest . average interest bearing instruments increased $ 367 million , generating a $ 16 million increase in net interest . our consolidated effective tax rate for fiscal 2014 was 33.3 percent compared to 29.2 percent in fiscal 2013. the 4.1 percentage point increase 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 non-cash reduction to income taxes .
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fiscal 2015 consolidated results of operations fiscal 2015 had 53 weeks compared to 52 weeks in fiscal 2014. fiscal 2015 net sales declined 2 percent to $ 17,630 million and increased 1 percent on a constant-currency basis . in fiscal 2015 , net earnings attributable to general mills were $ 1,221 million , down 33 percent from $ 1,824 million in fiscal 2014 , and we reported diluted eps of $ 1.97 in fiscal 2015 , down 30 percent from $ 2.83 in fiscal 2014. fiscal 2015 results include restructuring-related charges , an indefinite-lived intangible asset impairment charge , tax impact of the repatriation of foreign earnings , losses from the mark-to-market valuation of certain commodity positions and grain inventories , integration costs resulting from the acquisition of annie 's , and the impact of venezuela currency devaluation . fiscal 2014 results include the impact of venezuela currency devaluation , a gain on the divestiture of certain grain elevators , losses from the mark-to-market valuation of certain commodity positions and grain inventories , and restructuring charges related to our fiscal 2012 productivity and cost savings plan . diluted eps excluding these items affecting comparability totaled $ 2.86 in fiscal 2015 , up 1 percent from $ 2.82 in fiscal 2014. diluted eps excluding certain items affecting comparability on a constant-currency basis increased 4 percent compared to fiscal 2014 ( see the non-gaap measures section below for a description of our use of these measures not defined by gaap ) .
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the company is in the process of assessing the impact of this standard on its financial statements . on june 20 , 2018 , the fasb issued asu 2018-07 , compensation – stock compensation ( topic 718 ) : improvements to nonemployee share-based payment accounting . this new story_separator_special_tag financial condition and results of operations the following discussion and analysis should be read in conjunction with “ selected financial data ” and our financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion and analysis and other parts of this annual report on form 10-k contain forward-looking statements based upon current beliefs , plans and expectations that involve risks , uncertainties and assumptions , such as statements regarding our plans , objectives , expectations , intentions and projections . our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors , including those set forth under “ 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 entitled “ special note regarding forward-looking statements. ” overview we are a biopharmaceutical company focused exclusively on developing impactful medicines for patients and families living with rare neurological disorders . we believe these disorders represent an attractive area for drug development as the understanding of the underlying biology has grown meaningfully over the last few years ; yet has remained underappreciated by the industry . our experienced team began with a vision to integrate the biology and symptomology of rare neurological conditions to employ innovative research and clinical strategies for the development of our drug candidates . based on recent scientific advances in genetics and the biological pathways of the brain , we created a proprietary map of disease-relevant pathways and used it to identify and acquire novel compounds for the treatment of rare neurological disorders . we are executing on our strategy by in-licensing and collaborating with leading biopharmaceutical companies and academic institutions . we are developing a robust pipeline of clinical assets with an initial focus on neurodevelopmental disorders and developmental and epileptic encephalopathies ( “ dee ” ) . during 2018 , our most advanced candidate , ov101 , completed a phase 2 trial in adults and adolescents with angelman syndrome . the phase 2 trial achieved its primary endpoint of safety and tolerability and showed an improvement in the once-daily and combined ov101 dosing groups on the prespecified physician-rated clinical global impressions-improvement ( “ cgi-i ” ) endpoint as well as improvements in relevant symptoms such as sleep and motor function . based upon feedback from our end of phase 2 meeting with the fda in november 2018 , we intend to initiate a single pivotal phase 3 trial of ov101 in pediatric patients with angelman syndrome ( neptune ) . pending fda concurrence on the study protocol and supporting framework and materials , neptune is expected to be a single 12-week , two-arm , randomized , double-blind , placebocontrolled trial with a once daily dose with an enrollment of 50-60 patients aged 4 to 12 years . it is expected that the primary endpoint will be the change in the overall cgi-i score between ov101 versus placebo groups with enrollment initiation expected in the second half of 2019. based on the stars trial data , we also initiated an open-label extension study ( elara ) which enrolled its first patient in february of 2019. along with our collaborator , takeda pharmaceutical company limited , ( “ takeda ” ) , we initiated patient recruitment in our phase 1b/2a trial of ov935 in adults with dee in june 2017. as announced on december 17 , 2018 , the phase 1b/2a trial of ov935 achieved its primary endpoint of safety and tolerability and showed ov935 was generally well tolerated and met its secondary exploratory endpoints including a satisfactory pharmacokinetic profile and signals of efficacy . exploratory analyses also showed the potential applicability of using plasma 24-hydroxy cholesterol ( 24hc ) as a serum biomarker . in july 2018 , we initiated our phase 2 rocket clinical trial , a randomized , double-blind , parallel-group trial evaluating ov101 for the treatment of adolescent and young male adults with fragile x syndrome . the trial is currently enrolling and is expected to enroll up to 30 males ages 13 to 22 with a confirmed diagnosis of fragile x syndrome . the primary endpoint is safety and tolerability of ov101 over 12 weeks of treatment in three different cohorts of either 5mg qd , 5mg bid , or 5mg three times daily . a secondary efficacy endpoint will evaluate changes in behavior during 12 weeks of treatment with ov101 using the activities-specific balance confidence scale ( abc ) that has been used in previous trials for fragile x syndrome . we anticipate data from this trial in the second half of 2019. in december 2018 , we initiated the sky rocket study , a 12-week , non-drug study to assess the suitability of several behavioral scales in individuals with fragile x syndrome . the trial is an observational study designed to provide additional data on the key endpoints that are being explored in the trial as well as provide contextual data on the benefit offered by the standard of care . the study will enroll 10-30 males ages 5 to 30 with fragile x syndrome . story_separator_special_tag used in research and development activities . costs incurred in connection with research and development activities are expensed as incurred . costs for certain development activities , such as clinical trials , are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment , clinical site activations or other information provided to us by our vendors . research and development activities are and will continue to be central to our business model . we expect our research and development expenses to increase for the foreseeable future as we advance our current and future drug candidates through preclinical studies and clinical trials . the process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time-consuming . it is difficult to determine with certainty the duration and costs of any preclinical study or clinical trial that we may conduct . the duration , costs and timing of clinical trial programs and development of our current and future drug candidates will depend on a variety of factors that include , but are not limited to , the following : number of clinical trials required for approval and any requirement for extension trials ; per patient trial costs ; number of patients who participate in the clinical trials ; number of sites included in the clinical trials ; countries in which the clinical trial is conducted ; length of time required to enroll eligible patients ; number of doses that patients receive ; drop-out or discontinuation rates of patients ; potential additional safety monitoring or other studies requested by regulatory agencies ; duration of patient follow-up ; and efficacy and safety profile of the drug candidate . in addition , the probability of success for any of our current or future drug candidates will depend on numerous factors , including competition , manufacturing capability and commercial viability . we will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each drug candidate , as well as an assessment of each drug candidate 's commercial potential . general and administrative expenses general and administrative expenses consist primarily of employee-related expenses , including salaries , benefits and stock-based compensation expense , related to our executive , finance , business development and support functions . other general and administrative expenses include costs associated with operating as a public company described below , travel expenses , conferences , professional fees for auditing , tax and legal services and facility-related costs . we expect that general and administrative expenses will increase in the future as we expand our operating activities and incur additional costs associated with being a publicly traded company . these increases will include legal and accounting fees , costs associated with maintaining compliance with the nasdaq global market llc and the securities and exchange commission , or the sec , directors ' and officers ' liability insurance premiums and fees associated with investor relations . in addition , if our current or future drug candidates are approved for sale , we expect that we would incur expenses associated with building our commercial and distribution infrastructure . interest income interest income consists of interest income earned on our cash and cash equivalents maintained in money market funds . 71 story_separator_special_tag debt financings and potential collaborations and license and development agreements . to the extent that we raise additional capital through future equity offerings or debt financings , your ownership interest will be diluted , and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder . debt and equity financings , if available , may involve agreements that include covenants limiting or restricting our ability to take specific actions , such as incurring additional debt , making capital expenditures or declaring dividends . there can be no assurance that such financings will be obtained on terms acceptable to us , if at all . if we are unable to raise additional capital in sufficient amounts or on terms acceptable to us we may have to significantly delay , scale back or discontinue our research and development programs or future commercialization efforts . if we raise additional funds through collaborations , strategic alliances or marketing , distribution or licensing arrangements with third parties for one or more of our current or future drug candidates , we may be required to relinquish valuable rights to our technologies , future revenue streams , research programs or drug candidates or to grant licenses on terms that may not be favorable to us . our failure to raise capital as and when needed would have a material adverse effect on our financial condition and our ability to pursue our business strategy . cash flows the following table summarizes our cash flows for the periods indicated : replace_table_token_12_th net cash used in operating activities net cash used in operating activities was $ 45.6 million for the year ended december 31 , 2018 , which consisted of net losses of $ 52.0 million offset by $ 6.4 million of net non-cash charges and changes in operating assets and liabilities compared to net cash used in operating activities of $ 31.5 million for the year ended december 31 , 2017 , which consisted of net losses of $ 64.8 million offset by $ 32.3 million of net non-cash charges , of which $ 25.9 million related to the issuance of series b-1 preferred stock associated with the collaboration rights to ov935 . the increase of $ 14.1 million in net cash used in operating activities was primarily due to an increase in our costs and upfront payments related to our research and development programs and an increase in our payroll and payroll-related expenses as the result of increased headcount as we continue to build our management team and expand our operations .
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results of operations comparison of the years ended december 31 , 2018 and 2017 the following table summarizes the results of our operations for the periods indicated : replace_table_token_9_th research and development expenses replace_table_token_10_th research and development expenses were $ 33.8 million for the year ended december 31 , 2018 compared to $ 50.0 million for the year ended december 31 , 2017. the decrease of $ 16.2 million was primarily due to the issuance of series b-1 preferred stock to takeda as an upfront payment upon signing the collaboration agreement during january 2017 , partially offset by an increase in development activities related to our ongoing development programs . during the year ended december 31 , 2018 , total research and development expenses consisted of $ 20.1 million in preclinical and development expenses , including a credit of $ 1.3 million representing costs reimbursed to us from takeda in respect of the takeda collaboration , $ 11.4 million in payroll and payroll-related expenses , of which $ 3.1 million related to stock-based compensation , and $ 2.3 million in other expenses . during the year ended december 31 , 2017 , total research and development expenses consisted of $ 41.2 million in preclinical and development expenses , of which $ 25.9 million related to the issuance of series b-1 preferred stock associated with the collaboration rights to ov935 and $ 4.3 million represents amounts reimbursed to takeda in respect of the takeda collaboration , $ 7.7 million in payroll and payroll-related expenses , of which $ 2.4 million related to stock-based compensation , and $ 1.1 million in other expenses .
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angi homeservices operates leading brands in eight countries , including homeadvisor® and angie 's list® ( united states ) , homestars ( canada ) , travaux.com ( france ) , myhammer ( germany and austria ) , mybuilder ( uk ) , werkspot ( netherlands ) and instapro ( italy ) . the company owns and operates the homeadvisor digital marketplace in the united states ( the “ marketplace ” ) , which connects consumers with service professionals nationwide for home repair , maintenance and improvement projects . the marketplace provides consumers with tools and resources to help them find local , pre-screened and customer-rated service professionals , as well as instantly book appointments with those professionals online or connect with them by telephone . effective september 29 , 2017 , the company also owns and operates angie 's list , which connects consumers with service professionals for local services through a nationwide online directory of service professionals in over 700 service categories and provides consumers with valuable tools , services and content , including more than ten million verified reviews of local service professionals , to help them research , shop and hire for local services . we also own and operate mhelpdesk , craftjack and felix . as of december 31 , 2017 , the company had a network of approximately 181,000 marketplace paying service professionals providing services in more than 500 categories and 400 discrete markets in the united states , ranging from simple home repairs to larger home remodeling projects . the company generated approximately 18.1 million marketplace service requests from consumers during the year ended december 31 , 2017 . as of december 31 , 2017 , the company also had approximately 45,000 angie 's list advertising service professionals . see `` operating metrics '' section below . the company has two operating segments : ( i ) north america , which primarily includes homeadvisor 's operations in the united states , angie 's list , mhelpdesk and homestars , and ( ii ) europe , which includes travaux.com , myhammer , mybuilder , werkspot and instapro . the company markets its services to consumers through search engine marketing , television advertising and affiliate agreements with third parties . pursuant to these affiliate agreements , third parties agree to advertise and promote marketplace products and services and those of marketplace service professionals on their platforms . in exchange for these efforts , the company generally pays these third parties a fixed fee when visitors from their platforms click through to one of our platforms and submit a valid service request through the marketplace , or when visitors submit a valid service request on the affiliate platform and the affiliate transmits the service request to the marketplace . the company also markets its services to consumers through email , digital display advertisements , partnerships with other contextually related websites and , to a lesser extent , through relationships with certain retailers , direct mail and radio advertising . the company markets subscription packages and time-based advertising to service professionals primarily through its sales force , as well as through search engine marketing , digital media advertising and direct relationships with trade associations and manufacturers . we have made , and expect to continue to make , substantial investments in digital and traditional advertising ( with continued expansion into new and existing digital platforms ) to consumers and service professionals to promote our products and services and to drive traffic to our various platforms and service professionals . combination and acquisitions on september 29 , 2017 , iac 's homeadvisor business and angie 's list inc. ( `` angie 's list '' ) combined under a new publicly traded company called angi homeservices inc. ( the `` combination '' ) . at december 31 , 2017 , iac owned 86.9 % and 98.5 % of the economic and voting interest , respectively , of angi homeservices . see `` note 4—business combinations `` to the consolidated and combined financial statements included in `` item 8. consolidated and combined financial statements and supplementary data `` for additional information related to the combination . during the year ended december 31 , 2017 , the company incurred $ 44.1 million in costs related to this transaction ( including severance , retention , transaction and integration related costs ) as well as deferred revenue write-offs of $ 7.8 million . the company expects the remaining aggregate amount of transaction-related expenses , including deferred revenue write-offs , during 2018 to be in the range of $ 10 million to $ 20 million . the company also incurred $ 122.1 million in stock-based compensation expense during 2017 related to the modification of previously issued homeadvisor vested and unvested equity awards , which were converted into angi homeservices ' equity awards , the expense related to previously issued angie 's list equity awards and the acceleration of certain angie 's list equity awards resulting from the termination of employees in connection with the combination . stock- 29 based compensation expense arising from the combination is expected to be approximately $ 70 million in 2018. on november 1 , 2017 , the company borrowed $ 275 million under a five-year term loan facility . on march 24 , 2017 , the company acquired a controlling interest in mybuilder limited ( “ mybuilder ” ) , a leading home services platform in the united kingdom , which is included in our europe segment . on february 8 , 2017 , the company acquired a controlling interest in homestars inc. ( “ homestars ” ) , a leading home services platform in canada , which is included in our north america segment . on november 3 , 2016 , the company acquired a controlling interest in myhammer holding ag ( “ myhammer ” ) , the leading home services marketplace in germany , which is included in our europe segment . operating metrics in connection with the management of our businesses we identify , measure and assess a variety of operating metrics . story_separator_special_tag europe general and administrative expense increased $ 6.2 million , or 48 % , due primarily to higher compensation expense of $ 2.6 million due , in part , to increased headcount including from the acquisition of myhammer , as well as an increase of $ 2.1 million in transaction-related costs in 2016. product development expense replace_table_token_7_th for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 north america product development expense increased $ 25.6 million , or 142 % , due primarily to an increase in compensation expense of $ 23.2 million , of which $ 6.8 million was from the inclusion of angie 's list , and $ 1.0 million of expense from the acquisition of homestars . the increase in compensation expense is due principally to an increase of $ 14.5 million in stock-based compensation expense due to the modification of previously issued homeadvisor vested and unvested equity awards , which were converted into angi homeservices ' equity awards in connection with the combination and increased headcount . 34 europe product development expense increased $ 1.7 million , or 66 % , due to an increase of $ 1.9 million in compensation expense from the acquisitions of myhammer and mybuilder . for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 north america product development expense increased $ 4.2 million , or 31 % , driven by an increase of $ 3.0 million in compensation and other employee-related costs due primarily to increased headcount . europe product development expense decreased $ 0.5 million , or 15 % , driven by a decrease of $ 0.4 million in compensation expense resulting from a higher number of capitalized projects in 2016 versus 2015. depreciation replace_table_token_8_th for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 north america depreciation increased $ 5.2 million , or 66 % , and europe depreciation increased $ 0.9 million , or 207 % , due primarily to increased depreciation related to continued corporate growth , including acquisitions . for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 north america depreciation increased $ 2.2 million , or 39 % , due primarily to increased depreciation associated with capital expenditures related to a new sales center and an increase in internally developed software . europe depreciation decreased $ 0.4 million , or 49 % , due primarily to certain fixed assets becoming fully depreciated . operating ( loss ) income replace_table_token_9_th nm = not meaningful for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 north america operating income decreased $ 160.9 million to an operating loss of $ 128.5 million in 2017 versus operating income of $ 32.5 million in 2016 , despite an increase of $ 0.1 million in adjusted ebitda described below , primarily due to an increase of $ 140.4 million in stock-based compensation expense , an increase of $ 15.3 million in amortization of intangibles and an increase of $ 5.2 million in depreciation . the increase in stock-based compensation expense was due primarily to modification and acceleration charges of $ 122.1 million related to the combination . the increase in amortization of intangibles was due principally to the combination . europe operating loss increased $ 11.0 million , or 131 % , primarily due to an increase in adjusted ebitda loss of $ 5.5 million described below , an increase of $ 4.8 million in amortization of intangibles and an increase of $ 0.9 million in depreciation , partially offset by a decrease in stock-based compensation expense of $ 0.1 million . at december 31 , 2017 , there was $ 188.4 million of unrecognized compensation cost , net of estimated forfeitures , related to all equity-based awards , which is expected to be recognized over a weighted average period of approximately 2.4 years . 35 for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 north america operating income increased $ 30.2 million , or 1305 % , due primarily to the increase of $ 31.9 million in adjusted ebitda described below , and a decrease of $ 0.8 million in amortization of intangibles , partially offset by increases of $ 2.2 million in depreciation and $ 0.4 million in stock-based compensation expense . europe operating loss increased $ 4.5 million , or 117 % , due primarily to the increase in adjusted ebitda loss of $ 4.1 million described below , as well as increases of $ 0.7 million in stock-based compensation expense and $ 0.2 million in amortization of intangibles , partially offset by a decrease of $ 0.4 million in depreciation . adjusted ebitda replace_table_token_10_th for a reconciliation of operating ( loss ) income for the company 's reportable segments and net ( loss ) earnings attributable to angi homeservices inc. 's shareholders to adjusted ebitda , see `` note 12—segment information `` to the consolidated and combined financial statements included in `` item 8. consolidated and combined financial statements and supplementary data . '' for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 north america adjusted ebitda increased $ 0.1 million , despite the significant increase of $ 217.1 million in revenue , due primarily to increased investment in online and offline marketing of $ 73.3 million , higher compensation expense due , in part , to increased headcount , the inclusion in 2017 of $ 44.1 million in costs related to the combination ( including severance , retention , transaction and integration related costs ) and increases of $ 9.3 million in bad debt expense due to higher revenue , $ 3.9 million in outsourced customer service expense and $ 3.1 million in software license and maintenance costs . adjusted ebitda in 2017 was further impacted by write-offs of deferred revenue related to the combination of $ 7.8 million and the acquisition of homestars of $ 0.7 million .
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components of results of operations revenue marketplace revenue is primarily derived from ( i ) consumer connection revenue , which includes fees paid by service professionals for consumer matches ( regardless of whether the professional ultimately provides the requested service ) , and ( ii ) membership subscription fees paid by service professionals . consumer connection revenue varies based upon several factors , including the service requested , type of match ( such as instant booking , instant connect , same day service or next day service ) and geographic location of service . the company 's consumer connection revenue is generated and recognized when an in-network service professional is delivered a consumer match . membership subscription revenue is generated through subscription sales to service professionals and is deferred and recognized over the term of the applicable membership . membership agreements can be one month , three months , or one year . effective with the combination , revenue is also derived from angie 's list ( i ) sales of time-based advertising to service professionals and ( ii ) membership subscription fees from consumers . angie 's list advertising service professionals generally pay for advertisements in advance on a monthly or annual basis at the option of the service professional , with the average advertising contract term being approximately one year . these contracts include an early termination penalty . angie 's list revenue from the sale of website , mobile and call center advertising is recognized ratably over the period during which the advertisements run . revenue from the sale of advertising in the angie 's list magazine is recognized in the period in which the publication is published and distributed . angie 's list prepaid consumer membership subscription fees are recognized as revenue ratably over the term of the associated subscription , which is typically one year . deferred revenue is $ 64.1 million and $ 18.8 million at december 31 , 2017 and 2016 , respectively .
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such amounts become billable according to contract terms , which usually consider the passage of time , achievement of certain milestones or completion of the project . billings of $ 16.2 million and $ 78.3 million are netted against construction contract costs and estimated earnings as of december 31 , 2013 and 2012 , respectively . the company expects to bill and collect substantially all construction contract costs incurred as of december 31 , 2013 during the year ending december 31 , 2014. armada hoffler defers precontract costs when such costs are directly associated with specific anticipated contracts and their recovery is probable . precontract costs of $ 0.8 million and $ 0.6 story_separator_special_tag references to we , our , us , and our company refer to armada hoffler properties , inc. , a maryland corporation , together with our consolidated subsidiaries , including armada hoffler , l.p. , a virginia limited partnership , of which we are the sole general partner and which we refer to in this annual report on form 10-k as our operating partnership . business description we are a full service real estate company with extensive experience developing , building , owning and managing high-quality , institutional-grade office , retail and multifamily properties in attractive markets throughout the mid-atlantic united states . as of december 31 , 2013 , our portfolio comprised seven office properties , 15 retail properties and two multifamily properties located in virginia and north carolina . as of december 31 , 2013 , our office and retail operating property portfolios aggregated over 2.0 million net rentable square feet and our multifamily property portfolio included 626 apartment units . we are a maryland corporation formed on october 12 , 2012 to acquire the entities in which daniel a. hoffler and his affiliates , certain of our other officers , directors and their affiliates and other third parties owned a direct or indirect interest ( our predecessor ) through the a series of related formation transactions ( the formation transactions ) . we did not have any operating activity until the consummation of our initial public offering of our shares of common stock ( the ipo ) and the formation transactions on may 13 , 2013. upon completing our ipo and the formation transactions , we carry on our operations through armada hoffler , l.p. ( our operating partnership ) , whose assets , liabilities and results of operations we consolidate . our predecessor was not a single legal entity , but rather a combination of real estate and construction entities that were under common control by our executive chairman , daniel a. hoffler . these entities included : ( i ) controlling interests in entities that owned seven office properties , 14 retail properties and one multifamily property , ( ii ) non-controlling interests in entities that owned one retail and one multifamily property ( bermuda crossroads and smith 's landing , respectively ) , ( iii ) the property development and asset management businesses of armada hoffler holding company , inc. and ( iv ) the general commercial construction businesses of armada hoffler construction company and armada hoffler construction company of virginia . because of the timing of the ipo and the formation transactions , the financial condition as of december 31 , 2012 and results of operations for the years ended december 31 , 2012 and 2011 reflect those of our predecessor . the results of operations for the year ended december 31 , 2013 reflect our results together with those of our predecessor , while the financial condition as of december 31 , 2013 reflects solely ours . executive overview our strategy is to be the premier real estate developer , owner and operator in the mid-atlantic united states . we seek to grow earnings , funds from operations ( ffo ) and ffo per share by : ( i ) maintaining and increasing occupancy in our stabilized property portfolio , ( ii ) delivering the projects in our development pipeline on time , ( iii ) executing on strategic and opportunistic acquisitions , ( iv ) managing our balance sheet and overall leverage to provide us with the necessary flexibility to invest selectively and ( v ) executing new third-party construction work with consistent operating margins . the following highlights our significant transactions , events and results during the year ended december 31 , 2013 : development pipeline began construction on six new properties aggregating approximately 477,000 square feet and 489 apartment units . 50 invested $ 41.3 million on new development and construction . executed new construction loans aggregating $ 91.5 million to fund our development pipeline . capital activity completed our ipo in may 2013 raising net proceeds of $ 192.0 million after deducting the underwriting discount and offering expenses . entered into a credit facility with an aggregate capacity of $ 155.0 million of which $ 70.0 million was borrowed as of december 31 , 2013. retired $ 182.5 million of debt . refinanced $ 28.5 million of secured debt to remove the recourse components , lower the interest rates and extend the maturity dates to 2018. amended $ 24.8 million of secured debt to extend the maturity date to 2017. declared cash dividends of $ 0.40 per share covering the period may 13 , 2013 to december 31 , 2013. story_separator_special_tag risk . allowance for doubtful accounts we are subject to tenant defaults and bankruptcies that could affect our collection of accounts receivable . we recognize a provision for losses on accounts receivable representing our best estimate of uncollectible amounts . our evaluation of the collectability of accounts receivable and the adequacy of the allowance is based primarily upon evaluations of individual receivables , current economic conditions , historical experience and other relevant factors . as a matter of policy , we reserve all accounts receivable over 90 days outstanding . for any tenants with rents receivable over 90 days outstanding , we also reserve any related accrued straight-line rental revenue . story_separator_special_tag gaap basis releasing spreads consider future rental rate increases as well as any rent concessions provided during the renewal period . cash basis releasing spreads measure only the change in contractual rental rates immediately before and after the commencement of the renewal period . releasing spreads on office leases renewed during the year ended december 31 , 2013 were $ 1.22 per square foot on a gaap basis and $ ( 2.58 ) per square foot on a cash basis . while we seek to obtain rents that are higher than amounts within our expiring leases , there are many variables and uncertainties that can significantly affect the leasing market at any given time . as such , we can not guarantee that future leases will continue to be signed for rents that are equal to or higher than current amounts . rental revenues for the year ended december 31 , 2012 increased $ 1.1 million compared to the year ended december 31 , 2011 due to increased occupancy at armada hoffler tower , one columbus and two columbus . occupancy increases at these three properties combined with decreased utility expenses in our office portfolio resulted in $ 1.5 million of increased noi for the year ended december 31 , 2012 compared to the year ended december 31 , 2011. during the year ended december 31 , 2012 , we executed new office leases aggregating approximately 72,000 square feet . the total leasing costs associated with new office leases were approximately $ 0.9 million , or $ 13.11 per square foot . during the year ended december 31 , 2012 we renewed expiring office leases aggregating approximately 125,000 square feet . the total leasing costs associated with renewed office leases were approximately $ 0.6 million , or $ 4.82 per square foot . office same store results office same store rental revenues , property expenses and noi for the comparative years ended december 31 , 2013 and 2012 and december 31 , 2012 and 2011 were as follows : replace_table_token_14_th ( 1 ) same store results exclude two columbus , which was in lease-up during the comparative period . 56 same store rental revenues for the year ended december 31 , 2013 were relatively unchanged compared to the year ended december 31 , 2012. same store noi decreased $ 0.2 million during the year ended december 31 , 2013 compared to the year ended december 31 , 2012 due to increased operating costs at our office properties in the town center of virginia beach . same store rental revenues for the year ended december 31 , 2012 increased $ 0.8 million compared to the year ended december 31 , 2011 due to increased occupancy at armada hoffler tower and one columbus . occupancy increases at these two properties combined with decreased utility expenses in our office portfolio resulted in $ 1.2 million of increased same store noi for the year ended december 31 , 2012 compared to the year ended december 31 , 2011. retail segment data replace_table_token_15_th ( 1 ) includes bermuda crossroads beginning may 13 , 2013 . ( 2 ) as of the end of the periods presented . rental revenues increased $ 0.6 million and noi increased $ 0.4 million during the year ended december 31 , 2013 compared to the year ended december 31 , 2012. the increases in rental revenues and noi resulted from our consolidation of bermuda crossroads upon completion of our ipo and the formation transactions on may 13 , 2013 and our completion and concurrent stabilization of tyre neck harris teeter in the second quarter of 2012. the increased rental revenues and noi from bermuda crossroads and tyre neck harris teeter were partially offset by declines in occupancy at south retail in the town center of virginia beach and dick 's at town center . during the year ended december 31 , 2013 , we executed new retail leases aggregating approximately 27,000 square feet . the weighted average lease term for new retail leases executed during the year ended december 31 , 2013 was approximately 5.4 years . the total leasing costs associated with new retail leases are estimated to be approximately $ 0.5 million , or $ 20.10 per square foot . these costs include tenant improvements , leasing commissions and leasing incentives . during the year ended december 31 , 2013 , we renewed expiring retail leases aggregating approximately 78,000 square feet . the weighted average lease term for retail leases renewed during the year ended december 31 , 2013 was approximately 4.8 years . the total leasing costs associated with renewed retail leases are estimated to be approximately $ 0.3 million , or $ 3.44 per square foot . these costs include tenant improvements , leasing commissions and leasing incentives . releasing spreads measure increases ( decreases ) in rental rates before and after a lease renewal . gaap basis releasing spreads consider future rental rate increases as well as any rent concessions provided during the renewal period . cash basis releasing spreads measure only the change in contractual rental rates immediately before and after the commencement of the renewal period . releasing spreads on retail leases renewed during the year ended december 31 , 2013 were $ ( 0.17 ) per square foot on a gaap basis and $ ( 1.94 ) per square foot on a cash basis . while we seek to obtain rents that are higher than amounts within our expiring leases , there are many variables and uncertainties that can significantly affect the leasing market at any given time . as such , we can not guarantee that future leases will continue to be signed for rents that are equal to or higher than current amounts .
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operating results net income of $ 14.5 million compared to $ 8.9 million for the year ended december 31 , 2012. ffo of $ 19.8 million compared to $ 21.9 million for the year ended december 31 , 2012. ffo for 2013 includes losses on debt extinguishments of $ 2.4 million and noncash stock compensation expense of $ 1.2 million . see non-gaap financial measures . net income attributable to stockholders of $ 7.3 million , or $ 0.39 per share . net operating income of $ 42.1 million compared to $ 40.8 million for the year ended december 31 , 2012. cash from operations of $ 22.2 million compared to $ 22.3 million during the year ended december 31 , 2012. weighted average occupancy of 94.4 % as of december 31 , 2013 compared to 94.2 % as of december 31 , 2012. approximately 242,000 square feet of new and renewal leases executed in our office and retail property portfolios . new construction contracts of $ 64.7 million . third-party construction backlog of $ 46.4 million as of december 31 , 2013. we view 2013 as a year in which we laid a solid foundation for sustained future net operating income and asset value growth . we accomplished what we set out to do in 2013 including : transitioning to a publicly traded company , executing on development opportunities , identifying attractive opportunities for the next generation pipeline , and positioning our income portfolio for further growth . development pipeline in addition to the projects in our development pipeline , in november 2012 , we were selected by johns hopkins university , after an extensive competitive selection process , to join with the university in the redevelopment of a 1.12 acre property adjacent to the university 's homewood campus in baltimore , maryland . this mixed-use development will include student housing , retail space , restaurants and parking .
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